Lazard Ltd Class A Aktie

Good morning, and welcome to Lazard's Third Quarter and First 9 Months 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions]

At this time, I will turn the call over to William Murdock, Lazard's Head Strategy and Investor Relations. Please go ahead.

Thanks, Chelsea. Good morning, and welcome to Lazard's earnings call for the third quarter and first 9 months of 2026. I'm William Murdock, Head of Strategy and Investor Relations. In addition to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website later today.

Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results level of activity, performance, achievements or other events to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, those factors discussed in our company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update them.

All financial measures we discuss today are non-GAAP adjusted financial measures. We believe these non-GAAP financial measures are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and investor presentation.

Hosting our call today are Peter Orszag Lazard's Chief Executive Officer and Chairman; and Tracy Farr, Lazard's Chief Financial Officer. After our prepared remarks, Chris Hogbin, Chief Executive Officer of Asset Management, will join as we open for questions.

I'll now turn the call over to Peter.

Thank you, William, and thank you to everyone for joining our call today.

Our Lazard 2030 strategy continues to progress as we planned with strong underlying momentum across the firm very encouraging forward indicators and high internal morale and cultural live. Additionally, now that we have obtained necessary regulatory approvals, we are planning to close our acquisition of [ Campbell Lutyens ] and [ Montour ] third global business, was RCL in early November, creating the leading private capital advisory platform globally.

Turning to our results. Firm-wide adjusted net revenue in the third quarter increased 11% year-over-year with increasing client activity across both businesses. In Financial Advisory, we achieved record third quarter revenue as our investments in the business are starting to translate into results. Over the past 3 years, we have hired or promoted 80 managing directors in North America across focused areas of opportunity, health care, industrials, consumer, media entertainment and sports, technology and power energy and infrastructure.

As we emerge from the J-curve period via previously described, our existing MDs in the U.S., along with these additions, produced record revenue in the Americas in both the third quarter and first 9 months of this year. And our momentum continues to grow in financial advisory, which is reflected in an array of forward indicators.

Globally, our announced lead table position is the best that it's been in over a decade. Conflict clearances are up over 30% year-over-year on a dollar-weighted basis and up more than 85% for deals above $5 billion. Significantly, these comp clearance trends continued to show strength in the third quarter with year-over-year growth in the third quarter alone. Our weighted pipeline for 2027 is now 2x our 2026 pipeline at this time last year.

While the pace of adding new MDs in 2026 will be below the exceptional pace of 2025, we see ongoing opportunities to attract talent to our financial advisory platform. Since our last earnings call, we have announced 10 additional top quality managing directors in areas of strategic importance, including a new Head of Defense and emerging technology a senior banker returning with his team to Lazard in Paris and the expansion of our advisory business with a new senior hire in Switzerland.

In private capital advisory, we continue to anticipate Lazard CL will generate approximately $500 million of revenue and will be accretive to earnings in 2027, even before accounting for potential synergies. The Campbell Lutyens business is performing ahead of the assumptions that supported the acquisition, and we already see early signs of synergies with real estate, vendors and IT. Our private capital advisory group, along with the team at Campbell Lutyens together will comprise the leading global positions in primary fundraising and secondary advisory.

Lazard CL will deliver dedicated fundraising secondary advisory and GP capital advisory for clients across all asset classes in all major markets, infrastructure, private credit, private equity and real estate across the U.S., Europe, the Middle East and Asia Pacific. The more time our teams spend together, the more excited we become about both the cultural fit and the strategic opportunity.

With that foundation, we expect the broader connectivity between our M&A restructuring and Capital Solutions businesses to compound over time with clear potential for further upside. Conditions remain quite favorable for client activity despite the rise in interest rates and ongoing global uncertainty. In Financial Advisory, companies continue to pursue scale in mid rapid technological change to gain or defend leading sector positions and vertical integration is increasingly key to addressing supply chain shock.

A more constructive regulatory environment is supporting activity overall. And our forward indicators would be even more encouraging is private equity M&A were to become more active. The power of our renewed investment in our traditional large-cap strategic coverage alongside our expanded private capital efforts over the past few years is underscored on a year-to-date basis by our best league table standing in over a decade and our highest share of advisory revenue coming from private capital that we've ever had. We are confident that our ability to play to win for clients in both the largest strategic transactions and across private capital activity is promising for the future growth of our advisory businesses.

Turning to Asset Management. Gross inflows reached a record $54 billion for the first 9 months of this year demonstrating progress from our focused sales and distribution efforts. Our one but not yet funded pipeline is robust, and we remain on track to deliver positive net flows for the year. The work we've done under our new leadership team to strengthen the platform is reflected in the continued improvement in our investment performance. As of quarter end, 70% of client AUM was outperforming stated benchmarks over 1 year and 67% over 3 years, which is our best performance in 5 years.

Strong, consistent performance is the foundation of this business and this progress positions us well to compete for new mandates in the future. In summary, we remain firmly on track to achieve the objectives of our long-term growth strategy. Our progress is underpinned by our commercial and collegial culture and by our adoption of AI to transform how we work and deliver for clients. Based on a recent survey that we conduct annually, colleagues prided happiness working at Lazard and willingness to recommend our firm towers remain at all-time highs.

We are pleased that our employees identified the firm's AI tools training and pace of adoption as significant strengths that are improving productivity and reinforcing confidence in our opportunities ahead. I'd like to thank my colleagues for their commitment and hard work as we advance our Lazard 2030 strategy together.

Let me now turn the call over to Tracy, who will cover our financial results and provide details on our operational efforts, and then we will take your questions.

Thank you, Peter. Financial Advisory adjusted net revenue was $465 million for the third quarter and $1.3 billion for the first 9 months of 2026. This quarter's revenue includes pull forwards for transactions that closed just after September 30 that are in line with our 2-year average. Our record third quarter revenue was driven primarily by M&A with record revenue for the third quarter and first 9 months of the year in both the Americas and the U.K. reflecting investments we have made in lateral hiring, our exceptional existing talent and the strength of our franchise across our transatlantic footprint.

With sustained client engagement and momentum across the business, completed transactions include Corteva Agriscience’s on its $50 billion spend on Vylor. MasTec's $1.7 billion acquisition of Superior Group. And Humata Health on its sale to R1. Recently announced transactions included [indiscernible] merger utilities for a combined enterprise as of approximately CAD 72 billion. OCS Group's proposed GBP 3.1 billion acquisition And Vanguard acquisition, liability management and restructuring [indiscernible] Victoria, [indiscernible] and private capital advisory, recent attainment included single capital of equities and on capital on continuation no with capital management on the closing of its [indiscernible].

Turning to Asset Management. Adjusted net revenue was $330 million for the third quarter, $970 million for the first 9 months of the year. Management fees were a record $321 million for the quarter, up 18% year-over-year and $927 million for the first 9 months, up 22% compared to the same period last year. Management fees have increased in each quarter this year and Q3 marks the sixth consecutive quarter of sequential growth.

As of September 30, we reported AUM of $284 million, higher than September 2025 and approximately even with the prior quarter. During the quarter, we had market appreciation of $1.9 billion, foreign exchange depreciation of $0.2 billion and net outflows of $2.3 billion. Management fees -- sorry, during the quarter, we -- during the quarter, we had market appreciation of $1.9 billion foreign exchange depreciation of $0.2 billion and net outflows of $2.3 billion. Average AUM for the quarter was $287 million, 11% higher than the third quarter of 2025.

Client demand is increasingly visible in the strategies we have prioritized as our advantage, our quantitative equity platform continues to attract significant client interest. And we also have ongoing strong flows into our emerging markets and global listed infrastructure strategies. ID EQ and our international quant ETF and has grown to nearly $2 billion in AUM since launching last year, and we plan to expand our ETF platform with the advance of our first actively managed fixed income ETFs next month.

Turning to firm-wide expenses. Our adjusted noncompensation expense was $156 million for the third quarter, resulting in a non-compensation ratio of 19.3%. Our adjusted compensation expense was $562 million for the third quarter, resulting in a compensation ratio of 69.9%. Based on a constant deferral rate, we continue to take a conservative view to accruing compensation in the third quarter. And consistent with prior years, this quarter's accrual was unchanged from the first 2 quarters of this year. We continue to design our compensation programs to remain competitive and aligned with the long-term interest of our employees and our shareholders.

Earlier this year, and as we previously discussed, we updated our vesting is structure, and we are currently reviewing our deferral practices to reflect evolution in the market for our professionals and to enhance transparency for investors around awarded and recognized compensation. As part of our year-end process, we are considering a potential reduction in our deferral rate.

This would accelerate the timing of compensation expense recognition on an accounting basis. without altering the total compensation awarded, raising the reported compensation ratio by a few percentage points this year at reducing it thereafter. Our growth investments are paired with efforts to improve productivity and operating leverage across the firm. Let me share more detail on 2 initiatives underway to simplify our corporate and support functions and further embed AI across our work.

First, we launched a project earlier this year to modernize and simplify how the firm operates. Across our corporate and support groups globally, we've tea broad survey of workflows and organizational structures. We are now reviewing vendors to advance implementation, which includes process automation and centralization of certain activities. Shifting how work is delivered and staffed with a long-term objective to decouple expense from revenue growth. As we progress, we expect to provide specifics on how this effort will reduce expenses beginning in 2027.

Next, we are increasingly embedding AI across the firm to augment our productivity and expand our market. And financial advisory, AI is helping us create more opportunities for junior bankers to take on expanded responsibilities, as we continue to increase our number of senior bankers over time, this higher productivity will be reflected in a decline in our total associate equivalent to MD ratio.

In Asset Management, we have accelerated the implementation of Agentic workflows, client servicing and reporting with plans to increase the use of AI and automation across the business. We see ongoing opportunity firm-wide with AI to deliver better outcomes for our clients, see more opportunities for upward our margin over time.

Turning now to taxes. Our adjusted effective tax rate for the third quarter was 38.1%, we expect the full year effective tax rate to be in the high 20s percent range. Regarding capital allocation in the third quarter of 2026, we returned $88 million to shareholders including a quarterly dividend of $49 million and share repurchases of $33 million. We expect to continue buybacks throughout the remainder of the year, balancing investment and growth with further offsetting share issuances from compensation. In addition, yesterday, we declared a quarterly dividend of $0.50 per share.

Overall, we are confident in our outlook for long-term growth, and we are encouraged by the strong levels of client activity and the progress we are seeing across the firm. as highlighted in this quarter's results.

Now we'll open the call for any questions.

[Operator Instructions] And we'll take our first question from Jim Mitchell with Seaport.

Tracy, I can't have to ask about the comp ratio commentary. So when you think about shortening some of the accruals, I think you mentioned that, that could affect this year's comp ratio, but should help next year. It seems like shorter deferrals would increase amortization even next year. So I just want to understand how you're thinking about the comp ratio trajectory, both in the fourth quarter and how that impacts both fourth quarter and next year?

Yes. I want to answer this but I should make it 3 points. First, when we think about this, keep in mind that the huge incentive here is to align this from an employee retention and attraction perspective. So I want to reiterate that first. This is really what it is. It's using more cash in the year and lowering the amount of deferral that you are granting. That helps on a number of fronts that helps effectively similar to a share buyback. It helps from a share dilution perspective. And it also improves the quality of that ratio over time as I think I've had some conversations with a host of the participants on this call.

Regarding the impact like year-to-year, in the year of without changing your total compensation on an order basis, that can win the same. But on an accounting basis, you're accelerating some of the recognition into the current year. Now what you're probably noting is that if you maintain that same deferral level, the impact of that isn't necessarily seen immediately, but it happens over a period of time. But that acceleration does come from somewhere.

And that reverses over a period of time, our current deferral policies, it probably reverses fully over a period of 3 years. But what that really does is it allows your comp ratio to decline more naturally over time. And as I mentioned before, the real benefit is an improved apology of the ratio itself, greater ability for management to manage the comp ratio within a particular year and a more attractive compensation policy for your employees.

That make sense?

No, that's very helpful. And maybe just on Broad point view, I think Peter has mentioned Campbell Lutyen's deal is a little bit ahead of what you're expecting when you announced the deal still on track for $500 million next year. Can you just maybe dive into a little deeper on what you're seeing is the biggest synergy opportunities with Campbell Lutyens, whether revenue or expenses are both?

Yes. So I think it is both. And I mentioned some of the areas, vendors, IT, et cetera, that in the script on the cost side with a little extra scale. But on the revenue side, there is a significant amount of opportunity for -- in one direction, M&A referrals, so from Lazard CL to our M&A bankers. And then in the opposite direction from our private capital coverage efforts into the fundraising business. So there is a by-wheel or circularity there that's very positive. Campbell Lutyens in its prior instance did have a JV with a different investment bank that produced a notable level of M&A referrals.

We anticipate even though we didn't assume that in underwriting the deal, that we will be able to at least match in all like we had significantly beat that level of M&A referrals, and that would be a significant uplift to the business.

Our next question will come from Steven Chubak with Wolfe Research.

So maybe to start, just given the constructive public backlog and forward indicators you alluded to with the weighted pipeline being more than double year ago levels I was hoping you could clarify whether that backlog commentary is on a revenue or volume adjusted baseline and speak to any impacts on mix and how that informs the revenue growth outlook for next year?

Sure. So let's separate the -- well, actually, they're both on a revenue base. But the weighted pipeline being double what it is slightly more than double what it is for next year, what it was for last year -- for this year at this time last year, sorry, so just to be reside.

Pipeline as of today, October 22 for 2027 is slightly more than double what the 2026 pipeline was weighted pipeline as of October 2026, 2025 -- October 22. -- sorry about that. But hopefully, that's perfectly clear. And that's a revenue basis weighted by the probability of each fee being collected. So to give a hypothetical example you have a deal that will pay to make it up $100, and we estimate dots that it will close at various different points that will close during 2027 at 50%.

And so that metric, it would be counted as $50 on a probability-weighted basis. So that's that indicator. And then we've also provided numbers on the fee weighted comp clearance trends and those fee-weighted ones are revenue based. In other words, new mandate comes in and it's $400, that would get counted at $100 as opposed to just counting new consoles. On account basis, we're also seeing very, very significant increases in total clearances that are especially in the larger transactions. But I think the more relevant thing is the weighted pipeline that I gave you and then the fee-weighted console clearances because obviously, cost of clearance at a $5 million fee a much different thing than the comp of clearance of the $50 million there.

And just for my follow-up, I did want to ask on the impact of higher rates, both on conversations with sponsors and strategics. You noted that you're seeing the pipeline momentum. But to what extent is that impacting the willingness of some of those clients to initiate deal processes here?

Yes. Look, I think, let's just start with, obviously, in theory, higher rates should discourage deal flow in practice. We're just not seeing that being a very significant factor right now. And I think the reason is that most of the imperative for transactions on the strategic side, especially on the alternative private equity in a second, is coming from the need for scale and is rapidly changing technology space, the desire to secure your supply chain vertically when you're subject to this new supply side era that we have spoken about and the desire to kind of reconfigure your geographic footprint in the wake of the fracturing of the global economy.

Those are all such powerful forces that an increase of [ 2034 ], whatever number of basis points on the long end of the yield curve doesn't really materially affect your desire to get those transactions done, especially when you realize that the regulatory environment, particularly in the United States, may never be more auspicious to acting on what you've always wanted to do. So we're continuing -- I mean I think that explains along with the investments that we've been making and our emergence from the J-curve period why the forward indicators are so, so strong. And again, I've been reading some of the commentary about deal flow slowing. That is not what we're seeing for ever.

On the private equity side, situation is a little bit different. We've all been waiting for the M&A from private equity to pick up. And I think that's just the interplay of 2 things, 1 of which is exacerbated by the rise in interest rates, which is a disconnect on valuation. The owners of the portfolio companies continue to await better valuations. Obviously, a rise in rates doesn't help on that front. But against that, you've got ongoing pressure from LPs from investors to get some cash back and to have liquidity events. And it's really the interplay of those 2 phenomenon that will drive when we see a significant uptick in private equity M&A.

I would say that would only -- that has to happen at some point. And that would only further accelerate the forward indicators that we've shared with you. I'd also note that in meanwhile, while we're all waiting for [ Gadea ] a little bit on that private equity M&A moment. It is helping to drive additional activity in our secondaries business. So the Lazard CL leg of Lazard is further spurred during this moment in which the valuation disconnect component of the M&A CSAW is causing some degree of continued delay in significant private equity M&A activity.

Our next question will come from Alex Bond with KBW.

Wanted to follow up around the large past strategic outlook and activity levels there. So as you mentioned, Peter, it sounds like that the industry expectation there is for volumes to remain strong heading into 2027. But maybe if you could just expand upon what you view is driving your recent progress in this area.

You spoke again to elevated on clearances for deals above $5 billion. But maybe how are you thinking about the opportunity to grow share here further in this area? And also how you think the ramping of the newer cohort of MDs can impact growth in this area specifically?

Yes. Well, look, I think let me back up for a second. One of the things that we wanted to do over the past 3 years. We've already talked about the J-curve, but the other component of that, that we needed to address is the business model, especially in the U.S. having a duality to it that often was not the case in the past. So in the past, the U.S. business was very geared to only the large cap public company M&A. And what we saw was an opportunity for a walk and to go and not only continue that excellence in large-cap work, but also really significantly expand our private capital coverage and be able to do both.

And so what you're now seeing is that we're emerging from the J-curve period and you are seeing that duality of the excellence in large-cap and our private capital coverage coexisting. So we're walking into a [ dome ], which was always possible, but we just had not -- we had not been doing that as a strategic matter. I gave you some of the statistics, but I think it's underscored by best year-to-date lead table positioning, which really speaks to the large cap side of things in over a decade and also in the third quarter and year-to-date, but in the third quarter, our share of revenue coming from private capital is at an all-time high.

So it shows that duality. What's driving the large cap side of leatable positioning. It is, I think, a combination of renewed efforts at client networking and expansion of our network, so out with clients incessantly and the additional talent that we've been bringing on to supplement the world-class entities we already have. We said that this would take a little bit of time to ramp. But we can see it in our internal data in terms of new meetings then showing up in [indiscernible] clearances then showing up in announced transactions and so on.

And you're starting to see the progress that you had been anticipating manifest itself the first stage really does show up in those league table results because those are the forward indicators of future revenue from the large cap side of things. And what we're pleased by and why I think this is why I wanted to go in a little bit more detail is that, that's happening at the same moment that we've got a lot of muscle on the private capital side of things.

So it's -- the lead capable progress is not at the expense of our private capital coverage effort instead in conjunction with it.

Okay. Great. All makes sense there. And then maybe just as a follow-up, I believe last quarter, you all spoken to the expectation for higher than favorable -- higher-than-normal favorable seasonality for advisory in the second half of the year. Is that still the expectation? And then also, I'm not sure if I missed this earlier, but if you could just speak to what percentage of revenue is coming from the non-M&A side and advisory in 3Q, that would also be helpful.

Sure. So with regard to the first question, we continue to expect the second half to be stronger than the first half and the ratio of the second half this year to the first half will be stronger than in 2025, which I think is what we said on the prior call. And then I won't get the exact statistics, but I believe it's approximately 60% M&A and 40% non-M&A in this quarter. And if that's a little bit of , I believe that's right, we will get you that exact number.

Our next question will come from...

Hold on a second, I can do that precisely. I'm sorry, it's a little bit off that approximately correct for year-to-date, but you asked about the third quarter alone. And in the third quarter alone, it was 61% and 39%, so it's still approximately correct. [indiscernible] That was my memory side. It's a little off.

All right. Next, we have Devin Ryan with Citizens Bank.

Want to start with a broader expense question. So I appreciate some of the moving parts on areas like the deferred comp schedules you talked about. So I know some of that's still evolving? And then, Tracy, you talked about some of the incremental work you're doing on just broader kind of expense savings. And I expect we'll hear more about that. soon here. But as we think about all the work you're doing, is all of this necessary just to get to the Lazard kind of 2030 goals that you've laid out here? Or does this create even more capacity?

So I know some kind of like 6% or better comps. So there's -- it could be something better, but like is this necessary just to reach those levels?

Yes. Happy to address that No, I think the answer directly is no. When we look at Lazard 2030, remember that the vast majority of what Lazard 2030 is about is growth. We are so focused on investing in high-growth, high profitable areas of the business. And you see that with the econs, you see that with the inflection that you're seeing in Asset Management. You see this with the investment that's been made over the last 3 years in the financial advisory business that we talked a lot about last quarter with the J-curve.

The points that I'm making on the margin and these programs around comp expense and others is really a companion to that focus on growth. And here's where I want to go with this. the real theme is that when Peter and I looked at the business, we saw that there was more ability to drive operating leverage in the business. And when you are focused on revenue. You have to be careful that your organization is ready to achieve that revenue growth while maintaining discipline around margin. And that's what I'm really focused on is trying to augment the way that we work, where we work, how we work in the back so that as that revenue is delivered, we're not -- or I mentioned in my prepared remarks, this decoupling of expense from revenue growth. That's what those initiatives are focused on.

So to answer your question more broadly, no, it's not required to 2030. But I guess I would agree with you that as we decouple expense from revenue growth and that revenue growth is delivered, actually, I think there's greater margin potential than what we've necessarily embedded into the 2030 expectations. 2030 remains a revenue growth story, but we're trying to prepare structurally the business to deliver enhanced margin as that growth materialize.

Appreciate that, Tracy. Very helpful. And then maybe a bigger picture for Peter, just on the M&A backdrop and trying to kind of connect the regulatory environment to what you're seeing with clients. And obviously, heading into midterm here, but I think bigger kind of collections around what potentially could change in 2028.

And so, how much is that playing into conversations and an urgency to get deals into the market over the next year just because something may change and clearly, there is a window now, and that window may not be the error in the other side of 2028, which I would think in theory maybe kind of get people over the hurdle of some of the macro uncertainties just because they know don't move now, they may not be able to move. So is that playing in at all? If it is, but where are you seeing that? Is that intensifying in any areas? I'd love to just get some thoughts on that piece as well.

I think that is a factor. I think even without that, the technology piece and the need for scale that I mentioned and the vertical integration in the geography would be driving a lot of transactions. But I think that is a factor. And I think it's 1 reason why you're seeing disproportionate activity in the largest deals, above the deals because this is a moment where you can plausibly get those through that may be more challenging in the future. Now with regard to hypothetical future environments that could come into place in early 2029. Just 2 or 3 comments on that.

The first is that I mean, obviously, there's an election you have to see what happens. So that's stopes point. But the second is that historically, we've seen larger shifts from administration to administration in the Department of Justice wing of the antitrust regulatory environment than in the FTC. And that's almost by design because the FTC commissioners are bipartisan, and there's sort of more stability that tends to come from that side of things. So it will partly in that environment, depends on whether you're a DOJ filer or an FTC filer.

And then finally, and perhaps most importantly, the world is changing. And in Europe, you see a shift in the antitrust environment towards promoting European champions in this new world order. And I think even in an administration shift in 2029 if that hypothetically happened, this new perspective that you need to weigh the traditional antitrust concerns using curtail indices whatever, against the desire to have frontier firms in each sector that are of a sufficient scale to be globally relevant might change things going forward.

But in the meanwhile, people do see this window that is certain as opposed to the interplay of those various doctors that I was just mentioning that are hypothetical 2029. And it is the seizing the moment factor I guess, reinforces the underlying motivations that I think are primarily the ones that I mentioned.

Our next question will come from James Yaro with Goldman Sachs.

Could you just help us think through the restructuring outlook from here? And whether there could be upside optionality to growth given the more challenging economic backdrop as well as higher interest rates globally and perhaps also over what time frame? If you do think this will happen, that could occur.

Sure. I guess I could take that. Look, I do think we've seen on a year-to-date basis, growth in our restructuring practice. We think that will continue. And then when you look at the environment, I have said before, I think the risk of financial distress among the independent Frontier labs and/or some of the neo cloud providers in the AI ecosystem is elevated, and that would have ripple effects in the need for restructuring throughout at least a significant part of that ecosystem.

And even apart from them induce additional financial distress at the lower performing parts of the marketplace. But what I'd say so, yes, I'm not going to give you precise timing because that's a full earn in terms of trying to predict exactly when, and this is not a high-frequency business, we're kind of playing underlying trends. But I would also say, I think one of the things that's different today than was maybe the case 20 years ago is everything I just said is true, but it will disproportionately affect maybe outside of the AI world, disproportionately affect the sort of bottom 20% of firms in each sector.

And one of the things that's fascinating is you've just seen this massive explosion in the dispersion across firms in performance. So what's happening at the top of the sector, the frontier firms is dramatically different than what's happening amongst the laggards in the sector. And so I think what's new is that you may well see significant restructuring activity coincided coincidental with significant M&A activity because those leading firms want to continue being at the frontier and inorganic growth is one vector to do that. And yet at down at the bottom of the distribution, there's a lot of distress and need for restructuring. So I would just highlight that I think that's a little bit different than prior cycles.

That's very clear, Peter. I think you have a bit of a unique lens on Europe. And so I hope perhaps you could comment on the European backdrop for your business and how this is -- or has evolved more recently, especially in light of the again, increase in rate structures in countries in France as well as the geopolitical questions in your proximity to that content.

Sure. First, we are sitting in the U.K., and so I would just note since U.K. is part of Europe, even though it's not part of the EU, that we had a record third quarter and a record first 9 months of the year in U.K. Advisory, so that speaks to the strength of our franchise here more broadly across Europe, obviously, the macro backdrop is challenging. The political backdrop is super challenging with highly polarized electrics and frustration in the political system that you see not only in France but across most of Europe.

And yet, there is still significant M&A and other activity. And the reason for that is that you have to distinguish the macro and the micro, macro backdrop, not so great. We could talk more about that if you want to, but it's not overwhelmingly auspicious. But most European companies that we're dealing with have the majority of their activity in the majority of their sales outside of Europe. So they happen to be headquartered in Europe, but they're global herbs. And I think that explains the disconnect between a lot of activity that we're seeing out of Europe and the macro backdrop in Europe that's less promising because the firms that we're dealing with...

Our next question will come from Mike Brown with UBS.

So Peter, just looking at the industry data, we can see that the software M&A has been challenged this year. I'm surprising given a lot of the AI uncertainty and disruption potential there. But we've seen a few deals coming through. So maybe can you just provide a pulse check on this sector specifically? And maybe just if you could kind of dissect the large versus small end of the space with strategic versus sponsor back deals, and maybe just talk a little bit about how you see that progressing now that we've been living in this kind of AI world for a while. Is it kind of a better outlook from here, so maybe where you would have thought last quarter.

In software specifically?

Yes, exactly.

Okay. So I would say -- I kind of agree with your characterization, which is I think things are better than when the when the shock hit the software system. As you know, we have a leading franchise out of Boston with the Head of our Tech remark Dolan in exactly the space. And I think you would say it's there's more pockets of activity relative to the absolute bottom, but I don't -- I would not characterize this as being an extremely active area.

And so the tech group as a whole continues to cover that space, but is partially pivoting to other areas in the meanwhile. One of the benefits is we can skate to where the puck is or is going within our sectors. And I'd say with regard to private equity in the space, the same forces that I mentioned before are at play with the push and pull of challenging valuation causing a delay in liquidity events, coupled with the desire for LPs to see some cash on the back end.

That's probably more severe in the software space than elsewhere because the valuation disconnects relative to what maybe had been expected a year ago are more severe -- and admittedly, the rise in interest rates further exacerbates that. But it's not all dark. There is some activity in that space, and we continue to operate actively.

Okay. Great. Well said. If we just pivot over to the asset management side of the business. Fundamentals there continue to really progress in the right direction. And it does seem like there has been increased strategic interest in scaled asset management platforms really across the industry. Can you just talk a little bit about how you think about the business continuing to create value for Lazard shareholders today?

And these avengers aren't really getting full market appreciation, maybe can you talk about how you think about the alternatives here to kind of unlock some of that value for shareholders?

Sure. I'll take that and then maybe Chris can weigh in on some of the underlying trends and performance. But on the structural question, I'm going to repeat what I've said before, but I think it is worth repeating, which is -- we have a great new leadership team, including Chris and also our Chief Operating Officer and our Chief Investment Officer, very strong, by the way, that also came across in our internal survey appreciation for the quality of that leadership team. We believe we can add a lot of value as we continue to focus our product and strategy and where we think we have a right to win and where we can scale the strategies can get operating leverage out of that scale strategy rather than having a long, long tail of subscale products and strategies.

Continuing to expand the number of active ETFs we have, where we've had very successful launches of roughly a half dozen and there are more to come. So bottom end investment performance that I already mentioned on a 1- and 3-year basis being about 5 years, which I think reflects this renewed [ Reger ] under our Chief Investment Officer or excellent portfolio managers. But I've also said we're a public company, and there's no absolute blind insisted on the current structure.

We will do what is in our shareholders' best interest. And as a public company, that means being open to whatever the best or the most value-added approach would be on behalf of our shareholders. So there's -- it's a question of value and [indiscernible] and we believe that we can continue to improve the performance of this business, and that's what we're focused on doing for right now.

Chris, anything you want to add?

Thanks, Peter. I might just add and look, we're really focused on trying to strengthen this business. That is -- you'll have seen the -- a number of the changes we've made in the leadership team with a Chief Investment Officer, a new Chief Operating Officer, Head of AI, a Head of Product, the Head of Corporate [indiscernible], risk leadership.

So really trying to strengthen the team. The bedrock and foundation has to be around our investment platform and delivering consistently strong performance. So it's good to see that coming through with the numbers Peter cited. And then that -- we can deliver that and as we deliver that, you start to see that in client flops.

And for the first 9 months of the year, we had record flows of $54 billion to give you a bit of flavor around that. it's really in the areas where we're delivering strong consistent performance. So that's our advantage platform, the quantitative equities. It's our emerging markets platform is our Japanese equity capabilities, a number of our fixed income strategies, some of our alternative strategies like convertible arbitrage strategy.

So there's a real sort of breadth around that. And then look, we also see a lot of white space around our business, right? We are largely a public markets active manager, but there's a lot of white space. That's exactly why we hired in our Head of Product and Head of Corporate Development for the business to really help us chart that course ahead. And we see a lot of upside potential from here. Meanwhile, continuing to operate the business as effectively and efficiently as we can so that we can deliver better margin for our shareholders as well.

Just to reinforce this, I'm going to again repeat other things I've said. I think perhaps sometimes in the past, people had the perception that there was a dogmatic insistence about these 2 businesses being together. We believe that we can continue to create significant value, as Chris was suggesting with these 2 legs and then with the third leg of Lazard, but it's not a dogmatic insistence. It's an empirical question of, if they put it math on where the value is the highest for our shareholders.

But we're very excited about the pathway forward and all the things that Chris and team are doing, and then we're also very excited about the new third leg of Lazard that will come into existence in early November.

Our next question will come from Gabriel Angelini with Bank of America.

Peter, I think we're about 3 years into Lazard 2030 now. And when I look at the valuation, I don't think the stock is reflecting the progress and the optimism that we heard in your prepared remarks. And when I speak to investors, we're hearing some skepticism around whether the turnaround is taking longer than you had expected or whether Lazard might have missed part of the current M&A cycle. So how would you respond to that? And what would you say that view is missing?

Well, I would agree with you that I don't think we're getting credit for the progress, but those CEOs would probably say that. I would say the following. I think the changes that we had to make, both in terms of our Managing Director bench, which was essential to improving the commercial and collegial duality that we talked about and the business strategy, especially in North America to cover both large cap and private capital was going to take time.

Relative to our internal plans relative to those or 2030 plan that we laid out internally. We are, if anything, a little ahead of schedule, but definitely on track. So there's been no than at least we expected. Obviously, we -- I can't speak to any outside expectations, but I think emerging from a G curve where we had upgraded 40% of our Managing Directors over roughly a 3-year period is actually pretty good, but I understand others may have different expectations about the timetable.

We can't control that. All I can say is we are emerging from the J-curve period, seeing lots of very positive forward indicators. And relative to our internal planning, we are definitively on schedule, and we intend to remain so. And then with regard to missing the M&A market, I also just don't really see that. I mean, again, our weighted pipeline for next year is twice what it was as of this time last year. So that's not consistent with missing any window.

Perfect. And maybe as a follow-up to that second point. I think when we look at industry-wide data, it does look like volumes are decelerating, but you've mentioned several times now that you're not seeing that same deceleration -- is it fair to think about this as Lazard back to your more natural market share of those MDs that you brought on or ramping? Or would you argue that the industry backdrop remains as constructive as it was, say, 3 to 6 months ago?

Say it's probably the former, but I don't really know because obviously, we have insight into our own deal flow, and we're reading the same reports about the overall market that you are. So I don't have anything differentiated to say outside of our own experience, but I think our own experience is suggesting significant momentum, again, on schedule. And whether that shows up as a constant share of an expanding wallet or a larger share of a stagnating wallet overall. I don't know, but I'm we're really focused on our internal operations and tracking and accountability and client coverage and all the things that go into continued momentum, and that's what we're seeing.

It may well be diabothesis that you suggested, which is we take a larger share of a market that's not growing as rapidly as it was the best, I don't know.

Our next question will come from Brennan Hawken with BMO Capital Markets.

Tracy, you spoke to the shift to greater cash. It's consistent with some comments that we've heard you make more recently, so not surprising. But when we think about it from a framework perspective, and we think about those a few percentage points that we'd be adding to the ratio. What should be our starting point? Do we take the year-to-date comp ratio as a starting point? Or do we take last year's ratio and add a few percentage points to that. What's like the best frame of reference?

Yes, it's a fair question, Brennan. I think you understand the dynamic well and I understand your question. Well, the way I would answer this is on a like-for-like, no change in the deferral policy to date. Our remarks throughout the year would be consistent that we would have expected a decline towards the end of the year on an adjusted GAAP comp ratio. I think that would have been modest, a few points, but that would have been modest. And then I would reiterate what we said before, which is that if we were to make a deferral change and I'll come back to that in a minute just on magnitude, but it would accelerate.

And again, I want to make sure this is really clear. I know you understand this for others on the call. this is purely an accounting recognition concept. I've mentioned before to you and to others that I'm very focused on comp discipline on an awarded basis on an actual economic basis. This is an accounting concept that would accelerate some of that today and would help us managing, again, that share dilution concept. Any impact that would be a few rigs. And you can think of that on kind of a year-to-date accrual basis. I think that's a good basis. I would just reiterate that were we not making that change? Or should -- or if we didn't, you would still see that kind of contraction or decline in the fourth quarter on a modest basis.

Does that answer the question? And the only other thing I would add to that is, this is one of those situations where we talked about wanting to manage share dilution and we've talked about share buybacks, so we need to continue that into the end of the year. And so as far as the total magnitude, it's hard to comment now and so I won't I'll just flag that duality of like focusing on both, whether it's share buybacks or whether it's decreased deferrals, so increased cash. economically is very similar, and we're trying to solve more than one opportunity with this, and we see it as a great opportunity and the right time to make that change.

But does that answer the question, Brennan?

I think so. Why don't I sort of paraphrase and you can confirm that I'm understanding. So it sounds like what you said is -- and totally get you, yes. When you switch -- when you increase cash, you are increasing the expense in the year in which it is earned as opposed to amortizing it later. So totally understand. it sounds like what you're saying is like-for-like basis, not changing the methodology, we would have seen, I think you characterized it as modest improvement in the year-to-date ratio as we come in the year-end. However, given the change that you guys are making, no change to award it, understood. But on an adjusted [ comparation ] basis, there's going to be an offset to that improvement that you guys would see from the accounting change. Is that fair?

We just know -- it's Peter, that we have not finally decided to do this. I think Tracy said, we're considering it. So we'll have more to say about that in the coming weeks before year-end.

But otherwise, directionally, burden, I think it's commonly accurate with Peter's [indiscernible].

Understood, understood. And of course, you don't know the revenue that's going to come in the fourth quarter. So that's a [indiscernible] okay.

So I appreciate that. One more, Tracy, because you had some interesting comments on efficiency efforts that we're going to learn more about I think in the coming months here, it sounds. Can you give us some texture on where you believe there is the most wood to chop. So we discuss this since you've taken the reins. I know you are very excited about this opportunity to make the organization more of lean need. But when you think about some of the areas where you think low-hanging fruit is always a bad term, but like maybe the most ripe opportunities would be for these efficiency efforts.

Fair question. I characterized it on a number of part is thinking about where and how we at part of that is around centralization I think that's probably centralization and standardization of the workflow is probably one of the most -- using your term, the lowest hanging fruit.

Lazard has this amazing global. And not only is it global, but it's local. So where we operate amazing connectivity to our clients. That said, historically, that geared itself in kind of the corporate functionality, and that's not necessary to super client delivery. And so I think some of the centralization and uniformity that we can deliver delivers a lot of cost savings and frankly, delivers better delivery to our front offices and frankly, to our clients.

So I'd say that's one. Another is vendor rationalization. We see a lot of opportunity in that area. That's partly that in our non-comp expense accrual. Relative to some of the expectations around inflation. So I would say those are probably 2 of the biggest areas. Technology remains a huge opportunity, but it's probably lag some of the process of order flow redesign.

Our next question will come from Connell Schmitz with Morgan Stanley.

Peter, I know this is largely addressed, but for more clarity, I'd like to dig more into the potential for the upcoming U.S. midterms to catalyze M&A given your expertise here. Can you speak to the credibility behind the notion that a Democratic suite could ultimately act as a near-term propellant to large transformative deals ahead of a potential shift in the reg environment [indiscernible] or is this just not much of an impact, given you've already described a pretty robust deal-making environment and deals really aren't waiting for the midterm?

And then Tracy, as a quick follow-up. Can you help quantify the level of pull forward in the [indiscernible] this quarter versus last quarter?

Sure. My question, I'd say the following. I don't think that the midterms will have any effect on the existing regulatory environment. And I know you -- this is not what you were suggesting. Some people, however, have thought that. So I just want to clarify that. I think your question is kind of 1 layer beyond that, which is does -- if a blue wave happens, does it further accentuate the need to get deals done before a potential presidential election in 2028. Maybe at the margin is the answer because it would reinforce the odds as of now that the White House would switch parties in 2028.

In other words, this blue wave doesn't happen at all, which is an unlikely scenario at this point. it may take some of the timing off of when the White House may switch and a massive Blue Wave would probably reinforce the odds or the perceived odds that the White House would switch. Then leading us to that next stage that I've already talked about with regard to the DOJ, FTC, et cetera. I would say though, a couple of factors make this kind of why I said at the margin. One is the desire to get deals done now is pretty strong. And so a little bit of extra emphasis there, I think, is an accentuating factor but doesn't materially change things all that much.

And secondly, we're still pretty far out from a presidential election. And so while the midterm outcome may affect the perceived odds of the White House moving one way or another in it probably doesn't move it that much. And that's why I think it's a great question, and it's a subtle question, but I think it's probably pretty marginal.

And on your point around pull forwards, I would say pull forwards for the quarter, and I think a couple of mine, they were broad-based really concentrated, as I think people might expect, frankly, I think it was not concentrated in any one transaction. I reinforce this concept that sometimes fees associated with a particular transaction. spread across multiple periods.

So I think that sometimes can be difficult to get a reach or on. But to help on the quantification, I would just say that Q3 pull forward. It was really -- it is slightly below what it was year-over-year on a quarter basis and very, very much in line with $2 million or $3 million kind of like an average over the last year or 2. So again, nothing exceptional, kind of an average amount of pull forwards and frankly, less concentrated than what I think people might assume as far as any [indiscernible].

We'll take our last question from James Yaro with Goldman Sachs.

So Tracy, I think we are getting a couple of additional comp deferral questions. So just 2 more clarifying ones here. I know you've said that you have not made a final decision on changing the deferrals. But is this part of the explanation for the persistent 69.9% comp ratio each quarter of the year so far. Or is there something else? And then number two, could you just speak to the timing and magnitude, if you decide to make the deferral impact in light of your 3-year comment? In other words, would that potential change only impact 2026? Or would there be impacts in 2027 and 2028 as well?

Okay. I understand the follow-up question. So the definitive answer is no on it factoring into kind of the 9% accruals throughout the year on that explanation, I would just guide you to our, frankly, our last quarter's comments around J-curve revenue growth, the comp expense line and the investments bent. So that doesn't drive any of that. reinforced what Brennan's question was that on a like-for-like basis, we would have otherwise expected a modest decrease in the fourth quarter to your point around its timing and I can't speak to magnitude for the reasons that Peter mentioned.

We have not made that definitive decision. We'll give you some bring more to think about it though. I can't answer the final question. So timing, we would naturally go through that in our normal compensation year-end that has yet to happen, which is why we can't exactly but over the next quarter, we will be able to give that color. On timing impact, should we do it? Regardless of bank to 2 when does it show up. It accelerates some of that -- the amount has increased cash or the amount that you otherwise would have deferred that you're now paying in cash.

That is an immediate recognition on a GAAP basis in the current year. It doesn't in fact, impact the total awarded compete [indiscernible] that -- the way to think about that is each year, when you eventually roll off of the prior amortization of higher default periods in the past, here, you're recognizing kind of 1/3 of prior year's amortization. And so it's kind of this vintage of amortization that happens.

Where this will really benefit the firm in the future is, one, the ratio itself, the quality improves, but 2 to 3 years from now, what will happen is you're now -- your amortization build includes much lower deferrals from the current year next year at that. And so it creates this kind of embedded approval in your comp expense line over effect over the next 2 to 3 years. So that's when it the reversal of that effectively is as future periods require less amortization of current year deferrals, if it makes sense to them. And the only framework I'll give you around magnitude is, again, I go back to the purpose of this is to improve the quality of the ratio and to attract better talent and improve like the overall quality of our compensation program for our employees. One of the metrics that we look at is just where our deferrals relative to market. And you can do a little bit of research on this, and I'm happy to talk about it.

But one estimate of magnitude is if we were to get our gross consolidated deferrals closer to average market participant that would be the target over a period of time to try to achieve.

Thank you. Ladies and gentlemen, this now concludes Lazard's Third Quarter and First 9 Months 2026 Earnings Conference Call. You may now disconnect.

Good morning, and welcome to Lazard's Second Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I will turn the call over to William Murdock, Lazard's Head Strategy and Investor Relations Officer. Please go ahead.

Thanks, Chelsea. Good morning and welcome to Lazard's earnings call for the second quarter and first half of 2026. I'm William Murdock, Head of Strategy and Investor Relations. In addition to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, achievements or other events to differ materially from those expressed or implied by the forward-looking statements, including but not limited to, those factors discussed in the company's SEC filings, which you can access on our website.

Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update this. Please also note that unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe these non-GAAP financial measures are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measure is provided in our earnings release and our investor presentation.

Hosting our call today are Peter Orszag, Lazard's Chief Executive Officer and Chairman; Tracy Farr, Lazard's Chief Financial Officer. After our prepared remarks, Chris Hogbin, Chief Executive Officer of Asset Management, will join as we open for questions. I'll now turn the call over to Peter.

Thank you, William, and thank you to everyone for joining our call today. Firm-wide adjusted net revenue was $786 million for the second quarter and $1.5 billion for the first half of the year. Before Tracy takes you through the numbers, it has now been almost 3 years since we issued our Lazard 2030 plan, and so it seems appropriate to discuss where we are in our efforts to transform our firm for long-term profitable growth. .

When we laid out our vision for Lazard 2030, we said we would measure success through relevance, revenue and returns. We're seeing tangible progress across all three. In the first half of this year, Financial Advisory achieved its strongest announced lead table position since 2014. Asset Management delivered its best first half net inflows in nearly 20 years and reached its highest reported AUM level ever. That progress is driven by the role we play for clients. Increasingly, board CEOs and asset owners are turning to Lazard for their most consequential decisions and investments.

We believe this expanding client activity is due to our ability to deliver what we call contextual alpha by combining business analysis with broader insight into geopolitics and the regulatory environment. Clients also value that we can connect capital distribution and technology across a broader platform. With our acquisition of Campbell Lutyens, we will establish a third business that will be the leader in global private capital advisory providing us with a full array of capabilities in private markets to complement our strength in public markets.

At the same time, we are rapidly adopting AI and other technologies to serve clients more effectively and enhance productivity as part of our commitment to being the leading AI-enabled independent financial firm on Wall Street. In short, our work to advance Lazard's legacy is well underway.

Tracy will now discuss our financial results along with the near-term effects of the investments we've made, and I'm going to come back to provide more details on the progress we have made that is reinforcing our confidence in increased growth, productivity and profitability over time.

Thank you, Peter. Financial Advisory adjusted net revenue was $445 million for the second quarter and $801 million for the first half of 2026. Financial Advisory revenue during the quarter was driven primarily by M&A completions in North America. Across Europe and the Middle East, our business continued to perform well despite ongoing geopolitical uncertainty. With our advisory team in London performing particularly well during the quarter.

Globally, Restructuring & Liability Management delivered strong results, achieving its best first half performance in almost a decade, and our Private Capital Advisory business also saw increased client demand, particularly in primary fundraising, highlighting the opportunity ahead with our launch of Lazard CL later this year, demonstrating increased client engagement and activity across the business, completed transactions include SunOpta on its $1.1 billion sale to Refresco, and Network Connex's sale to Olympus Partners.

Recently announced transactions include Altice France's proposed sale of SFR for up to EUR 21 billion and NextEra's landmark deal with its combination with Dominion Energy, creating an enterprise value of approximately $420 billion. Liability management and restructuring assignments include Republic National Distributing company, Searles Valley Minerals and Trinseo. In Private Capital Advisory, recent assignments included advising Corsair Capital and G Square on continuation funds and advising Regal Healthcare on the raise of Fund IV. We're encouraged by the growth opportunities across financial advisory overall, with continued strength in our forward indicators and client engagement supporting a stronger second half of the year.

Peter will speak more about this in a moment.

Turning to Asset Management. Adjusted net revenue was $331 million for the second quarter and $640 million for the first half of the year. Our revenues included management fees of $310 million for the second quarter, 23% higher than the second quarter of 2025 and up 5% on a sequential basis. During the quarter, we had market appreciation of $27 billion, foreign exchange depreciation of $1 billion and outflows of $1.6 billion and a $1 billion increase attributable to acquiring a controlling interest in Elaia Partners.

We delivered net inflows of $7.4 billion in the first half of the year. As of June 30, we reported an AUM of $285 billion, 15% higher than June 2025 and up 10% compared to the prior quarter. Average AUM for the quarter was $279 million, 17% higher than the second quarter of 2025. Client engagement remains strong and new mandates in the quarter reflect ongoing demand for our quant platform, emerging markets, Japanese equity, international equities, fixed income and private markets. Our quantitative equity business, the Lazard Advantage platform has more than doubled to $50 billion in assets under management in the past year. The Lazard Advantage platform provides fundamental insights with the systematic approach and has delivered strong performance that is resonating with clients.

We continue to develop our asset management platform, and during the second quarter, we filed initial registration statements for three additional active ETFs within our first fixed income ETF. This February and less than a year after launching our U.S. ETF platform surpassed $1 billion in AUM, which had already doubled to $2 billion in July. Our asset management leadership is also advancing our broader Lazard 2030 objectives. We're embedding AI across research, portfolio construction and client servicing, and we have recently hired senior roles, including a head of global product to help us focus on our investment product set, and a head of corporate development to help us pursue targeted growth opportunities going forward.

As we look ahead, firm-wide total revenue in the second half of the year is usually stronger than the first half, driven by Financial Advisory. This year, our current projections suggest that pattern will be somewhat more pronounced. Turning to firm wide expenses. Our adjusted noncompensation expense was $172 million for the second quarter, resulting in a non-compensation ratio of 21.8%. Our adjusted compensation expense was $550 million for the second quarter, resulting in a compensation ratio of 69.9%. Given several factors that could reduce our compensation ratio this year that are still evolving. We continue to accrue compensation in the second quarter at the same level we did in the first.

Factors that could reduce compensation on a constant deferral rate include the closing of the Campbell Lutyens transaction, which we anticipate will reduce our adjusted compensation ratio over time, the degree to which we moderate hiring below last year's level. And whether our advisory pipeline continues to build at the current pace or leading indicators suggest. We have more to say about our full year compensation ratio when we report third quarter results.

Turning to taxes. Our adjusted effective tax rate for the second quarter was 69.7%. This was a primary driver of the earnings reduction this quarter, anomalous and associated with the catch-up adjustment with divesting of equity. It is not indicative of the full year effective tax rate, which we still expect to be in the high 20s percent range on a GAAP basis.

Regarding capital allocation in the second quarter of 2026, we returned $103 million to shareholders including a quarterly dividend of $49 million and share repurchases of $59. After pausing last quarter due to the Campbell Lutyens transaction, we are pleased to restart our share buybacks with a current repurchase authorization of just over $250 million. We expect to continue buybacks throughout the year, balancing investment and growth with further offsetting share issuances from compensation over time. In addition, yesterday, we declared a quarterly dividend of $0.50 per share.

Now let me turn the call back to Peter.

Thank you, Tracy. Let me now provide details on our progress, which reinforce our confidence that the Lazard 2030 strategy will increasingly translate into revenue returns as our growth investments pay off. In Asset Management, over the past few years, we have sharpened our strategy, enhanced our investment platform and distribution efforts and transformed our leadership. The result is a renewed focus on the products and strategies where we believe active management delivers advantage and where we can capture client demand. .

With this progress, Asset Management revenue is up 23% from 1 year ago. Even with our strong net inflows in the first half of the year, ongoing client demand has supported our won but not yet funded pipeline which continues to replenish and is higher than it was at year-end 2025. Looking ahead, we remain on track to deliver positive net flows for the year, and we remain confident in the sustained momentum of the business in the second half of the year and beyond.

In Financial Advisory, the repositioning of our business by upgrading our managing directors has been guided by the core conviction that raising the bar on talent and productivity would unlock shareholder value over time. Transformation at this scale is unusual, and since we are now emerging from the period during which we made the strategic choice to turn over 40% of our advisory managing directors, we want to provide more context on our progress. While we do not necessarily intend to provide this level of detail on an ongoing basis, we are doing so now to help investors understand where we are in this transition and what we are seeing as we move through it.

To that end, a number of our forward indicators are increasingly encouraging. Comp of clearances are up almost 40% year-over-year on a dollar-weighted basis and up over 100% for deals above $5 billion. Our weighted backlog for this year is building more rapidly than last year. our weighted pipeline for 2027, while at an early stage as is typical for July, is already more than twice the level it was for 2026 at this same time last year, and achieving our best position since 2014 and announced lead tables is also a net positive for future revenue.

We also see evidence of our strategy in client activity and market position. We have invested in talent in our health care and power energy and infrastructure groups over the past few years as some examples, areas where we already have strength and see room to grow. This quarter, we were involved in eight announced biopharma transactions over $1 billion, while our role as lead financial adviser to NextEra on the largest energy transaction in history demonstrates the expanding global leadership of our PEI group. Taken together, these indicators reinforce our belief that the repositioning of our advisory business is proceeding as we planned. It also increased our confidence in our Managing Director by Managing Director analysis, which shows we are now exiting the transitional period in which the hard decisions required to upgrade our talent created a headwind and moving toward a phase in which the investments we have already made shift to a meaningful tailwind for future growth.

While progress in this business is not linear and we may experience a slight dip in productivity this year given the large number of new MDs we added last year, our MD by MD analysis also shows we remain fully on track to meet our next target of $10 million per MD by 2028.

Moving forward, the ramping of our new hires and promotes is increasingly less burdened by the elevated level of separations we made the decision to undertake. This allows their expanding productivity to translate more powerfully into net revenue growth, delivering the longer-term structural improvement aligned with our Lazard 2030 vision and goals. Two other points that are worth emphasizing. First, we are very pleased with the quality of talent we have at the firm, including those we have been able to attract to Lazard and promote from within. Even after only 2 years on our platform, the average annual productivity of our newly hired MDs has already exceeded the productivity of the MDs we parted with during our strategic repositioning. Our tenured MD sets the standard for global excellence and is encouraging to see the commercial and collegial integration taking place across the firm.

Second, we are committed to bringing the compensation ratio down over time, not only through the operating leverage associated with higher productivity, but also through efficiency initiatives that more directly reduce expenses including through our expanded use of technology. Stepping back, there are broader longer-term dynamics supporting our financial advisory outlook. Companies continue to pursue scale and rapid technological change and see a constructive regulatory environment. Boards and C-suites increasingly treat geopolitical uncertainty as a feature of the landscape rather than a reason to wait and an ongoing focus on corporate portfolio composition continues to drive both divestiture activity and M&A.

While M&A activity has been robust and has been concentrated in strategic transactions and private equity M&A has remained subdued. Our forward indicators would be even more encouraging beyond their current levels if private equity M&A were to become more active. Together, market conditions, client activity and strong evidence internally on our progress further validate the trajectory that we see.

Integration planning is well underway for the Campbell Lutyens acquisition as our teams have spent more time together, we have even greater conviction in the strategic logic and cultural fit behind the combination. We also are even more impressed by the quality of talent Campbell Lutyens brings to complement our world-class TCA bankers. In addition to the revenue opportunity with Lazard CL alone, we expect the broader connectivity between our M&A, restructuring and fundraising businesses to compound over time. Without including revenue or expense synergies, as we said in the announcement, we expect this acquisition to be accretive to earnings in 2027 and thereafter with clear potential for further upside.

In sum, we are confident in our path to our Lazard 2030 objectives, and I would like to thank our colleagues for their hard work and commitment to our clients. Before I close, I'd also like to welcome Kathy Elsesser to our Board of Directors, a retired Goldman Sachs partner with more than three decades of investment banking experience. Kathy has a broad perspective across both public and private markets. We're excited to have her join us as we build on our momentum in financial advisory, asset management, and firm-wise.

Now we'll open the call to questions.

[Operator Instructions] We'll take our first question from Gabe Angelini with Bank of America.

Like you said, there's been a divergence figure to-date in strategic versus sponsor M&A activity, so maybe if you can give us a mark-to-market on why we're seeing that divergence, and what in your conversations with sponsors and strategics is causing that? And then also, if you can talk about the outlook for sponsor activity in the second half of this year and first half of next year.

Sure. I think the core challenge, it really involves valuations. The rise in interest rates that we saw from the exceptionally low period of rates that had existed for a while, caused the net present value of cash flows to decline, and that disconnect and valuations, I think, has led to some hesitation to sell portfolio companies that are held by private equity firms, especially if they're marked at a different level or the return is not what the sponsors had hoped to achieve, and so I think that's what's causing the delay.

Now there is a counter pressure, which is that LPs would like to see some cash. And so there is building pressure both as this period of higher interest rates persist, and we can talk about the inflationary outlook and the rate environment, but I think that's likely to continue for some period of time. And so there is a bit of, well, what are we waiting for, that's starting to emerge and also this demand for LPs for distribution.

On the latter point, I would note that one of the accelerants in the continuation funds and secondary activity is exactly that, and so we are well positioned not only with our existing PCA business, but with the Campbell Lutyens transaction and the new Lazard CL leg of Lazard to meet client demand for secondaries, which we see as quite robust.

But it's interplay between this valuation effect and the demand for cash that I think is at the heart of the question of when private equity M&A will really pick up again. Beyond that, what I would say is if -- and to your question about the second half and into 2027, if you listen to the -- both private conversations and public conversations, the heads of large alternative asset managers, which are the biggest players in private equity, they are suggesting that this is about to shift, so we will await those words converting into action, but that's kind of how I would characterize this data play right now.

And maybe just one for Chris. Obviously, you started in the Asset Management business in December, and I think there have been a number of changes that you've made since joining the business, so maybe if you can walk us through some of the most important changes and maybe some KPIs that really can track to watch the progress that you're making there?

Thank you for that question. So a number of changes that we've made to really try and strengthen the business, the first was to appoint a Chief Investment Officer for the first time in the business because really the core of what we do to deliver investment outcomes for clients, so having somebody whose full-time job is to focus on bringing the strength and the breadth of our investment platform to bear for clients is important. And he is, as you might imagine, working very closely with the portfolio managers to re-underwrite and help them improve their processes and make sure that we have the right level of data resources, technology, et cetera, and all of the -- in all of the teams.

So there, I think that you really need to look at how our investment performance tracks. At the moment, we stand with 68% of AUM that we manage on behalf of clients outperforming their stated benchmarks over 5 years. The second big change I made was to appoint a new Chief Operating Officer, Rosalie Berman, who is to help us really run the business more effectively and efficiently, to really make sure that we're focusing our resources on the areas that can drive the business forward. She's also overseen a lot of our efforts to adopt and drive AI across the business, and she made an important hire and ahead of AI for the asset management business. So that's been a big part of what we've been focused on.

And as we roll into next week, we have two more executives joining our team, one as Head of Product, one as Head of Corporate Development for the Asset Management business, both very long tenured industry leaders who will help us think through what should the product road map look like going forward, where do we want to prioritize, where do we want to deemphasize, and that we'll come back with more detail on that.

Obviously, one of the things that people should track is what's happening to our flows because ultimately, that will reflect how clients think we are performing for them. The good news there is, for the first half of the year, we saw $7.5 billion of net inflows, that as Peter said in his remarks, are the strongest level of net inflows we've seen for almost two decades in the first half with a good breadth of different investment services, regions and clients contributing to that.

Our next question will come from Brennan Hawken with BMO.

You've spoken to a stronger second half in advisory, Peter, I believe you referenced that you have -- you expect it to be somewhat more pronounced than typical. It would be great if you could add some further color to that, what kind of magnitude would be reasonable when you look at your pipelines and think about what is expected to close? And which businesses do you expect to drive be greater than normal seasonality in the back half?

I think that was Tracy, so I'm going to let him characterize things. But on the different lines of business, I'll give a little color. Maybe a couple of different pieces that are relevant, our M&A, non-M&A balance is staying roughly 60-40, so that has not really evolved. We are seeing a bit more shift towards North America and the overall mix of our revenue. That's not to be too surprising because just coming back to this J curve and the ramping of our managing directors, you look at the number of tenured managing directors, so that's MDs on our platform for more than 3 years, we're going to be more than tripling that number between the base of '23 to '25 and 2028. Those people are already on the platform. They're just ramping, and so that's a large number of -- increasingly productive MDs that are showing up in revenue. .

And those are disproportionately people that we've added in health care, industrial technology, and then also in some other areas, we made a defense tech hire that will be coming online, we're excited about, and more broadly in private capital, so those are some of the areas that -- where we're seeing increased activity. You're also seeing that show up in the lead tables. I mentioned the statistic about the increased activity that we're seeing in health care with those people that we're bringing on ramping nicely. And Tracy, I'll let you characterize your comments.

Brennan, I think the comment was, and I think you know this actually pretty well. If you were to look historically, primarily on the financial advisory side of the business, the second half is usually stronger than the first half. My comment was simply to say that given the first half being lighter on revenue than we had maybe expected at the end of last year, which we talked at length about but the growth in some of those factors Peter just mentioned, just strong performance in some of these ramping MDs in the tenured MDs that we've had, the pace of that pipeline build, which has been -- we've probably talked about in the past, that first half versus second half trend might be more pronounced this year. That's what I was trying to highlight there.

And Peter highlighted the reasons for that. I think the only thing I would add to that is that pace of growth into the second half has been just at a higher pace than in years past, and it's part of the reason that when -- I'm sure there may be a question on comp ratio. It's part of the reason that we think that there's probably some potential for improvement in that. It's just at this point in the year, that pace -- that revenue growth continued at that pace is higher than in years past, and so it's just -- we have a slightly lower visibility to how much that comp ratio could improve in the second half.

Sorry, Tracy, I messed up who -- I sure hope not. I'll really tick you off if that's the case at different times. So one more, my follow-up. You touched on this a little bit in your comments, Peter, MD headcount. So we saw MD headcount declined a bit quarter-over-quarter, could you talk about what drove that? And how we should think about headcount for the rest of the year?

You commented on the J curve and improving some of the ramp, you spoke in your answer to my other question on the quantum of MDs that you guys have added, so what are some of the important things we should think about on that front?

Yes. First, I wouldn't focus too much on the quarter-to-quarter fluctuations in the MD count because that involves some idiosyncratic things about exactly when [ garden ] lease expires and someone can join the platform and also exactly when on the separation front the departures happen. I guess the key point is at the end of the first quarter, I believe the number of our advisory managing directors was 238. I'm getting a nod. Okay, so 238. We will be at least at 248, if not more, by the end of the first quarter of 2027, so we remain on track to continue adding 10 to 15 net MDs per year, and we already have visibility into achieving that objective. And so that's what I would say about the managing directors.

And then in terms of where we're hiring, I already gave a little bit of context, health care, industrials, technology. But we have a very active recruitment effort. We are in talent in Europe also, and you should expect it to be disproportionate in the United States, but still adding talent elsewhere in the world. I don't know if that answers what you were asking.

Yes. I mean I was kind of hoping to understand a little bit about the ramping.

Okay. Let me talk about that. So look, we -- Brennan, we've done a very detailed analysis of the separations that we strategically made the choice to do and then the new people that we're bringing on. And what I think is important to realize is, and I kind of feel for you on this, so we're going to -- we're providing more clarity at this moment in time because what we've done is unusual, on purpose again, with a significant amount of basically turnover on purpose in our MD ranks.

And so specifically, the ramping that we're seeing from our new managing directors is very encouraging. For you and maybe a little bit, or anyone on the outside, I don't mean you specifically, that is a little bit obfuscated by this J curve that we've talked about, where there is some not proportionate to the number of managing directors that we separated with because they were disproportionately lower productivity, but still some revenue loss associated with those separations and then you have the ramping of the new managing directors.

And that is, I don't want to say unique to Lazard, but we have done something that is unusual and exceptional. Again, we're excited about the evidence that we're seeing that it's playing out as we hope to do.

Two more comments on this. One, if you look at the Managing Director by Managing Director ramp, it is looking very encouraging. I give you one statistic that even after 2 years on the platform, they're already above the separated MDs, but that's consistent with the pattern that we would like to be seeing and very encouraging. And that was only one data point among many that we have about ramping occurring in a constructive way and on the schedule that we expected.

Second point is that will all be increasingly visible to you as we are now exiting this transitional J-curve moment. So we've done a very detailed analysis of the net impact, if you will, of the separations and the new hires. That was a significant tailwind -- I mean, sorry, headwind, excuse me, in 2024. It was moving more towards neutrality in '25 and '26, but still weighing on our results to some degree. And as we move into 2027, it becomes a quite significant tailwind when you go MD by MD very granularly. And that is consistent with the forward indicators that we're seeing.

So from roughly this point forward as we -- as there are more indicators that were emerging from this transitional J-curve moment, you should see the external results of the ramping more consistent with what you make -- the patterns that you may have seen at other firms because they did not have the large number of necessary separations. So the go forward, you'll just see the ramping of new hires increasingly translate into net revenue growth and then into earnings and comp leverage.

Our next question will come from Mike Brown with UBS.

So I wanted to start on the asset management side, so the first half, $7.5 billion of net inflows clearly, a really positive start to the year, clearly tracking to the positive net flows for the year. I guess what's clear is you had that successful first half, but it's also clear that you have a large cushion here for the second half. I assume you're not expecting the second half to be kind of mirror image or opposite of the first half.

Maybe any comments on the puts and takes for flows in the second half? And maybe just touch on where you're seeing the most traction there.

Thanks, Mike. That's a great question. So we are very confident in the sustained momentum, commercial momentum we're seeing in the asset management business, as you said, it's a very strong first half. Underlying that, there's a real breadth to what's contributing. You're seeing that notably from our systematic equities apart from our Advantage platform that has doubled in size to $50 billion over the last year. But there's a long -- a large number of other services contributing, emerging markets, listed infrastructure, Japan, robotics, and then some fixed income strategies as well, so there's real breadth to it from a product perspective.

There's a real breadth to it from a geographic perspective. We're seeing net inflows. In Asia, we're seeing net inflows in Europe, we're seeing net inflows in the U.S. If we look at our -- looking forward, if we look at our won but not funded pipeline, it is at a level today that is higher than we had at the end of last year. That gives us a lot of confidence in the sustained momentum going forward. As

you track through month by month, there's two parts to -- you can kind of split the business in half. There's a retail business, that's been a very steady contributor to the net flow picture. And then we have institutional that, by its nature, is lumpier with big mandates that we can win and also big mandates we can see redeemed, so that will give us some volatility month to month. But given the level of commercial activity that I'm seeing, very confident as we look through the remainder of the year.

And if we just shift back to the comp leverage discussion, operational discussion a little bit. Lots of good color there, and I know you don't have a crystal ball, and it's going to be very kind of revenue dependent. If Asset Management continues on the path that it's on, I guess it will be kind of FA driven here. Clearly, optimism is high in the second half, so I guess if I frame it this way, if Financial Advisory is up, say, 40% or so in the second half versus the first half or, call it, 20% versus the second half of last year, can you get to that 65.5% level for the comp ratio that you were at last year?

This is this is a really good question, and I think we're -- probably we're going to get a few more questions on this, so if you don't mind, I'm actually going to maybe get into a bit more detail here because to Peter's point, I know that there are certain things that we're seeing in the business that you don't have around that forward momentum. And then secondly -- and actually, I would point out, I don't know if we mentioned it, but there was a new slide in the investor presentation that exactly highlights graphically some of the volume of change in the MDs and some of the curves that I'll talk to in just a second. I think it was on Page 24 of the investor deck, so I might point that out because that could be helpful to some people.

But -- so let me just take a minute. I mentioned, first off, a few factors that would limit visibility at this point of the year, I flagged that, with perhaps one exception in the past decade. Our Q2 accrual has always kind of mirrored our Q1 accrual, and if you went back to our Q1 accrual, we had a lighter Q1 on revenue. We had higher fixed costs. A vast majority if not almost all of the Q1 accrual was due to fixed comp, significantly more than in 2025, and that ties back to Peter's comment about the hiring.

And so to maintain that consistency, that's partly why we had this Q2 accrual, but that's a regular practice on our [ end ], and so it's not really until the second half of the year that we have better visibility.

But you're right, if revenue performs, and that's partly why we had that caveat, if revenue continues to perform, that comp ratio can come down in the second half of the year. I'm not going to get into specifics about where it could end up, but I think you're thinking about it the right way that it is kind of indexed to FA performance in the second half of the year, and we'll get more visibility in that second half or certainly into Q3.

But I do want to step back and address something. I continue to think that people may be under-appreciating. Peter just highlighted this, the significance of that repositioning and the J-curve impact that Peter mentioned. I want to just touch on that briefly. It exists on both the revenue and expense sides of the comp ratio. So on the revenue side, Peter just mentioned this, revenue from our new MDs takes time to build. We're very excited about the pace of that and the productivity even by cohort. But the revenue that we lost from the separated MDs is more immediate.

On the expense side, there's a related but inverted dynamic, basically an inverted curve because lateral MDs, which were a higher proportion of rebuilding that, over 90 MDs hired since 2023, that's very different. That gross impact is very different than kind of the 10 to 15 net MDs per year that I think a lot of people focus on. I think the impact of the comp ratio largely comes from the accounting impact and delayed amortization related to that gross change in the MD pool that really happened between effectively ahead of '23 and '24.

And so -- just as a reminder, since '23, we separated with over MDs and replaced them with roughly 90 new hires and promotions. The gross impact is far more significant than that net add would suggest, so if you're only focused on that 10 to 15 with the elevated hiring that Peter focuses on, you're probably underappreciating and may not be accounting enough for the higher amortization levels. And if you dig into it, and I could get into this more if you wanted to, the kind of fixed costs related to guarantees and the amortization from prior periods. If you look at first half of '26 versus first half of '25, there's a pretty big difference, that's again contributing to that.

So that's -- I just wanted to highlight that gross emphasis on the MD pool change that drives a lot of it. But to tie back to your original question, I think you're thinking about it right. The improvement in the comp ratio in the second half of the year is really indexed to the FA performance in the second half of the year, and Peter highlighted all of that positive momentum that we're seeing.

Our next question will come from James Yaro with Goldman Sachs.

I want to touch a little bit on AI impacts on investment banking. I would have posited that much of the AI impact on investment banking activity appears to be in financing markets rather than M&A., so I'd just love to get your perspective on the ways in which Lazard's Strategic Advisory business can benefit from AI and specifically on M&A, but more broadly, on Strategic Advisory, maybe in the secondaries business as well.

Okay. So let me answer that in a couple of different ways. So first, with regard to client activity, we have through Lazard Capital Solutions, a lot of capabilities in matching strategics with sources of private capital, including insurance capital, and that is a very active vector for a lot of AI investments, frankly, even beyond AI, a lot of corporate balance sheet optimization, so that's one piece.

I think secondly, especially as we move towards the Lazard CL, third leg of Lazard in private capital advisory, there's an exceptionally good data asset that the combined businesses will have in terms of insight into GPs and LPs and deploying our AI technologies to that data is going to -- we already know will provide lots of insight into that is commercially relevant and valuable to clients, so one of the things we haven't talked a lot about but that we're excited about is ways of deploying that data asset, if you will, with the scale that the Lazard CL combination will bring.

And then the third piece I'd say is with regard to how we serve our clients. I've spoken about this before, and I mentioned it briefly, but we are at the -- we are committed to being at the forefront of this ongoing revolution in technology, and it is an exciting moment because the tool has continued to advance quite rapidly, so the deployment of AI within Lazard to our banking teams and to the asset management side of the business is very encouraging. And every day, there are new use cases, and so I'm very excited about the ability of our adoption of this technology to help us better serve clients and serve clients in new and innovative ways.

So a lot more to come on that topic as we continue to pursue new opportunities, and I would just call out the exceptional AI team we have internally, and then also the fact that we've got Dmitry Shevelenko, the deputy of Perplexity on our Board, who is a fantastic resource for helping guide us to where things -- where the puck is going and not just where it currently sits.

That's very helpful. I just wanted to zoom in and clarify one point on the advisory strength in the quarter. I would argue a strong results here and ahead of what we had at least forecasted, was there anything that changed relative to your commentary at the intra-quarter conference, whether that be in terms of faster closings, pull forwards or something else? Just trying to put this quarter's results into context relative to your -- what I would characterize as quite constructive second half outlook for Strategic Advisory.

Look, what I would say is there was no exceptional pull forward or that sort of thing. I think the point is instead it's not really a quarterly business because things can bounce around, and what we're seeing is increasing momentum across the business, some of which showed up in this quarter. And there wasn't any particular M&A, non-M&A mix shift, et cetera. I think it's just an indication of a bit more strengthening of -- as we're emerging from this J-curve period in our momentum.

Our next question will come from Connell Schmitz with Morgan Stanley.

So I guess sticking with the AI point, you've added a new piece to your AI progression time line with the rollout of Claude, but you have not spoken much about it. Does this mark a bit of a shift in your AI strategy from a provider standpoint? And then broadly, this involves increased tech investment. How should we think about the model around noncomp expenses trajectory for the remainder of the year? And has there been any progress made so far regarding the reduction in corporate overhead expenses that have been talked about?

Okay. I'll take the first part, and Tracy can take the second part. We have always been, throughout this AI journey, committed to not locking into a single model, not having a kind of sole source vulnerability or choke point, if you will. So we've been very explicit in having a variety of models that sit inside of our firewall and that can be used by our banking teams. And I think the rollout of Claude is just consistent with that general philosophy. And Claude is not the only model that sits inside of the firewall is it were, so we've got multiple different models.

I think the important thing that we're trying to drive is the cultural change in terms of how work is undertaken and to be able to easily swap out the underlying model as we do that work is very explicitly part of our AI strategy. So I wouldn't make too much of Claude or any of the other models other than to say the progression is -- and the quality of the output is remarkable, and it's exciting to see.

One final comment, as I'd say, at this point, our AI spend and token cost is still quite modest. And so not really material from any noncomp expense perspective, but I'll let Tracy comment more broadly about non-comp, so just before I close out, relative to the opportunity, the spend here is still quite modest, and we will obviously watch that. But we see huge opportunity here and still -- and are trying to drive the adoption culturally and are pleased with what we're seeing. Tracy?

Yes. Peter, I'd echo that same point. I mean we track the AI spend really closely. And as Peter mentioned, we have access to a lot of models and there's -- we can track that actually by the vendor. I may actually come back to that point around noncomp spend at the end, but you asked about some of the cost efficiency things. So firm-wide, we're kind of trying to simplify our corporate and support function processes and structure broadly.

But before I talk about that, when you think about the two businesses and the asset management, we already talked about streamlining our research platform, folio managers and analysts working more efficiently and closer coordination across the equity businesses. In Asset Management, there was already in the past month, a series of headcount reductions, reflecting that efficiency and some just business as usual movement, which I think is positive.

In Financial Advisory, Peter has already mentioned this, but we're looking towards smaller deal teams, and what we've talked about in the past is really a lower total associate equivalent MD ratio, so really speaking to that in the headcount. So as far as whether it's AI or team structures affecting the front offices, if you want to think about it away from an expense perspective, we'll have a lot more detail in the second half of the year, but that's where the focus is right now.

In the back office or in the corporate, we've launched an in-depth review and there's a lot of work being done on that. As I highlighted before, when we think about the corporate expense, what we're most interested in is structural change that is sticky, that delivers a kind of a divorce in the relationship of inflation in those corporate support functions from revenue.

As Peter has highlighted, we're very positive on the forward-looking trajectory on revenue. My hope is that the efforts we're doing in corporate lower the growth rate in that corporate expense as the total revenue growth for the firm. On that, that is a long-term project. We will have a lot more detail towards the end of the year on that, but that's where the efforts are.

The only point I would make on coming back to the AI spend, as Peter mentioned, it's not material, but the promising indicator is more cultural, if anything. We have the data as we look at the noncomp spend in the AI piece that shows this cultural adoption of AI within Lazard, and we're pretty confident about the return on investment there.

One thing that I don't think will be a near-term impact, but will be something industry-wide to watch as we shift more of those expenses to our technology, over time, nothing near term. You might see actually some shift comp expense and noncomp expense. It's just the workflows change. But that's not anything near term. Right now, what we're serving is just the cultural adoption of AI.

That's very helpful. Just one quick follow-up on buybacks and M&A. So given your restarting buybacks, is it fair to conclude that inorganic growth within the wealth space is unlikely in the near term as you look to increase wealth distribution from here? And how is that strategy going?

Let me first -- I wouldn't characterize it the way that you mentioned. We were excited to restart our buyback activity after we were kind of precluded from doing that with the Campbell Lutyens transaction. We expect that to continue. But even -- I think it's a fair characterization that actually our buyback activity remains, while healthy, it's still a modest level versus historical levels. It wouldn't preclude any kind of investment from a strategic or inorganic perspective, as Peter...

I think the question was different, if I understood it, which is, does this signal that you're not at a stage in an inorganic process that precludes current buybacks? And I think that would be a fair conclusion from our statements. But we've also said we are actively looking at lots of inorganic options, and so it depends on what you mean by the timetable. We're actively looking at lots of different options.

No, I think that's all fair.

Did we -- was that the nature of the question?

Yes, that was very helpful.

Our next question will come from Steven Chubak with Wolfe Research.

So appreciate all the detail unpacking some of the underlying business momentum that admittedly is obscured by the MD J curve. Also recognize the complex that you spoke to in the second half is certainly going to be contingent on the magnitude of the FA ramp. But looking beyond '26, I was hoping you could speak to expectations for the comp trajectory if you just extrapolate based on the current ramp that you're seeing in productivity from new hires, while still staying the course in terms of the commitment to adding talent in line with the 2030 targets.

That is a great question, and we see, obviously, the comp ratio coming down as we continue to pursue the Lazard 2030 plan, while also making the new investments because, again, to Tracy's point, I think underappreciated point here is that elevated level of separations on a onetime basis that we had to do and necessitated or -- it was always part of the plan, was matched an elevated level of lateral -- gross lateral hires, not net gross lateral hires that creates a temporary bump in the comp ratio. .

So there are kind of three things to highlight as we move into 2027 and 2028. One is just with time, the comp ratio comes down because the onetime effects of those buyouts, if you will, fade out of the equation. Secondly, as we continue to raise productivity, and again, I underscore our conviction that we're on track to hit our $10 million per MD productivity target by 2028. We get operating leverage out of the non-MD comp pool because as productivity per MD goes up, the non-MD comp-to-revenue ratio goes down.

And then the third is that we do see the opportunity for efficiencies in how we go to market and in our -- some of our corporate and other functions, so there's kind of a -- there's a time effect, there's an operating leverage effect and then there's a kind of direct efficiency effect and the combination suggests a significant decline over -- in '27 and '28 in the comp ratio. I don't know, Tracy, if you want to elaborate...

No, I think that's really helpful. I think just to maybe even dig in a bit deeper on that time line expectation. Peter and I have talked about these J curves, and Peter highlighted how in '26, you're kind of seeing the headwind from a revenue perspective die-out and then turning into a tailwind in 2027. I think the -- from a timing perspective, and this is really just accounting, I would emphasize this again, a lot of the compensation expense that is driving some of the comp story already happened. It happened as those elevated hiring levels on a gross basis that Peter highlighted, which has really kind of already happened. And as you know, a lot of -- given our deferrals and our vesting schedules and everything else, a lot of that comp expense amortizes over 3 years.

As Peter highlighted with the revenue growth, we're kind of seeing, even in the second year, these ramping MDs exceed their productivity versus the MDs who were separated. So what does that all mean from a timing perspective? Just trend-wise, I think what you'll see is that there'll be a revenue tailwind in '27. on the comp side, I think you really see it revert back to a normalized basis really in 2028 because that's -- it's kind of a lag when you think about comp expense on its own, its layer of the comp ratio. It's got a little bit of a lag versus the revenue showing up simply because of the accounting amortization.

So I agree with the way that Peter just characterized is that there's this downward trend that is going to be evident both in '27 and '28, and that is really material over that 2-year period. And part of it is just in a better appreciation for the unwind the amortization that's happening from an accounting perspective on the comp ratio and this dramatic build on the revenue side from the J curve that Peter highlighted earlier.

That's really helpful color. And just for my follow-up, I wanted to just get an update on the non-M&A businesses, whether it's private capital advisory or restructuring just how you see momentum trending across the different geographies?

Yes. So well, on the geographies, I mentioned that we've seen a bit of a shift towards North America. I think that's partly market-driven. It's partly driven by our MD mix, which is growing disproportionately in North America on purpose. And then with regard to the non-M&A businesses, just to give you again that we're at roughly 60% M&A and 40% non-M&A in the advisory business. The non-M&A piece will expand as we move to integrating Campbell Lutyens just as one indicator of that. We have said previously, and we'll -- we still believe that the Lazard CL combination will produce $500 million in revenue in 2027 next year.

And the underlying trends that we're seeing in this year, PCA is a very -- often has a lot of activity in the fourth quarter, but it's trending in the ways that we expected and healthy business, the fundraising business. And I'd say the same thing in restructuring, we're -- the restructuring team is flat out -- sorry, I should say, restructuring and liability management since most of it is liability management.

Our next question will come from Devin Ryan with Citizens Bank.

Peter, Tracy, Chris, I'll just ask one question here. Peter, you mentioned conflict clearances are up over 100% for deals over $5 billion that's about, honestly -- I know that's a material acceleration from the 50% you mentioned last quarter. Obviously, Lazard has always been involved in kind of large complex deals. But can you just talk about some of the recent acceleration and whether that's a function of kind of diverging backdrop between strategics and sponsors versus being a result of maybe a concerted effort under your leadership within Lazard just to concentrate on larger deals and perhaps maybe the mix is shifting within the firm and even increasing market share there?

Yes. A couple of comments on this. First, I think you may be mixing and matching slightly, we'll get back to you. But the up 40% overall dollar weighted comp of clearances where 100% for deals above $5 billion is a fee weighted estimate. The prior number you may be citing was the number of comp of clearances. We'll get back to you to make sure, but I believe that, that's -- but the broader point holds regardless of that detail, we'll get back to you on that, which is we are seeing a significant uplift in our large cap activity.

I think that's a reflection of three things. The first is that we -- that's what's happening in the marketplace, so coming back to the private equity discussion we were just having, disproportionately strategic activity is the thing driving M&A right now and disproportionately large deals are driving the strategic activity, so that's partly market.

Second, and I think we articulated this on the -- one of the prior earnings calls. We had -- we were pleased with the investments that we have been making in our private capital coverage efforts, but we set ourselves the task of lead table prominence and large cap prominence, including in 2026, so this is partly a kind of leadership and management initiative. It's always been core to Lazard to play in that arena.

And then the third thing, I think, is the operating model that we've adopted, the increased level of relationship building and convening and also the hiring that we've been doing. We are in an increasing number of boardrooms and C-suites, and we're pleased with the progress that isn't even in the comp of clearance numbers, which is the traction we're getting with large clients. And I'd just highlight there also Lazard's historical ability, which has been refreshed and renewed and reinforced to deliver contextual alpha that is to incorporate the geopolitical piece into the analysis. I think it's part of what's giving us traction there. But partly market, partly a leadership initiative and partly our talent and our competitive advantage in what I call contextual alpha.

Yes. Got it. And you're correct, yes, I was citing the comp of clearance dues, about 5% from last quarter, so slightly different comparison...

But point the point still holds. There's disproportionate activity there.

And our last question will come from Alex Bond with KBW.

Follow-up to the last question actually around the deals in the $1 billion to $5 billion range, you obviously cited the $5 billion-plus range has been quite strong. But wondering if you've seen any pickup in activity in the sub-$5 billion range? I know part of the equation here is obviously the still depressed sponsor activity, but is there anything else that you'd point to here that might help get this deal cohort more active here moving forward?

I think a lot of that activity is going to come back to the private equity dynamic we talked about. The reason we gave you the overall dollar-weighted clearances is to give a sense of overall activity, it is still skewing somewhat towards the very large transactions. But yes, private equity, in particular, were to become -- even you would see a significant pickup in smaller deal sizes, coexisting with those large strategic ones. And so I guess the way I would characterize it is forward indicators that are very encouraging are encouraging despite the fact that private equity M&A has not yet kind of fully reawakened. And if it were to do so, the forward indicators would be even stronger.

Okay. Makes sense there. And then maybe one more just quickly on the non-comp side. Just wondering if your previous guide of mid- to high single digits year-over-year for noncomp growth still holds. And just any commentary on upward pressures on things like travel expense from higher energy prices, and I think you touched on this a little bit earlier, but AI-related costs on the tech side would be helpful as well.

Yes. On the non-comp, that guidance still holds. I think it might be up 1 point or 2. But look from what I said before, but still in that mid- to high single-digit increase. I think the point on that. There might be a little bit more noise in it this year also because of the Campbell Lutyens transaction and some of the advisory that's related to that, we'll try our best to kind of carve that out or at least identify it.

On the AI spend, Peter mentioned that, that will be increasing. And again, we've highlighted that adoption, but it's not yet material. And again, the return there is very, very strong. You mentioned travel. I mean this is an area where I'm not too sure I want to distinguish between my actual energy costs versus actual activity. What I would highlight is travel activity convening, client meetings is on the rise, as Peter mentioned. We are very bullish on that, and that's probably an area of noncomp that while we always want to be efficient, it's not something we're trying to dial back.

We're trying to make sure our bankers and our portfolio managers are with their clients, that there's a lot of activity. We see that as a differentiator for Lazard, particularly in an environment where AI is increasing. We view the client relationship as paramount. And so that convenient activity, that higher T&E spend will be offset by some of the savings that we're trying to do in other areas of noncomp. But we actually see that as almost a revenue driver, if anything else.

Great. Thank you. This now concludes Lazard's Second Quarter 2026 Earnings Conference Call. We appreciate your time and participation. You may disconnect at this time.

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 plane strains in automobiles 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 even more importantly, about the road ahead. And so maybe if -- 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 Campbell Lutyens 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 Shevelenko 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 is 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 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 judged 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 adds 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 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 I -- which will only be further expanded with the Lazard CL new third leg of Lazard. 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 Lutyens. 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 comp 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 two 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 comp clearances and to some degree, in the lead table progress.

So that's a great combination for the medium term because the lagged 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. We -- 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 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, is now in the process of bringing down 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 Lutyens 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 Lutyens 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 have 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. No, 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 has 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 size 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 two, obviously.

Got it. All right. Let's dive a little more into the acquisition of Campbell Lutyens. 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 especially secondary fundraising was one that we were very excited about strategically, which is why we've been adding people under Holcombe Green, our PCA business.

We like the business. We think it will continue to grow. And it's also very synergistic with the 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.

We're 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 Lutyens.

We believe that the teams will think very well. And I have a lot of personal trust in Gordon Bajnai, the leader of Campbell Lutyens 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.

All 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 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 conflict clearances skewing increasingly towards larger and higher fee deals. It's also encouraging. Obviously, in between those goal -- those kind of check-in points of the $10 million and the $12.5 million, things can move around year-to-year.

For example, we added so many managing directors in 2025, 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 aspects 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 one 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 two aspects of that. The part that's under -- at least partially under our control, if not fully in some cases.

The first is that the 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'm going to mention three 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 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 and health care, in industrials, 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 skillset 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 engender trust and do all the things that we think are going to be important on the kind of go-forward plan.

All right. 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 even 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 in 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 then we'll move to sponsors. How much pent-up strategic activity do you think exists today? We've seen a lot of big deals announced. Is there still a lot of pent-up demand?

Yes. I mean, again, go back to our comp clearances, which is the kind of leading, albeit noisy imperfect 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 revamped 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 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 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 a -- 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 a 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 are 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 reach 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 midterms? 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 deal-making 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 dealmaking, 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 one thing that is definitely now coming up with our corporate clients is companies may get caught in the middle of that. I have said in the past that the administration is likely to invoke 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 you 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 CEOs do have to spend more time with policymakers than was the case in the past. I don't see that changing for the near term. 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 one of the very few recommendations from the Draghi report that policymakers are actually acting upon. It would be good if they act upon 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's still in the future in terms of impact. We're not -- we haven't yet really seen a material effect from the proposed set 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 say could happen in the -- or that they expect will happen in the second half of this year. And then the 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 Lutyens for that reason.

By the way, one of the other things I should have said on Campbell Lutyens 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 is affecting everything. I don't know that I would put it at the absolute 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, will 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.Bye.

Good morning, and welcome to Lazard's First Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions]

At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Treasury. Please go ahead.

Thank you, Chelsea. Good morning, everyone, and welcome to Lazard's earnings call for the first quarter of 2026. I'm Alexandra Deignan, Head of Investor Relations and Treasury. In addition to today's audio comments, we've posted our earnings release on our website. A replay of this call will also be available on our website later today.

Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, achievements, or other events to differ materially from those expressed or implied by the forward-looking statements, including but not limited to, those factors discussed in the company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update them.

Please also note that unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe these non-GAAP financial measures are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measure is provided in our earnings release and investor presentation.

Hosting our call today are Peter Orszag, Lazard's Chief Executive Officer and Chairman; and Tracy Farr, Lazard's Chief Financial Officer. After our prepared remarks, Chris Hogbin, Chief Executive Officer of Asset Management, will join us as we open the call for questions.

I'll now turn the call over to Peter.

Thank you, Ale, and good morning to everyone. Before turning to our first quarter results and outlook for the year, I want to start with our announcement of the acquisition of Campbell Lutyens, and the future establishment of Lazard CL, a new private capital advisory unit within Lazard that will serve as our third global business closely coordinated with our world-class M&A and other advisory practices. This transaction underscores how Lazard is building on its core advisory franchise while both diversifying our business model and accelerating our growth.

Campbell Lutyens is a premier global private markets adviser focused on fund placement, secondary advisory and GP capital advisory services. Along with our existing PCA group, the transaction combines 2 highly complementary advisory platforms that will create the leading primary and secondary advisory business globally, with approximately $500 million in anticipated combined 2027 revenue.

The acquisition marks an important milestone on the path towards Lazard 2030, and an exciting avenue for additional growth. Lazard 2030 is a multiyear plan to build a more productive resilient growth-oriented firm. Our focus is on enhancing our long-standing strength in M&A, while also building leading platforms in restructuring and liability management, capital solutions and private capital advisory.

Our recent investments have expanded the solutions we provide for clients and diversified our revenue mix. Revenue related to private capital connectivity has increased from approximately 25% of total advisory revenue in 2019 to 40% today. Upon closing the Campbell Lutyens acquisition, we will achieve our 2030 target of approximately 50%, even while delivering total revenue growth.

The acquisition of Campbell Lutyens and establishment of Lazard CL strengthens our ability to deliver for clients at a time when fundraising is increasingly competitive and liquidity solutions are more complex. Operating across all major alternative asset classes and in all major global markets, Lazard CL will provide an unparalleled platform for independent, differentiated advice that meets the evolving needs of institutional investors, financial sponsors and their portfolio companies. By pairing the combined proprietary data sets of these two businesses with our AI capabilities, we will deliver deeper insights for clients while advancing our goal of becoming the leading AI-enabled independent financial firm.

We view this acquisition as strategically disciplined, financially accretive and culturally aligned. We share a commercial mindset, collegial approach and unwavering commitment to our clients. With Lazard's heritage in Europe, including the U.K., where we have had a significant presence for well over a century, we also have a shared respect for Campbell Lutyens roots and for the importance of preserving local identity within a global firm. This step highlights our further investment in the U.K. and in growth across our global franchise.

Taken together, this transaction reflects how we are positioning Lazard to lead across both public and private markets with exceptional advisory and asset management capabilities, while remaining anchored in the strategic advisory work that defines our firm. We anticipate the transaction closing before the end of the calendar year, and we look forward to welcoming Campbell Lutyens' team to Lazard.

Now turning to the quarter. Firm-wide adjusted net revenue was $673 million, up 5% compared to 1 year ago. In Financial Advisory, our outlook is optimistic despite geopolitical uncertainty with conditions depending in part on the path forward in the Middle East. Client engagement remains very active, and the pace of client interactions continues to accelerate. Total conflict clearances are up significantly, reinforcing our confidence in our deal outlook. As one example, conflict clearances for deals above $5 billion are up 50% year-over-year.

The broader underlying dynamics supporting activity also reinforce our constructive outlook. Companies continue to look to achieve scale and focus amid rapid technological change and a regulatory environment that is constructive. Dispersion in corporate performance continues to drive elevated restructuring and liability management alongside M&A. We anticipate ongoing strength in fundraising and the potential for increased private equity activity. These dynamics align with our existing Financial Advisory and future Lazard CL businesses, providing multiple and complementary levers for revenue growth.

Financial Advisory activity can admittedly be uneven from quarter-to-quarter. And during the first quarter, we had several transactions move to later in the year. As a result, revenue from this business was not as strong as we anticipate the rest of the year will be. Robust growth in restructuring and liability management, and Private Capital Advisory along with solid M&A performance in Europe, supported overall results and underscores the benefit of our diversified model.

Looking beyond 2026 to the next phase of Lazard 2030. Retaining, promoting and recruiting top talent remains a core component of our long-term growth strategy. We more than exceeded our goal of expanding our Financial Advisory MD group by 10 to 15 net additions from the first quarter of each year, with 28 net additions for 2025. Our recruiting pipeline is strong, and we remain opportunistic about adding new MDs in 2026, while we also focus on integrating Campbell Lutyens following transaction's close.

In Asset Management, we delivered net inflows of $9 billion this quarter, the highest level of quarterly net flow in almost 20 years. The momentum we see in our results underscores that our strategy is successfully pivoting the business where active asset management provides an advantage. While our focus on the areas of the market where information is imperfect -- with our focus, sorry, on areas of the market where information is imperfect and where our systems and research carry a distinct edge, including in quantitative strategies and emerging markets, we continue to see client demand and growth.

Even with significant inflows for the quarter, our won but not yet funded pipeline remains strong. While the environment remains uncertain, our business is well positioned for the year ahead as market volatility creates more opportunities for active managers and global diversification is firmly back on the agenda for investors. We continue to believe 2026 will be a year in which investors increasingly reallocate towards emerging and international markets which is where Lazard's presence and capabilities are particularly strong. With a more diversified platform, best-in-class research and investment processes, enhanced global distribution strategy and new leadership, our Asset Management business is well equipped to capture opportunities aligned with client demand.

Overall, client demand continues to grow for independent differentiated device and investment solutions grounded in contextual alpha, the broad insight and judgment needed to navigate complex macroeconomic and geopolitical dynamics. And that is what Lazard excels at delivering. As we reflected in our annual shareholder letter published last month, Lazard today is a structurally and culturally different organization, more commercial, more globally connected across public and private markets and better positioned to deliver long-term growth beyond traditional cycles.

Now let me turn the call over to Tracy to discuss our financial results.

Thank you, Peter. Financial Advisory adjusted net revenue was $356 million for the first quarter of 2026, 4% lower than the prior year. Building on our momentum in Private Capital Advisory, recent assignments include advisory to Falfurrias Capital Partners, Fremman Capital on continuation funds and advising NOVA Infrastructure on the raise of Infrastructure Fund II.

Further reflecting the diversification of our franchise, liability management and restructuring assignments include debtor roles with Videndum and Xerox Holdings and creditor roles involving Anthology and Dish. Demonstrating global reach with complex assignments, we completed transactions with Keurig Dr. Pepper's $23 billion acquisition of JDE Peet's and planned subsequent separation into 2 independent companies. And recently announced transactions include Zurich Insurance Group on its GBP 8.2 billion recommended cash offer for Beazley.

Turning to Asset Management. Adjusted net revenue was $309 million for the first quarter of 2026, up 17% from the prior year quarter. Revenues reflected management fees of $296 million for the first quarter, 25% higher than the first quarter of 2025, and up 3% on a sequential basis. Incentive fees totaled $11 million.

As of March 31, we reported AUM $259 billion, up slightly compared to year-end and demonstrating improvements in flows. During the quarter, we had net inflows of $9 billion, market appreciation of $354 million, foreign exchange depreciation of $3 billion and divestitures of $1.5 billion. Average AUM for the first quarter was $266 billion, up 2% compared to the prior quarter, and up 15% compared to 1 year ago.

Mandate highlight ongoing demand for our quantitative global and fundamental equity capabilities, in the first quarter, we secured several new mandates spanning our Advantage platform, systematic equities, fundamental strategies, fixed income and private markets. Related to a few key transactions during the first quarter, the sale of our stake in Edgewater funds was an attractive resolution for our investment in the firm. This resulted in a $78 million noncash gain in our GAAP results, which is excluded from our adjusted reported results.

In addition to our organic growth investments, yesterday's announced acquisition of Campbell Lutyens represents an important step in the execution of our Lazard 2030 strategy, materially accelerating revenues, scale and the diversity of our platform. Upfront consideration is all stock with optionality on deferred payments to be either stock or cash. The acquisition is expected to be EPS accretive in 2027 with no synergies assumed. Equity ownership is broad-based at Campbell Lutyens. So this transaction creates significant value through retention and performance alignment with long-dated deferrals. It also has the near-term effects of strengthening the balance sheet with additional cash and deleveraging the business.

Now turning to firm-wide expenses. Our adjusted compensation expense was $471 million for the first quarter of 2026, resulting in a compensation ratio of 69.9%. Our adjusted non-comp expense was $149 million for the first quarter of 2026, which equates to a non-compensation ratio of 22.1%. Improving operational efficiency and delivering profitable growth is a top priority. We continue to take a disciplined approach to expenses while investing in the long term. We are committed to achieving efficiency over time as we balance both sides of the equation.

Shifting to taxes. Our adjusted effective tax rate for the first quarter reflects discrete tax benefits related to stock-based compensation awards that vested during the quarter. We currently expect our effective tax rate for the full year 2026 to be in the high 20s percent range.

Turning to capital allocation. In the first quarter of 2026, we returned $174 million to shareholders, including a quarterly dividend of $47 million. In addition, yesterday, we declared a quarterly dividend of $0.50 per share. Guided by our Lazard 2030 strategy, we are building a stronger and more resilient firm. The addition of Campbell Lutyens and the future establishment of Lazard CL as our third global business will accelerate our strategy and strengthen the scale, relevance and strategic importance of our connectivity to private markets. With ongoing focus on disciplined execution, across Financial Advisory and Asset Management, we are positioning Lazard to deliver sustained growth and long-term value across cycles.

Now we will open the call to questions.

[Operator Instructions] We'll take our first question from Devin Ryan with Citizens Bank.

First question, obviously, I appreciate the comp ratio dynamic in the first quarter, just kind of a math equation. But can you just talk about kind of the full year? Do you think you can drive some improvement there just based on what you're seeing right now in the revenue backdrop, appreciating things can change. And then bigger picture probably for Tracy, just as you've been in the seat here for a bit, are you identifying any opportunities that could maybe drive more leverage as we look out beyond 2026?

I think, Tracy, can take both of those.

That's fine. I appreciate the question. So first of all, I'd go to Peter's opening comments around our positive outlook for the year, as you can fully expect comp ratio is a factor of 2 different metrics. And so as we gain more and more confidence around the revenue projection, there's leverage there. I want to be careful. I mean, your comment is exactly right. It's effectively a math equation. And the accrual that you'll see of the 69.9%, I think we would still guide you closer to a comp ratio for the full year similar to what we had last year, around 65.5%.

You understand from a GAAP basis, we're required to accrue on a fixed compensation basis, and that has a larger impact in the first quarter. So some of the math, which I understand is complicated, shows that there'll be a higher accrual in the first quarter versus the second. I do think that there are opportunities to be more disciplined. Obviously, me being in this role, one of the things that I had stressed that I would focus on was operational efficiency and cost management. I think there's additional ability to be disciplined in the comp ratio itself directly.

I think you'll have seen a relatively strong amount of discipline on non-comp already in the first quarter. To your question about just other areas, yes, I think there are opportunities, particularly in our support functions around streamlining operations between both geographies and businesses that we have a renewed focus on finding efficiencies there. We've launched a long-dated program to address some of those costs and cost reductions. I think we'll have more details that we can give on that in the second half of the year. I further believe that there's still opportunities as we see advancement in technology and AI and other parts of our business. But again, I think you'll see a continued focus on my part around operational efficiency.

Great. And then, Peter, I won't leave you out here. First off, congratulations on the Campbell Lutyens acquisition, seemingly get you in the top couple of firms in Private Capital Advisory. Obviously, already had a strong business, but this scales that quite a bit. So the question really is Campbell Lutyens didn't have all the other advisory capabilities that Lazard does and your existing private capital business was pretty integrated with from my sense. So can you just talk about the network effects that you think you can get off of Campbell Lutyens? And then also what that could mean for like productivity uplift of those partners or just more broadly across the firm as you integrate all those LP and GP relationships with broader Lazard?

Sure. Thanks so much for the question. First, I'd note, we believe, and I think the data show that we're pro forma the leader, not one of the leaders in primary and secondary fundraising business as a whole on a pro forma basis for Lazard CL post close. Second, there is a network effect, a flywheel effect in both directions from M&A, restructuring and liability management to the fundraising business and vice versa.

This is one of the major motivations that Campbell Lutyens had for joining Lazard, which was the recognition that they needed more of those capabilities in order to compete in the fundraising business. And they -- again, this was a big part of the discussion, which is the ways in which there was a business flow in both directions. So we're very excited about the opportunities for enhanced productivity from not just the kind of base business, but from -- in a sense, referrals in both directions. And this was a core part of the strategic logic of the transaction.

In addition to that, I don't want to discount the data piece of this. As you know, really nuanced information and data on both GPs and LPs is difficult for most people to obtain. We -- this combined business will have a data-rich environment that will be coupled with our AI systems that will help facilitate that flywheel effect that I was mentioning earlier in addition to helping on the core primary and secondary fundraising business itself. So there's a lot of opportunities for uplift here that we're excited about.

Our next question will come from Alex Bond with KBW.

Another question on the deal, and congrats there again. Can you help us think about the business mix at Campbell Lutyens just in terms of, maybe, secondary advisory, related revenues versus the primaries business relative to your existing in-house units currently and also in a similar sense in a geographical split of their business compared to yours? And essentially, just trying to determine where do you think their business will fill in the most white space relative to your existing offerings?

Yes, I appreciate that. And what was attractive for us about this transaction is the LEGO piece nature of it in terms of very little overlap and a lot of where they're strong, we were weaker and vice versa. So I would highlight, in particular, their strength that -- or the way I would put it is we're now balancing in the secondaries market, for example, GP transactions that are a source of excellence with LP transactions that are on the Campbell Lutyens side, more of the focus.

Across asset classes, we're adding complementarity between real estate, private credit and then infrastructure and other, for example. And so that's fitting very nicely. And then on the fundraising piece, strength in North America, with their -- with strength in Europe and in Asia. And so you're just seeing as we went 2 or 3 layers down, the entire ecosystem coming together in a comprehensive way. I think it is exceptional having seen lots and lots of potential transactions, the degree to which the pieces fit together to form a coherent whole. We also have some additional information on the mix of activities and what Lazard CL would look like in the supplemental deck that we posted yesterday on our website.

Great. And then maybe for my follow-up, going back to the comp, and I guess, just want to drill down on maybe the impact of last year's above-trend hiring there. You obviously added the 28 net MDs last year, well above the 10 to 15 target that you have out there. But maybe if you could just try to help us quantify maybe how much the hiring last year impacted the comp in 1Q relative to the full-year '25 rate? And then also maybe how we should think about the above-trend hiring last year maybe trickling through and impacting hiring trends in 2026, if at all?

Sure. Let me take that question and then Tracy can take -- or I'll take that part of the question, and then Tracy can take the kind of -- I don't want to call it the mechanical part. I'm not saying that to you, Tracy, the calculation part.

Obviously, last year, we added a lot of talent and well above our 10 to 15 net add per year target. We have added some bankers this year. Health care services is a good example. We're interviewing others. By the way, I would note, just as an aside, one of the people I interviewed earlier in this week before this transaction was announced was highlighting the importance of the secondaries business to his M&A franchise. So just coming back to the flywheel effect.

We think that with Lazard CL, we'll have even expanded ability to recruit and attract top talent. But bottom line, I think that we will be within our range this year in terms of net adds rather than above it. So 2025 was an unusual year because we had a lot of talent that we thought was productive and valuable. I'd also note just on the timetables here, that also means that if you look back over time at the separations we've done to help modernize our culture.

And then when the net adds have been, a lot of the future productivity, I've talked about this before, is still yet to come as the bankers that we've been hiring ramp up onto our platform. And if you look at the year-by-year net adds and subtractions and then add a lag of 1 to 3 years depending on what kind of ramp you want to do, the vast majority of the productivity gain from the hiring we've done is yet to come.

Yes. And I think the only thing I'd add to that on the mechanics, I mean, Peter talked about the hiring and the expectation around hiring this year. Naturally, we've talked about the ramping, and we've talked about that percentage of MDs that are still in that ramping period. Keep in mind that, that still remains at a relatively high level of around 40%. And so again, as that number were to come down, which would be effectuated by, for example, Peter's comment of us being in the middle of that range. You'll see a little bit of comp leverage as that matures.

I guess mechanically, maybe what I'd point you to is when you think about total fixed comp, which obviously has a component to that of guarantees as you're bringing in MDs from external places, total fixed comp, if you were to compare it quarter -- first quarter this year versus last year was up kind of low double digits. And so when you think about then total adjusted net revenue being up effectively 5%, there's naturally going to be a higher accrual rate in the first quarter.

Again, I think that, that math and that mechanic probably paints a tougher picture for the first quarter than what I believe the full year will look like. We think that through both a more positive outlook on the revenue front through a much more disciplined approach on comp this year than maybe what has existed in the past, given my involvement in that process. I think that the guidance that I gave you around comp coming down closer to where it was last year is important.

Our next question will come from James Yaro with Goldman Sachs.

Congrats on the deal. I did want to touch, Peter, on the sponsor's backdrop right now. It remains the weaker part of M&A once again so far this year. You did sound a constructive tone on this part of the market. Maybe you could just expand a little bit on the timing and speed of sponsor M&A, recovery and the ingredients associated with that as you look ahead?

Sure. Look, I struck a constructive tone on the market as a whole. I don't think I struck a constructive tone on the private equity piece of that. And in fact, for example, the conflict clearance is above $5 billion, the rapid growth there, those are almost all just given the deal size, public transactions. Those are much less likely in the private capital sphere as an example.

But I agree with you, there's a little bit of waiting for Godot kind of phenomenon where with regard to private equity activity, we've all been waiting for that moment. I'd say if you listen to the heads of the large alternative asset managers who are going to drive a lot of this activity, they are still saying that 2026 will be the year in which they're going to be selling and buying a lot of firms. So we will see how that plays out.

But the other point I wanted to make is that our connectivity to private capital, the reason that our revenue share on the advisory side has gone from 25% to 40% extends well beyond private equity M&A and involves restructuring and liability management engagements with these firms. It involves the Private Capital Advisory business, which is growing rapidly. It involves our Lazard Capital Solutions business.

So I think the piece that you're focused on appropriately is a subset of the overall private capital activity. And I agree with you that we're -- we've been waiting for a substantial uptick in private equity activity. We'll have to see how the year turns out. We are seeing a significant number of processes that we're involved in. So that's promising in private equity M&A. And then the second thing I'd say is, again, look to the public comments of the leaders of these firms in terms of what they say they're going to be doing in this calendar year. But we will have to wait to see it actually manifest itself.

Okay. My apologies for mischaracterizing your comments. Maybe just a little bit on asset management here. I was hoping you might be able to expand a little bit on the flow outlook from here. I guess, do you expect to be able to continue at the recent level of inflows? And perhaps if you could also just unpack a little bit the fee rate dynamics in the quarter in Asset Management and how we should think about the fee rate going forward as well?

Chris Hogbin is going to take that for us.

Sure. Thank you for those questions. So look, on the flows, we obviously enjoyed a very strong first quarter with $9 billion of net inflows. I think that reflects a deliberate sort of focusing of our distribution efforts, strong investment performance across a number of services and client demand in areas where we have very strong offerings. As Peter mentioned in his remarks, we've seen clients looking to diversify into international emerging markets and global strategies. And as a reminder, 2/3 of the AUM we manage is non-dollar denominated. So we benefit from that.

In terms of the flow dynamic going forward, we still have a very strong won but not funded pipeline. We see a lot of commercial activity, but I would not straight line the number from Q1 through the year. In fact, in the next couple of months, we might see a little bit more of a moderation in the net flow level. As a reminder, net flows is the difference between 2 big numbers, gross flows -- inflows and then outflows. So we think that -- while we continue to see very strong gross flows, there are some areas of our business where we may see some level of redemption. But we still remain very confident that we will deliver on our commitment of having net inflows for the full year. So we're very confident at that level.

Secondly, to your question on fees, fees in the average management fee in the quarter was 44.6 basis points. That's actually up sequentially from 43.9 basis points in the fourth quarter and up meaningfully from the 41.2 basis points from a year ago. Obviously, a fee rate, a lot depends on the evolution and the mix of the business going forward, but we feel comfortable as we see the business today that the fee rate should stay around this level through the remainder of the year.

Our next question will come from Brennan Hawken with BMO.

Congrats on the Campbell Lutyens deal. Could you help us understand the price paid for Campbell Lutyens? And thanks for the clarity on the equity financing, Tracy. When was the deal price struck? Could you help us understand that, too? As far as the pricing...

Yes, I can take both of those. So you have hopefully seen that the preference share price was $46.50. As you can imagine, we had throughout the process, a long set of negotiations between the heads of terms and the ultimate pricing. It was based on kind of a medium-range VWAP during the period.

On the questions on the equity financing, and maybe it's just helpful to walk through this for everyone. The $575 million total noncontingent consideration, $460 million of that is paid upfront. So that's -- the $460 million is based on that $46.50 preference share price. A significant portion of that, about half of it, we can get into the details, would be effectively released upon issuance, so not locked up about another half of it is locked up over a period of 3 years. There's also $115 million of a deferred payment, which would not be priced at the $46.50, it would be priced at issuance, which is 2 years from close, also subject to then a further 1-year lockup on that.

As was noted in the materials that Peter referenced, there was another $85 million of performance-based earnout. On both the deferred and the earn-out, we have the ability to pay or settle in either a cash-like security or stock. That gives us some opportunity to manage dilution depending on where the share price is. That was important to us. But we thought that the all-stock nature of the transaction was attractive for a number of reasons.

First and foremost, the alignment of incentives between the people that are joining our firm and our existing employees. The nature of the deferral has strong retention dynamics between just the long-dated nature of the deferral and the grant dates, but also forfeitures associated with it. So we thought that, that was powerful from a retention perspective.

And then lastly, as was mentioned, we think it's a powerful tool in just further enhancing the balance sheet and providing future strategic flexibility. This would be a deleveraging transaction naturally. But as we continue to think about other organic or inorganic investments that we want to make, increasing that strategic flexibility was important.

Another angle that I was interested in pursuing, Tracy, was just sort of getting an understanding of the price paid on the actual earnings that you are acquiring. Could you maybe help us understand the earnings that is embedded either in your 2027 revenue base where you have the combined entity? And importantly, what kind of profit margins CL had or anything that we can kind of get a little clarity on the underlying metrics?

Yes, it's a great question. When you think about it from an acquisition multiple perspective, and we talked about it being accretive in 2027, the way that I would think about it is it was effectively acquired at a multiple similar to our total consolidated weighted average multiple, which is why it's effectively breakeven in the first year and likely accretive in the second year. So that gives you a bit of a sense on just the earnings multiple related to it.

The revenue of the business is slightly larger than our own PCA business, but with really healthy operating margins in the mid-20s percent range. So this was both a high-growing and high-performing asset. So it was a chance to invest in both revenue growth but also profitability. You didn't ask it, but I also think that this is an opportunity going back to the comp ratio perspective, not only does it help from a scale perspective, which always helps with the comp ratio, but I also think the -- when you look at respective comp margins in respective businesses, this is another area where our consolidated comp ratio could benefit over the medium term.

Our next question will come from Ryan Kenny with Morgan Stanley.

Just want to clarify, as you focus on integrating Campbell Lutyens, does it rule out additional M&A near term in areas like asset management?

I'll take that. The short answer is that I think we've been disciplined in the acquisition targets that we have been looking at. Campbell Lutyens, I think, is right down the fairway in terms of the type of business that we find attractive. It's not -- I think I've talked before about avoiding advisory firms that are one man dance kind of thing where you're putting a premium on something with very little to no terminal value. We will continue to pursue an approach in which we're going to avoid doing that.

And then on the asset side, we were disciplined. Obviously, we were being pitched a lot of private credit opportunities early in my tenure. We decided not to pursue those in part because we did anticipate that the valuations looked high and it -- we anticipated there might be a wobble in the market at some point, which is exactly what has occurred.

That having been said, there may well be teams within asset management that we find interesting, not necessarily major acquisitions. And then the only other thing I'd say is we are taking a very active look at our wealth management opportunities, and we believe that there may be pathways for growth in that arena. So I'll leave it at that, which is on the advisory side, I think we've been pretty clear about the criteria that we would apply to acquisitions.

And on the asset side of the business, I don't think you should anticipate anything in the traditional asset management space, but we may be -- we're looking through the growth opportunities in our wealth management business. And in addition, we are actively always looking at adding talent and teams in our core asset management business where we believe that it's differentiated.

And obviously, as we look -- one other thing as we look at any opportunity, I just want to emphasize, it's got to fit strategically. It's got to fit from a valuation perspective and a shareholder value perspective, and it's got to fit culturally. We're really pleased with Campbell Lutyens from that perspective, but those are the only transactions that we're going to be doing where you hit all 3. And we will continue to be quite disciplined in terms of what we look at.

All right. And then separately, Peter, what are your thoughts on the new proposed merger rules in Europe? Is it meaningful to your advisory business there?

It could be. I think it's -- I think -- look, the backdrop in Europe is that there are lots of great European companies, but the macro backdrop has been stymied. And to some degree, the corporate backdrop has been impeded by -- you don't have as many frontier firms in Europe as you do in the United States. And so I think going back to the Draghi report, this was one of the recommendations that was in that report, with potential that there's opportunity created by moving in this direction. I'm also glad that Europe is moving on some of the Draghi recommendations because I think that's important to not just M&A in Europe, but also European economic growth.

Our next question will come from Mike Brown with UBS.

So Peter, you noted that several large transactions slipped out of Q1, but the conflict clearances above $5 billion are up 50% year-over-year. Can you maybe just talk about that pipeline-to-revenue conversion timing here? Is this potentially coming through in 2Q? Or is it really going to imply kind of a heavy second half skew? And is there risk here that some of these deals ultimately don't reach the finish line? Just maybe some color there about kind of what drove that slippage this quarter.

Sure. I mean, I think the short answer is this is not a quarterly business. It's a lumpy business, and you have to kind of look at underlying trend because the quarters can bounce around. That is what we're very excited about. We are, if anything, ahead of schedule relative to our Lazard 2030 plan on all of the indicators that we're tracking to achieve that plan. But quarter-to-quarter, things can move around. It's -- I don't know that there's one explanation for the various different slippages. A lot of them are idiosyncratic to specific deals or regulatory approvals or what have you -- things do move around.

With regard to the outlook from here and the conflict clearances, what I would say is I would just underscore that again, which is that no, there is no guarantee that a conflict clearance turns into an announcement and then that turns into revenue. But it is encouraging and an indication of the increasing traction that we're getting as a firm. I see this in a more qualitative way in terms of the boardrooms that we're now in, the CEO relationships we now have that did not exist a couple of years ago.

The frustrating part of this business is that takes a long time to mature and it takes a long time to convert into revenue. But it's happening and the conflict clearances, I think, are an indication of that. So I don't want to provide false precision on exact conversion timing. But I do want to give some encouragement about the underlying under the surface momentum that the business is creating in terms of our relationships and those relationships turning into mandates and then ultimately mandates turning into revenue.

Okay. Great. Appreciate the color there. And then I just wanted to ask about Campbell Lutyens. A lot of good color. I like the way you framed kind of the LEGO building blocks here. So it doesn't seem like there's much overlap. But if you were to think about some of the synergies, clearly, there's some network effects. You talked a little bit about that. Maybe expand on that a little bit. Is this an opportunity to continue to kind of find ways to get paid more from sponsors if ultimately there's less deal activity coming through? And then maybe on the expense side, is there any opportunities that could come through there? Tracy, maybe touch on any like shared services or other expense opportunities here?

Sure. What I would say is I do think that there is a benefit to being the market leader. Actually, even the responses we've gotten over the past 24 hours from some of our major clients underscores how excited they are that we will be able to offer the full suite of services that they may need in primary and secondary with a global fundraising practice that fills in the holes and it's therefore, if anything, even more effective on their behalf.

And so I'd say the past 24 hours has been encouraging on the additional revenue that will come to the combined business precisely from the combination. And then I've already highlighted the data point. I'd say in private markets, this is particularly important. The more insight you can have across a wider array of private market participants, the more effective you're going to be for any given client.

And then third, I'd say the scale itself opens up -- and we'll have more to say about this in the future, but the scale itself opens up a whole array of new opportunities, which I'll leave as vague for right now, but that we're excited about in terms of what we can offer to the counterparties and to others associated with Lazard. So more to come on that.

And then on the cost side, the accretion in 2027 that Tracy mentioned -- these in additional detail, Tracy -- does not assume cost synergies, but -- and so we're excited about this transaction even in absence of that. Obviously, as we move through the integration process, undoubtedly in these sorts of things, as we examine different ways in which we can be more efficient together than we were separately. I have confidence that there will -- those synergies will be possible. It's just that we didn't assume any.

Thanks, Peter. And it's a great question. I think maybe one point I would add on the revenue front. In the negotiations that we had with Campbell Lutyens, keep in mind, they -- this was bilateral negotiation. One of the things that they found very attractive about Lazard itself was our preeminent M&A practice. In their own revenue pipeline, which obviously we diligenced a fair bit, there's a lot of opportunities where they collaborate and with other advisory partners where that now could be a revenue synergy within our existing business. So I would say that, that is more of revenue synergy.

On the cost side, you're exactly right. I appreciate you using the shared service concept. As you know, I've shared my views around legacy Lazard not having kind of a shared service mentality in corporate. I continue to believe that there are significant synergies there. Naturally, they have a lot of support functions that will come across that can complement that analysis. So that's an area.

Peter already mentioned the geographical LEGO compatibility with their business in addition to the client and the service offering, there's a geographical one that is beneficial. So from a real estate perspective, I think there are also some synergies, which we did not include.

The last one, I would say is, I'd be remiss if I didn't complement the talent at Campbell Lutyens, both in their corporate and within the business. But I had a significant amount of time to spend with their finance, legal and other support functions. And I think simply, as we evaluate other cost efficiencies throughout Lazard, the talent that we're able to bring over from Campbell Lutyens will be an important component to that strategy.

Our next question will come from Daniel Cocchiara with Bank of America.

You came into the year just with a lot of emerging market excitement, but the war and energy price spike has kind of thrown that into question. I was wondering if you could just talk about how these developments have impacted the near-term outlook just for the asset management business.

Chris will take that.

Yes. I mean it's interesting. If you look through the first quarter, the flows picture was actually very consistent from January to February to March and the growth -- so we didn't -- as the Iran conflict kicked off, we didn't really see any impact in the flows in our business. As a reminder, institutional investors tend to be a little bit more longer term. And if anything, see any of those market movements as an opportunity to achieve their longer-term asset allocation. So it really hasn't changed much in the outlook for our business at this point.

Our next question will come from Brendan O'Brien with Wolfe Research.

To start, there's been a lot of noise on the private credit space at the moment where there's growing concerns on the outlook for credit performance just given their greater exposure to software companies. Just wanted to get a sense as to whether you're seeing any signs of building stress in both sponsored portfolio companies broadly as well as within their software holdings specifically. And just as we think through the timing of this opportunity, is this more of a 2026 kind of fee event or more of a long-term one, in your view? And just how does the private credit loans or the fact that it will be more private credit concentrated potentially impact the opportunity from a liability management versus Chapter 11 perspective?

I'll take a little bit of that, and then, Tracy, you can come in also. Look, I'd say the following. I'd say in our -- in the parts of our business that deal with sponsors who are in the software space, you're seeing an effect. It's not universal. It's a bit idiosyncratic firm by firm, but that is a very, very small share of our overall advisory practice.

And in general, I'd say the private credit challenges are concentrated in the software sector. And they're also, I'd say, more salient or more severe, if you will, in -- among alternative asset managers or private credit players that have also turned to retail investors. And the reason for that is I think retail investors are more used to having the ability to just withdraw money whenever they want to, and there is a tension between that thought and the relatively illiquid nature of many of these investments.

Institutional investors who account for the vast majority of funding of the private credit market overall, I think, understand that point, but it's something that many retail investors are not quite as used to. That -- this juncture is exactly why these private credit funds have gating constraints on the size of withdrawals that are possible at any point in time. It's still somewhat awkward when someone wants money back and they don't get it back immediately. Anything else you wanted to add, Tracy?

I would just go back to a couple of points. I mean we noted earlier the restructuring practice having a broader mandate between creditor and debtor. I think there's a lot of opportunity there. I actually came out of the Capital Solutions business within Lazard, where I spent the majority of my career. Keep in mind, that practice is really a very bespoke credit and private capital advisory business where, frankly, as some of these challenges emerge, that business actually performs better as it's dealing with kind of bespoke credit or private capital solutions that exist.

And then I go back to part of the rationale around PCA and Campbell Lutyens. I think in as much as any kind of the complexities in private credit manifest themselves and challenges in whether it's M&A, Peter mentioned IPOs earlier, but just other financing solutions that enable transactions, the ability to pivot towards continuation vehicles and secondaries, again, we see that as a natural hedge within the business and frankly just a high-growing area.

That's helpful color. And then for my follow-up, I just wanted to touch on the cross-border environment at the moment. With the conflict in the Middle East, once again, highlighting the fragility of global supply chains. I just want to get a sense as to the extent of which some of your larger multinational clients are rethinking their respective footprints and whether you see this as spurring more cross-border M&A activity once we're past the conflict?

I would say that large multinational firms are definitively rethinking their supply chain footprint. That's pretty much across all sectors. I would also say that I think even when this conflict is resolved, and we could talk at more length about the various options there. But even when this conflict is resolved, the risks associated with being cognizant that there are various choke points across the global economy are, I think, much better appreciated today than was the case a decade ago.

And leadership teams and boards are responding to that recognition by trying to create more resilience. But the trade-off is it's not so easy to decide in some sense, how much insurance you're going to take out against those choke points because it's expensive to do it. And so I think that's exactly what -- and I don't mean literal insurance, I mean geographic dispersion that attenuates the choke point. So I think that's what you're seeing.

I don't know that the end of the hostilities in the Middle East is going to be the kind of breakpoint for those questions because I think there's broadscale appreciation that we're just in a new environment. And even if peace breaks out in the Middle East, the risk that various choke points across the world will again be used for leverage in a geopolitical conflict is well appreciated by boards and C-suites. And so they're evaluating how to respond to that.

I would just highlight, again, I think while this sort of uncertainty is unfortunate for the global economy, it is also something where clients increasingly look to a place like Lazard to help them guide to help get insight into what they should and could be doing. I've emphasized before the contextual alpha era that we're in. I think we are living in an era of contextual alpha. And Lazard's geopolitical team integrated with our banking teams and then also integrated with our investment professionals on the asset side meet that moment.

We have a final question from Alex Bond with KBW. Alex, please make sure that you're unmuted.

All right. This does conclude Lazard's First Quarter 2026 Earnings Conference Call. You may now disconnect.

Good morning, everyone. My name is Mike Brown. I cover U.S. asset managers and brokers here at UBS. I'm excited to have Chris Hogbin here on stage today for his very first conference presentation as Lazard's new Asset Management CEO. For those that you do not -- don't know Chris, he was appointed CEO of the roughly $265 billion AUM franchise in September and started his role in December of last year. With 3 decades of global investment leadership, Chris brings deep experience overseeing the multi-asset investment platforms at scale and most recently serving as Global Head of Investments at AllianceBernstein. So Chris, thank you so much for joining us today. Thanks, Mike.

Thanks, Mike. Great to be here.

So Chris, just to start, I know a lot of folks would probably love to hear a little bit about what brought you to Lazard. You came from an excellent firm. So when you were considering the opportunity to join Lazard as CEO of Asset Management, what were some of the key aspects that attracted you to Lazard and then to the asset management business?

Sure. So after 20 years at AB, I thought I'd probably never leave. But what attracted me a few things. Look, first and foremost, just a really exciting vision that our Group CEO, Peter Orszag, set for the business, and you've read about that on Lazard 2030. But to have the energy, enthusiasm and competitiveness coming from the top was really appealing. Secondly, I looked at the business, and it's a business that's got some real strengths. I'm sure we'll kind of come to talk a little bit more about them. But it's got great strength in investments. It's got great strengths in distribution.

But as I was looking at the business, it's a business where I realized there's still some things we can improve and particularly coming from the outside and seeing how other asset managers approach these things, realized it was a business I could have an impact on. And certainly, having spent 10 years as a consultant, 20 years in various investment and executive roles at AB in various locations around the world, I thought I had something to -- really something to offer in moving the business forward. So it was all of those things kind of coming together that made for a pretty compelling opportunity for me.

Great. Yes, it makes sense. So if we think about your kind of first 100 days in the role, you're about 2/3 of the way through that.

Thanks for reminding me.

Maybe talk a little bit about some of your top priorities as you start to really get your hands around the opportunity set here. What are some of the priorities to maybe refresh and reposition the franchise and maybe some of the initiatives that you think you could have kind of the most impact on?

Sure. So look, there's really 3 areas. The first is really to ensure that we deliver, okay? And as an asset manager, the most important thing we can deliver is investment performance for our clients. So as I look at the investment performance that we're delivering at the moment, as of the end of the year, about 2/3 of the AUM is outperforming its stated benchmark. And that's okay. It's improved sequentially through last year, but it's not where we need it to be or aspire for it to be.

So we've got to really address that. So one of the first things I did was appoint a Chief Investment Officer for Lazard, a gentleman called Eric Van Nostrand. What that role -- let me be very clear, that role is not to set a top-down view for Lazard that the portfolio managers are all going to implement. What that role is, is to be a point to oversee the portfolio managers to engage with the portfolio managers, to challenge them on their positioning, to help them with their thinking. It's also to ensure that we're really bringing out the benefits of the breadth of the platform as broad as Lazard. I'm very confident that an emerging market analyst has insights that a developed markets analyst can benefit from.

The fixed income PM is thinking things that an equity analyst can benefit from understanding. So the second part of Eric's role is really about kind of bringing together the investors and sort of finding easy forums for them to share the data, the analysis in front of them. And the third bit is to just ensure over time that we can continue to invest in our processes, our technology, our resources to ensure we can remain at the cutting edge. So it's around delivering investment performance. That's going to take time to come through. But I think in Eric, we have a very strong leader to oversee that. It's clearly around delivering for our clients. So it's ensuring that we continue to have great sales relationships with our key counterparties. So it's around delivering, right?

The second part is around growing, okay? The most important way we can grow is by scaling what we already have. In Asset Management, the secret of success is having scale in individual products. Now the good news here is after many years of outflows last year, I do view as a year of transition in our business. while we have one very significant client relationship close, if you exclude that, last year, we had $8.5 billion of net inflows. And you saw just yesterday, we started the year with good momentum with just under $3 billion of net inflows in January. So we need to continue to lean into that to ensure that organic growth comes through.

Beyond that organic growth, there's going to be opportunities to expand into new areas, right? And we'll need to be very focused around that and diligent and selective, but there'll be opportunities there. So it's around delivering, it's about growing. And then the third is about sort of capitalizing on that growth and ensuring that as we grow, we do so in a way that is profitable, okay? The margins for our business are not where we would like them to be. So as we grow, we need to do it without adding cost to the business so that we can have operating leverage come through as we deliver that growth. My priorities are really across those 3 buckets.

So maybe if we dive in a little bit deeper there and maybe you can kind of bucket the opportunities here a little bit. Maybe walk us through where you see the strategic mix of the business if you kind of bucket it by, say, one, protect and grow, maybe two, invest and enhance. And then three, where is maybe the true white space opportunities for Lazard Asset Management?

Sure. So in terms of protect and grow, we've got a lot of things that are working. And you see that in the net flow figures. So that's around our systematic equities, our global listed infrastructure, emerging markets, Japan. So we really need to kind of ensure that we continue to deliver there, and those things can continue to grow. The nice thing is there's actually kind of quite a lot of other things bubbling under with having a lot of interesting client conversations in the fixed income space increasingly and in other equity strategies.

So there's a lot that's working and we need to kind of lean into. Look, in terms of investing, there are a couple of different parts to that. One is ensuring that we kind of continue to invest in the investment team so that we can innovate new products and nurture the ones that are newer. It's also about investing in products -- sorry, vehicles. So just over the last year, we went from 0 to $1 billion across 7 active ETFs in the U.S. So it's continuing to invest in areas like that. In terms of the white space, I sort of see 3 long-term kind of drivers or areas to explore. The first is clearly the traditional public markets space. If you look at our footprint of business today, it's about 3/4 equities, then some fixed income and multi-asset. But there's a lot of public market areas that we're not in, and I see opportunities to engage to either hire or acquire teams there.

Look, the second is clearly private markets where we have a small footprint there. We've got a venture capital business in France with Elaia, but there's a lot that we don't do there. And then the third is the wealth area. We do have a wealth business today in France and the U.S. But clearly, a very big space around us there as well. So as I think about this year, it really is about the kind of delivering, but ultimately start to think about what are the longer-term growth vectors that we can lean into across those 3 areas of white space.

Okay. Great. So with the full acknowledgment that you are still quite new in the role and you have thinking about maybe the white space opportunities might not be the first order of business. But maybe just unpack that a little bit more. And when you think about kind of tackling that opportunity, is that something that you can do organically? Or does this require some M&A to do so or maybe it's some combo?

Yes. I mean, look, I think the first thing I'd say is we've -- as you look at the history of Lazard, you can see we've have managed to tackle a lot of those opportunities organically, whether that is developing our systematic equities capability, whether it's about the ETF build-out, et cetera, we've done all of that organically. Inorganic is clearly going to -- should be part of the mix, but one needs to be incredibly selective. If I think about -- I mean, think about just the public market space to start. If we decided a particular area or a particular capability was attractive to us, we need to go out and you start with a really broad funnel, all the firms and teams that are out there.

Then you say which of those have got attractive performance, which of those performance streams are the result of a sort of robust repeatable process that we can kind of get confident will endure, where is there a good cultural fit? Where are they going to benefit from being at Lazard, where are we going to benefit from having them? And where can we get the economics to line up. So you go from a very broad funnel to a very narrow end of the funnel pretty quickly. To give you some kind of numbers around that, in my previous role at AB, I lifted out a team from AGI to do global and European growth equities. That search started with me reaching out to almost 100 teams to land one. So there's a lot of work that goes through that funnel.

So that's how I think about it. You've got to be incredibly selective. So that's how I think of it in the public space. Look, in the private space, it's no shock to anybody in this room, valuations look expensive or high. And the history of a number of asset managers -- traditional asset managers who've moved into that space have been somewhat checkered. So I think, again, we need to think creatively about that space and would a partnership make more sense, et cetera. So a lot more work to do there. And then in the wealth channel, the successful models appear to be a good mix of organic and small inorganic lift-outs or team hires that could potentially help grow that business. So inorganic is going to -- should play a role, but it needs to be a very selective part. And these are sort of teams and small firms, they're not big game-changing acquisitions.

Maybe just a quick follow-up on the private asset side. I think that's something that has been talked about for maybe a number of years and the valuation disconnect there and kind of the elevated valuations in the space certainly makes sense as to maybe why we haven't seen anything. But when you think about the asset class opportunities out there, is there maybe a few that you think are kind of top priority for Lazard if you were able to find the right manager?

Yes, but I'm not going to say which ones. Look, I think for us, particularly when you think of it as a partnership as opposed to an individual acquisition, it's around saying, where do we have a set of strengths that we could marry with a private asset manager. So look, as you might imagine, a bunch of areas we're looking at, but none that I'm ready to talk about just yet.

Makes sense. So one thing that is clearly playing nicely into Lazard's hands at the moment is really the fact that the international markets for the first time in a decade actually outpaced the S&P 500 in 2025. So maybe talk a little bit about how institutional investor sentiment has been improving there? What are you starting to see? What are you noticing in some of your mandate wins and maybe the outlook for funding there? And do you expect that to continue to gain momentum in 2026?

Sure. So look, I spent the last month going around the world meeting asset owners. So let me try and summarize what I'm hearing. You are getting increasing -- an increasing set of asset owners who are looking at a couple of things. They're looking at how far the U.S. has run. They're looking at where valuations are. They're looking at geopolitical tensions. They're looking at opportunities elsewhere. And I think all of that kind of comes together to lead to a reevaluation of positioning and a sense that they're looking to diversify, right?

And we're starting to see that in flows. If I think about our business today, about 2/3 of the assets that we manage are non-dollar denominated to give you a sense of our kind of international exposure. That comes from emerging market strategies. It comes from international and global. strategies. And that is where we're seeing a lot of client interest. If I look at where the flows came last year, if I look at our one but not yet funded pipeline of $13 billion, a lot of those are into those kind of international sort of services.

So we're seeing a lot of interest there. The other area where we're starting to see a pickup in interest is strategies that perhaps have a little bit less tracking error in them. And in a way, you could almost think of it as the spectrum from pure active to pure passive. And along -- if you think of that as a spectrum, you can end up in a set of strategies that are still active but with lower tracking error. And a number of our systematic services are very well positioned to deliver that. So that's been another area of growth.

Great. Great. Okay. So yesterday, you alluded to this, the fact that you had almost $3 billion of net inflows in the month of January. So certainly a strong result for Lazard, I think, over 13% annualized growth. Maybe break down what came through in that mix? Was it kind of focused on any particular strategy or region? And maybe give us a view into those flows.

Sure. So it's terrifying when you annualize 1 month. So please don't bake that in just yet. But obviously, we're very pleased to see the strong flow picture. It's really a combination of the answer to a few previous questions. It is more into services like our systematic equities, like a number of our international services, our listed infrastructure service, our Japanese equity service. So there's a breadth to it, but the commonality to that is it's more international and global -- more international and global in nature. There are also services with very strong underlying investment performance.

The interesting thing because we -- at the end of last year, sort of came out and said, look, we expect to be net flow positive for all of 2026, what gave us that confidence partly is the level of flows that we saw in that one but not funded pipeline, but it's more -- it comes from the breadth of where we're seeing the flows. So if I look back to 2025, the flows came across a wide set of products, and it came from a wide set of clients and a wide set of geographies. So if I cut our business between the U.S., Europe and Asia, all 3 regions were net flow positive last year. And it's that breadth across each of those 3 dimensions that gives us the heightened confidence in the flow picture for the year.

And the $13 billion won but not yet funded mandate pipeline, was -- did that come down now that $2.9 billion float in? Or was that kind of $13 billion number actually quoted after you kind of knew where the flows were going to...

So the $13 billion was as of our results date at the beginning of the year. I'm not going to get drawn into giving a day-by-day number because as you might imagine, if something funded yesterday, that number kind of comes down. What I will say is there's been a robust level of activity. So the number hasn't materially changed, and we're seeing a lot of interest. The distribution teams are very busy. The PM teams are very busy meeting clients, I am as well. So we've sort of seen the level of activity stay pretty stable through the last few months.

Okay. Great. Let's switch gears and talk to one of the other successes that's been playing out more recently, the active ETF side of the business. So you talked about the fact that you went from 0 products to 7 products. You're kind of at $1 billion of AUM in the space. Maybe talk a little bit about what's the next chapter for the active ETF business.

Yes. So look, the first thing about active ETFs, the success of them is really about whether you've got successful strategies in them, right? Are you a successful active manager? The ETF is a wrapper or a vehicle around that. So I think a lot of the success actually is due to the underlying success of the active management underneath. That said, Rob Forsyth, who we hired about a year ago to lead that initiative, I think, has done a phenomenal job in scaling the business out. The key thing in the active ETF business is to actually have a gain scale -- quickly get to scale in individual strategies because the platforms that you can list on will have AUM minimum. So you want to be able to kind of get quickly to $100 million, $300 million, $500 million, and then you can get on more and more platforms and you get that J-curve coming through in the growth.

As we look forward, we'll continue to add active ETFs. In the U.S., there's this whole discussion around, look, should you have ETF share classes, et cetera, et cetera. We have the option -- now have the optionality to do that. Speaking to our distribution partners, they're not really terribly excited about that. So we'll keep that as optionality for now, but we'll continue to innovate new ETFs and convert some mutual funds. And we're starting to look at other geographies and most near term, Europe is in our crosshairs as to what we need to do there.

So maybe if we zoom out a little bit and we think about the active ETF space, and if we use the baseball analogy, where is the industry at in that journey? Are we still kind of early days? Or are we kind of middle innings?

That's a good question. I still feel we're fairly early innings in it. $1 billion is great from 0 at the beginning of last year, but it's still 0.5% of our global AUM. And I think that's representative across a number of the leading peers. So I think there is more room to go. And primarily, I believe, in the U.S., given the tax advantage of the vehicle, but we are starting to see increasing client demand for it. And ultimately, this is a business where we want to serve our clients where they want to be met -- or meet our clients where they want to be served, sorry. So we will follow that client demand.

Great. Great. But it is also a space that a lot of your big competitors have been kind of leaning into and trying to grow more and launch more products. So how do you make sure that you can continue to kind of stand out in that increasingly crowded field?

Yes. Look, I think ultimately, it comes down to a few things. First and foremost, it comes down to do we have the right investment strategies underneath them. And if you have great investment strategies underneath them, they tend to work better. And as you can see in the 7 that we've launched, it's a mix of some of our flagship strategies, so global listed infrastructure, emerging market equities, along with some newer things, emerging tech, et cetera. So first and foremost, it's that. Secondly, it's working -- making sure our distribution partners are working hand in glove -- sorry, our sales teams are working hand in glove with the distribution partners to make sure that we're supporting them and rolling them out.

Great. Great. So again, 2025 was kind of a bigger year for investment in the active ETF business. At this point, was a lot of the investment to kind of get that off of the ground, essentially kind of behind you? And so how do we think about maybe the incremental investment that you may need in that space?

Yes. I think the -- look, certainly, the cost in terms of bringing the team together, the technology required to launch it was in 2025. They'll be -- they will recur in 2026, but the incremental cost should be very low going forward as we launch additional ones.

So one of the common questions that we get about Lazard from the investment community is a focus on the margins, right? Lazard screens at a lower margin than the broader industry, and it's kind of continued to come down in recent years. And certainly, some investments have been part of the reason for that. But as you come in with a fresh perspective, how do you think about that opportunity to maybe close the gap to the industry average? And is there anything structural that will kind of limit your ability to get there?

Great question. I won't be drawn on the specific target, but I will say that the margins are not where we would like them to be. How do you improve the margin from here? And sorry, to directly answer your question, I don't see anything structural, right, that would prohibit us improving margins. The first thing that we want to do to drive margin is to grow and grow in our existing products because that's a very high incremental margin when we can do it. So first and foremost focus on that. Look, the second part is then to sort of work through and say, look, where can you take cost out. One of the observations, and this is true across a lot of asset managers is that we have a broad set of products and investment strategies.

A small number of those drive a disproportionate amount of our revenue and profitability and then there's a long tail of other products. Many of those products will drive our future growth, but some of them won't, okay? So we really need to be fairly aggressive in looking at those smaller products where we've got less conviction in and look to move resources away from those or potentially rationalize them so we can focus on other areas. And that will help with the margin. We've done some of that, but I think we need to sort of step up the pace around that and that focus should help. We then just need to be incredibly disciplined -- and one of the important hires or appointments I made at the beginning of this year was we had a COO transition and Rosalie Berman became our new COO.

Rosalie spent 20 years in operational leadership roles at Morgan Stanley and is really kind of taking a very fresh look at a lot of the processes and cost controls in our business. And I think that, that should bear some fruit as we look through the cost structure. There's no silver bullet in this where it's like the one thing we need to change, it is just about having very rigorous cost discipline. So having Rosalie there as COO sort of working with me and my leadership team is going to be critical to making sure that we do deliver that operating margin as the -- operating leverage as our revenue growth comes through.

Maybe a follow-up on that point, Chris, when you talk about some of these strategies that perhaps you may identify as having kind of an inability to scale to a level that makes the ROI makes sense. What does the time frame look like in terms of addressing that opportunity? Is that something that's a kind of multiyear run? Is that something that's kind of more of a 2026 event?

I think it has to be ongoing, right? I don't think you ever want to be done looking at your portfolio and kind of figuring out what's there. But as Eric settles in as CIO, as I settle in as CEO, we'll have time to address it. So I think we need to kind of -- maybe there's a -- we accelerated a little bit this year and next, and then it becomes more sort of business as usual going forward.

And to be clear, we're talking about the kind of tail. So a lot of these are strategies that are sub-$100 million, right? They're not kind of -- so you may not see it in an AUM line, but you'd see it just as in the headlines as strategies rationalize.

Got it. And just to follow up on my question about the kind of structural element of the margin differential. The reason I ask that is you certainly are quite a global asset management franchise. And so when you look at the breadth of the global business, is there any opportunities to maybe rationalize some elements of the expense base or maybe said the other way, to get some more growth out of your business such that you can get better operating leverage on the revenue side?

So look, I think the global footprint is a feature, not a bug of the Lazard model on the investment side and the distribution side. We do -- and look, as you might imagine, as you start to look at fresh at the operating model that supports that, for sure, there'll be some opportunities for us to think about, look, how do we manage that. For example, when we have a global capability, let me choose an example, RFP responding, right? So we have a team of folks who sit responding to RFPs coming in from institutional clients.

That's generally centralized. A little bit is offshored already. But then in each region, you have a local person who's just adapting it a little bit, et cetera. Is that the right model for writing RFPs? Is that -- is that going to move the needle on its own in terms of our margin? No. But as you go through every process and think about where should you be global versus local, what's the right balance to get right, there will be opportunities. And certainly, with me coming in a fresh, Rosalie coming in a fresh and a brand-new group CFO, and he and I are very focused on this. I think we'll uncover opportunity.

Maybe just double-click a little bit into the distribution and sales force. Again, go only been a couple of months, but as you had a chance to kind of get your hands around the strength of the business and maybe identify some opportunities there based on your prior experience, what have you kind of observed thus far? Maybe where could the incremental investment dollars be spent there?

Yes. I mean, look, the first thing I'd say is I've been really impressed by the distribution teams at Lazard. And I think there's some wonderful proof points if you look at the level of gross sales last year, a record $55 billion, the net flows and the level of current business activity. So I'm working with a great team. I think that the incremental dollar really does have to be about how do we get more people on the front line. If you look particularly in the intermediary business, the wirehouses, the RIAs, the broker-dealers, third-party distribution around the world.

To win in that business, you've got to have great products, but you've also really got to work with those partners to support them in the field. That's an investment we've been making in the U.S. over the last couple of years, but I see high ROI and adding additional heads there. We've got to figure out how do you find that. So that's around kind of getting the operating system or operating model right in the backbone to free that up. But I think there's a real advantage to doing that with hopefully fairly quick payoffs.

One area that I think has been a little bit overlooked for the asset management business has been the expansion with the intermediaries and kind of the wealth management space more broadly. That's been a good vector of growth for you. Can you maybe just give us an update on the investments there and maybe where you see the opportunity set in that channel specifically and how you can really unlock it more?

Yes, sure. So I mean, just to kind of level set, the intermediary part of our business is around -- is just under half, just under half of our business, and it's been growing nicely. How do you win there? I mean, look, I feel like a broken record saying this. First of all, you've got to have the right products, right? With good investment performance. Second, you've got to have the right vehicles, increasingly in the U.S., that's around having active ETFs. It's around having SMA capabilities. You've got to have the right support model, and that is about having people in the field as well as for the home offices. So we've been through a process in the U.S. of channelizing our field teams to service the intermediaries so that they're better aligned with our major partners.

The other part of this, and I've been meeting with each of our big intermediary partners over the last couple of weeks is how do we partner with them. And a large part of that is around sort of thought leadership. And one of the things that they are constantly kind of looking for, I think it's a real opportunity for us is how can we provide thought leadership to them, both the home offices and the field teams to help them better serve their own clients, right? And one of the areas that kind of keeps cropping up, and I think it's a real interesting part of Lazard is a unit that started on the FA side of our business, but we now leverage as geopolitical advisory business. Now this is a group of government officials, CIA folks, military folks, et cetera, et cetera, who can kind of bring pretty interesting perspectives very quickly around geopolitical events.

And for sure, there's quite a lot of those going on at the moment. And that's the sort of capability that we can bring to bear with some of these big intermediary partners, whether that's speaking at events, whether it's kind of providing information quickly so that their advisers can service their clients. So there's things like that, that as we think about the broad partnership, it's not just as simple as product and sales support. There's a lot of other things that we can do around the edges.

That brings up a really compelling point here. Certainly something that comes up in investor conversations is really that the opportunity with asset management and financial advisory together, you just made a really good point there and something that you can kind of leverage more on your side of the business. But from us on the outside, it's always a little bit hard to see maybe the benefits of the 2 together and the power of the combined businesses. So again, it's been early days, but is there anything else you're really excited about having in that connection given that is something kind of newer to you?

Yes. I mean, look, I think, first of all, it's just a very -- there's a very powerful brand across the 2 businesses, both reinforce. I do think that kind of power to -- we talk about the kind of power to convene. And I think the geopolitical advisory is a nice example of that around content to kind of provide the right context for decisions. That's very powerful on the FA side. It's very powerful on the asset management side, both to our investors and to clients.

I think there's a bunch of investments that we can make across the firm. I think AI is a really good example of that. where we can leverage a lot of the investments that are being made on both sides of the business. And then look, I think there are some real clear synergies that can over time be exploited. I don't want to overplay it right now, but we do have a wealth business. As our FA advisers are in wealth creation events with clients, is that an opportunity to bring our wealth management business and create a win-win on both sides of it. So there are things like that, that I think there's opportunities to -- it's why we're not really doing that today, but over time, there could be some.

Great. I'm going to pause there and just see if there's any questions in the room or if anybody wants to submit any questions, you can do so through the app or through the web, and I'd be happy to read them off. Okay. Great. So if any come in, just go ahead and raise your hand.

The wealth business, I wanted to maybe dive into that just a little bit more. It's not something that we hear a lot about from Lazard again, given it's kind of smaller relative size. If this is a strategy that you do ultimately kind of invest in and grow more, what could that look like? How would you ramp that business? Maybe talk about France versus the U.S. and where you see the opportunity maybe in the U.S. based on what you've learned in France?

Yes. So look, the businesses that we have today are a little bit different, both sides of the Atlantic. So in France, we have a close architectural wealth business. along with a private bank. And it's a nice business. It's nicely profitable, and it grows -- kind of grows nicely. I do think there's opportunity there given the strength of the investment offering and the client servicing to continue to scale that in France. And clearly, over time, there might be opportunities to expand that geographically.

All the caveats I said earlier about being very selective in any acquisitions, but you could also do that organically as well. So that's a part of our business that's attractive. The attractiveness of it beyond the margin, et cetera, is the persistence of those revenue streams. If you kind of go through our overall business, it's like retail money is the shortest duration, Institutional is longer and then private wealth tends to be even longer than that.

In the U.S., it's a slightly different business. We acquired a business called Truvvo 4 years ago --5 years ago, 4 years ago. And that's more of a high net worth family office kind of offering that does sort of asset allocation manager research selection. It's a really interesting investment capability. And I think there's opportunity again to scale that. Over time, as I step back and look, it's really early days, so don't overweight these comments. But as I look at wealth businesses that are scaled, they've generally done it through a combination of organic growth as well as some very limited sort of add-ins, whether that's sort of team lift-outs or small acquisitions. So we're doing some work to educate ourselves and figure out what the right path forward is.

Okay. Great. AI, you brought it up. And I guess I'd love to maybe unpack that a little bit more as you think about your business and you think about the opportunities here. How could you use AI more in terms of the investment process? And then if you think about, again, maybe coming back to the margins or the expense side, where is there maybe some opportunities on the efficiency side as well?

Yes. So look, I -- you won't be surprised, I'm quite excited about the opportunity for AI. Critically, we hired a terrific guy at the end of last year called Anthony Nicastro to be the AI lead for the asset management business. And really, we're trying to focus on 4 areas. The first is our investment process -- investment research process; the second, our client experience. The third is kind of efficiency automation. And the fourth is kind of risk governance sort of oversight. There are a lot of processes underlying what we do, and it's just having that second or third set of eyes and can AI play a role there.

Look, in the investment process to specifically answer your question, a lot of -- and I'm sure that everyone in the audience can understand this, a lot of the analyst time is spent actually compiling data from various sources, attending things, getting information together, et cetera. Then a bit of time spent analyzing it and frustratingly little time spent thinking what the implication is. And actually, what we really want to do is turn that on its head so that we've got more time to actually think and generate alpha. So I think that's where AI will really change and frankly improve the jobs of the analysts.

I think as you go through the investment kind of process, it can actually have a pretty interesting implications for the portfolio construction, risk management, et cetera, and we're leaning in heavily to that. On the client side, we spent a lot of time writing client commentaries, sharing information with clients. And now that can -- 90% of that can be automated. The first, second draft can be written, meeting prep notes, et cetera, et cetera. So it's about making the sales teams more efficient so that more of their time is spent being in front of clients. So super excited about the potential for it. And again, it goes back to that notion of deliver, grow and capitalize. And if we can use AI properly, that growth will kind of come through at a more attractive incremental margin.

Great. Okay. We're approaching the end of the session, but I just want to give you an opportunity. Is there maybe anything we haven't covered today that you thought would be kind of an important message for investors to hear?

Look, I mean, it's been a great set of questions. So thank you. I mean, just in closing, I get it that there's some skepticism about the asset management business. But the reason I came to Lazard is I really see some real strength here. I feel very confident in the ability to improve the perimeter of what we have by delivering, growing it and capitalizing on that through profitable growth and then ultimately, some very exciting long-term growth vectors. So I feel very confident that this should be -- can be a compelling part of the buy case on Lazard and certainly can be a major contributor towards the Lazard 2030 ambitions that we set out.

Great. Well, Chris, best of luck, and thank you so much for joining us here in Florida.

Thank you very much.

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.

Good morning, and welcome to Lazard's Fourth Quarter and Full Year 2025 Earnings Conference Call. This call is being recorded. [Operator Instructions]

At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Treasury. Please go ahead.

Thank you, Nicky. Good morning, and welcome to Lazard's earnings call for the fourth quarter and full year 2025. I'm Alexandra Deignan, Head of Investor Relations and Treasury. In addition to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website later today.

Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, achievements or other events to differ materially from those expressed or implied by the forward-looking statements. Including, but not limited to, those factors discussed in the company's SEC filings, which you can access on our website.

Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update them. Please also note that unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe these non-GAAP financial measures are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and investor presentation.

Hosting our call today are Peter Orszag, Lazard's Chief Executive Officer and Chairman; and Mary Ann Betsch, Lazard's Chief Financial Officer. After our prepared remarks, Chris Hogbin, Chief Executive Officer of Asset Management; and Tracy Farr, our incoming CFO, will join as we open the call for questions.

I'll now turn the call over to Peter.

Thank you, Ale, and thank you to everyone for joining us this morning. Our fourth quarter and full year results demonstrate our ongoing focus on executing our Lazard 2030 long-term growth strategy, for 2025, we reported firm-wide revenue of $3 billion with record revenue in Financial Advisory and Assets Under Management up 12% in Asset Management.

Before we turn to our outlook and financial results, I would like to take a moment to thank Mary Ann and welcome Tracy as our new CFO. Mary Ann has played a significant role in elevating our finance team and building a foundation to support our long-term goals. I'd like to share my appreciation for her contributions and for her ongoing support as a senior adviser to Tracy through this transition.

Tracy brings strategic insight, financial rigor and deep familiarity with our business, he has worked closely with me and others on our corporate strategy while building and executing our vision for the firm's future. As CFO, he will lead efforts to improve operational efficiency, helping drive profitable growth and progress towards Lazard 2030, while playing a central role engaging with the investment community. You can read more about Tracy in the press release we issued this morning alongside our earnings release.

Now turning to our outlook and financial results. As we look ahead, we see substantial growth in both of our businesses. In Financial Advisory, the M&A cycle continues to deepen, while client demand remains strong for our other advisory solutions such as private capital advisory and restructuring and liability management.

In asset management, the repositioning of our business is well underway and is being reinforced by investors looking to diversify their holdings across regions and strategies. Our current level of 1, but not yet funded mandates is $13 billion, even higher than a year ago, and that is one of the factors leading us to expect positive net flows for the year. In both businesses, we expect our investments in exceptional talent to pay off increasingly as we execute against our long-term plan.

Looking back on 2025 in Financial Advisory, we reported record revenue of $1.8 billion. This included record revenue for EMEA and for our Private Capital Advisory Group and a strong year in restructuring and liability management, highlighting the breadth of our global brand and the ongoing diversification of our advisory business.

We continue to invest in talent with the goal of on-net 10 to 15 Financial Advisory Managing Director additions each year as measured from Q1 to Q1. We met our goal for 2024 with 11 net adds. As exceptional bankers are increasingly drawn to our platform, we will exceed our goal for 2025 with more than double 2024s net additions. We continue to anticipate hiring within or above our stated range going forward, and we will prioritize acquiring top talent to deliver long-term profitable growth over time.

Notwithstanding the pace of our talent expansion, which puts temporary downward pressure on productivity as these bankers acclimate to being managing directors on Lazard's platform, we outperformed our MD productivity goal in 2025, delivering average revenue per MD of $8.9 million. This is an increase of $2.5 million per MD since 2023, and we expect continued significant improvement in this important metric in the years ahead, which I will discuss later. Overall, and although timing within the year can always be subject to fluctuations we expect financial advisory activity to accelerate in 2026.

Turning now to Asset Management. As we have signaled throughout the past year, 2025 was a clear inflection point for the business. Revenue was $1.2 billion and AUM was up 12% year-over-year. We achieved record gross inflows that exceeded our target of $50 billion through increased focus and accountability in sales and distribution along with enhancements in our research and investment platform.

While in an early stage, our global ETF platform helped to support strong gross inflows in 2025, we have successfully launched 7 active ETFs in the U.S. this past year and have already surpassed $800 million in AUM. This growth demonstrates the opportunity to meet client demand for compelling strategies from our specialized investment teams. We've [indiscernible] mandates across our asset management business.

As I mentioned earlier, even with the record gross inflows in 2025, one but not yet funded mandates are above last year's already elevated level, underscoring this increasing demand for our active strategies and the successful collaboration across our teams. Under our new executive leadership with Chris Hogbin, we are well positioned to deliver net positive flows in 2026.

In summary, firm-wide performance in 2025 tracked our Lazard 2030 objectives, and was underpinned by our commercial and collegial culture and our commitment to delivering with excellence for our clients. I'll share more about our progress and outlook shortly again to provide more detail on our earnings and financial performance.

Thank you, Peter. Firm-wide revenue was $892 million for the fourth quarter, up 10% from the prior year and $3 billion for the year, up 5% from 2024. Financial Advisory revenue was $542 million for the fourth quarter, up 7% from 1-year ago. Financial Advisory revenue was diversified across teams and geographies, with Lazard participating in several marquee transactions in the fourth quarter and into January.

Completed transactions include Kellanova's $35.9 billion acquisition by Mars, Constellation Energy's $26.6 billion acquisition of Calpine and 3Cloud’s acquisition by Cognizant. Recently announced transactions include AkzoNobel's’ $25 billion combination with Axalta, Investindustrial's $2.9 billion acquisition of TreeHouse Foods, and Atlas Holding's $1.0 billion acquisition of ODP Corporation.

In addition, liability management and restructuring assignments include better roles with First Brands Group, Time Gate Renewables and Superior Industries and creditor roles involving motive care, Fax Global and SI Group. We also engaged in several private equity assignments including advising CVC Capital Partners on multiple engagements, advising Odyssey investment partners on a continuation fund and advising on the closing of EIR Partners Fund III. Capital structure and debt raising assignments include Lighthouse, NeXtwind and Orsted.

Turning to Asset Management. Revenue was $339 million for the fourth quarter, up 18% compared to 1 year ago, and up 15% on a sequential basis. Our revenues reflected management fees of $301 million for the fourth quarter, up 17% from the prior year quarter and $1.1 billion in 2025, up 5% compared to the prior year.

Incentive fees were higher year-over-year in both the fourth quarter and for the full year, totaling $37 million and $59 million, respectively. Average AUM for the fourth quarter was $261 billion, 12% higher than in 2024. As of December 31, we reported AUM of $254 billion, also 12% higher than December 2024 and 4% lower than September 2025.

During the quarter, we had market appreciated [indiscernible] foreign exchange depreciation of $800 million and net outflows of $19.7 billion, largely driven by the closure of 1 U.S. sub-advised relationship. Excluding this relationship, [indiscernible] full year 2025.

You see [indiscernible] engagement and demand across our investment platform, particularly with our quantitative emerging markets and Japanese equity strategies. Samples from this past quarter include over $1 billion from a Korean client into Global Equity Advantage, over $1 billion across our emerging markets equity funds from various clients, nearly $700 million from a U.K. institutional client for Japanese strategic equity, $350 million into emerging markets equity advantage from an Australian client, and over $250 million from a U.S. insurance company into International Equity Advantage. In addition, we have received over $600 million from a U.S. client for U.S. equity Select in the fourth quarter.

Now turning to expenses. Our compensation expense was $585 million for the fourth quarter and $2 billion for the full year 2025. Investments in talent to support our long-term growth strategy have accelerated, while at the same time, our compensation ratio is trending in the right direction.

For the full year 2025, our compensation ratio was 65.5% compared to 65.9% for the prior year. Our non-compensation expense was $159 million for the fourth quarter and $613 million for the full year 2025. This resulted in a full year noncompensation ratio of about 20%. We continue to take a disciplined approach to expenses as business activity and opportunities increase.

Shifting to taxes. Our adjusted effective tax rate for the fourth quarter was 29.5% and for the full year 2025 was 22.7%.

Turning to capital allocation. In the fourth quarter of 2025, we returned $98 million to shareholders, including a quarterly dividend of $47 million and $50 million in share repurchases. For the full year 2025, we returned $393 million to shareholders, including $187 million in dividends, $91 million in share repurchase and $115 million in satisfaction of employee tax obligations. Additionally, yesterday, we declared a quarterly dividend of $0.50 per share.

Now I'll turn the call back to Peter.

Thank you, Mary Ann. 2025 marked the second full year since I became CEO in late 2023, and I've been encouraged by our progress in transforming our culture and our business since then. Even while undertaking this transformation and making the investments that set the firm up for sustained growth in the coming years, we have delivered solid revenue and shareholder returns.

In Financial Advisory, we have been actively reshaping our Managing Director Group to strengthen our commercial and collegial culture and to upgrade our connectivity with clients. These investments in top talent and our culture will yield increasing benefits over time in both revenue and productivity.

As noted earlier, we have raised productivity by $2.5 million per managing director since 2023, and that is despite expanding the number of MDs above our target range in 2025, which means that the share of managing directors new to our platform has remained elevated. As that share normalizes to roughly 30% over time under our expansion plans, the result will be an estimated further increase of approximately $1 million in revenue per MD, above the $8.9 million achieved in 2025 from this effect alone.

Looking ahead, we see further productivity uplift for several other reasons as well, increasing traction with clients, our ongoing focus on mandate selection, a disciplined approach to fee structures and the benefits of integrating AI across our practice. In December, we, therefore, expanded our goal to include achieving $12.5 million per Managing Director in 2030 as part of our focus on continuing to meet or exceed our productivity objectives.

As part of upgrading our financial advisory business, we have enhanced the solutions we provide to our clients by [indiscernible], Advisory revenue associated with private capital has increased from roughly 25% in 2019 to approximately 40% today, and we are confident we can move toward 50% over time even while also expanding our revenue from large-cap public companies.

We see significant opportunity to further enhance our advisory business in North America. Last month, we announced Raymond McGuire and [ Tim Donahue ] as Co-Head of Financial Advisory in North America with Mark [indiscernible] function dedicated to increasing our large cap public company coverage which is a top priority for 2026. We are continuing to raise expectations for our bankers to deepen client relationships and increase our market share.

Alongside our focus on North America, we will continue to invest in Europe and the Middle East, regions where our brand is strong and where we see significant additional long-term opportunities. In 2025, we opened new offices in Denmark and the United Arab Emirates, and we are actively exploring other countries for further expansion.

Looking ahead, we expect M&A to accelerate in 2026, despite ongoing policy and geopolitical uncertainty as companies look to achieve both scale and focus. Unlike past cycles, we anticipate that M&A will increase alongside elevated restructuring and liability management activity as the result of an ongoing dispersion in corporate performance.

We also anticipate an increase in private equity activity as sponsors look to return capital to their LPs along with continued strength in fundraising. Together, these dynamics position Financial Advisory with multiple levers to expand revenue in 2026.

Turning to Asset Management. We have established a cohesive and focused executive leadership team with Chris Hogbin, joining as CEO in December and the appointment of information Berman as COO; and Eric [ Bannosrand ] as CIO, as part of Chris' broader management team. There is strategic alignment across investment, distribution and operational priorities, further supports long-term success.

Chris' leadership also allows me to refocus my time on CEO engagement new client development and firm-wide strategy. As we have discussed throughout the past year, we have been transforming our asset management business by sharpening our focus on areas of the market where we can add the most value to clients.

Active management plays a particular particularly valuable role, where information is imperfect and technology can be applied to generate excess returns, including quantitatively driven strategies emerging markets and customized solutions.

These strategies and solutions are also where client demand is strongest. They account for a disproportionate share of our high level of 1 but not yet funded mandates and they are disproportionately where Lazard delivered significant outperformance in 2025.

Looking ahead, we expect to deliver positive net flows in 2026. This is supported by a more diversified platform, best-in-class research and investment processes and an enhanced global distribution strategy. Furthermore, we believe 2026 will be a year in which investors continue to reallocate towards international markets, which is where our presence and performance are particularly strong.

We entered 2026 with momentum, and we believe the ongoing transformation of our asset management business positions us to deepen client engagement and capture additional opportunities ahead. Along with the significant transformations of our businesses, we see 2 additional factors underpinning our growth over time, AI and contextual alpha.

We remain independent financial firms in the adoption of AI to unlock the collective intelligence of our firm and enhance outcomes for clients and shareholders. We have the scale to invest and experiment, while at the same time an entrepreneurial culture and size that allows us to be nimble. We saw AI adoption accelerate in 2025 as we onboarded new tools and delivered customized AI solutions to our teams.

At Lazard, we are defined by our ability to deliver independent differentiated advice and investment solutions grounded in what I have taken to calling contextual alpha. In today's world, just looking at a narrow set of financial information, the alpha part of contextual alpha to make investment or business decisions is not sufficient.

Contextual alpha incorporates the judgment and insight across macroeconomic, geopolitical, regulatory and other factors that help leaders see beyond what the world sees today. This notion of contextual alpha has always been part of Lazard's DNA. It is more important than ever in a world in which business and government to help clients navigate complexity, evaluate strategic options and advanced long-term objectives with clarity and confidence.

In summary, we continue to execute our long-term strategy, and we have performed even while undertaking a substantial amount of investments and cultural transformation for the future. While we have more work to do, results so far, validate our strategy and reinforce our conviction and substantial growth opportunities ahead.

Now we will open the call for questions.

[Operator Instructions] We'll take our first question from Brennan Hawken with BMO Capital Markets.

Peter nice see entered at the 12.5 productivity improvement on the last call, but good to see you guys made it official. I'd love to talk about advisory trends. Clearly, things are looking good. You spoke to some -- I'd love to drill into the non-M&A because M&A, we can all see the excitement. You spoke to good outlook on restructuring.

Could you maybe speak to the revenue mix as it stands today among the non-M&A businesses? And then what your outlook is for those businesses in the coming year and how we should be thinking about forecasting that?

Sure. So for the year, we -- the revenue mix was just a touch under 60% M&A and then residual non-M&A. We -- so let's just call it 60-40, roughly, but it's touched under that on the M&A side and touched over that on the non-M&A side.

We do believe that in addition to raising the share of advisory private capital to 50% over time, the non-M&A component of the business can also rise from that roughly maybe just a little north of 40%, so something like 50% over time. and that is backed by continued expansion in our fundraising business in particular, where we had a record year, as I mentioned, disproportionately activity in secondaries, as you can imagine, in that part of the business.

But a lot of activity and additional talent and momentum there. Restructuring and liability management also had a very strong year. Obviously, we're on a variety of very high-profile assignments in that part of business, and we continue to see additional opportunities there.

I want to again highlight, I know I said it in the script, but that one of the -- I think, underappreciated phenomenon over the past decade or so, is that the spread in return on invested capital and performance at large across companies has gotten increasingly wide. And that means that you can have a lot of restructuring and liability management happening towards the bottom of that distribution even while the firms at the top of the distribution look to buy other firms in each sector to expand their own activity.

So in other words, the coexistence of M&A and restructuring and liability management, the case historically. So -- we obviously also have other components. We've got Lazard Capital Solutions. We've got a whole variety of other parts of the business that are in the non-M&A category, but we see significant momentum, frankly, on both sides, we're skirting past the M&A piece because I think as you put it, it's well appreciated, but obviously important momentum there also.

So we see an increase -- maybe the way I would put it is an increasingly diversified and also growing advisory business, a diversified public company, private company, North America, rest of the world M&A non-M&A.

Peter, thank you for that thorough answer. Really appreciate it. And I suppose you have done this first Mary Ann best of luck. Tracy, welcome to the circus here.

So I would love to touch on the CFO transition. So I know we have a 6-month transition period, but the time line for Tracy stepping in is rather abrupt. So maybe could you speak a little bit to what has led up to this? If it was normal -- if it's normal course, why not maybe telegraph it a little earlier to allow for a more extended transition. And it sounds like it's normal course, but CFO transitions do tend to make investors nervous. So any additional color around this would be helpful.

Yes. This is very much normal, of course. I wouldn't characterize it as abrupt in any way.

I think that you're focusing on the effective date, but in a situation in which you have an internal candidate or an internal person who knows all the issues and knows Lazard well, it facilitates a more rapid effective date. But more importantly, as you noted, Mary Ann will be serving as a senior adviser to make this transition entirely smooth.

So I don't -- we don't view it as an abrupt and I don't think it is. And again, it's a very natural transition, and I just want to, as I said in the script, extend my appreciation to Mary Ann and also the excitement for Tracy, joining us, I don't know, they're both here. I don't know if you all want to say anything.

I think that's well said.

Okay. Perfect.

Our next question comes from Mike Brown with UBS.

Great. So Peter, you talked about the sponsor side of the M&A market here and the need for them to return capital to LPs as a strong driver of deal flow in 2026. And we did see the announcements really spike in 4Q from this cohort, but just wanted to hear a little bit more better in terms of broadening out of activity? And when do you think this can really ramp more meaningfully.

And then as we look at the spike of continuation vehicle activity, is there any risk that some of these M&A exits maybe disappoint some of the high market expectations from either a volume or a timing standpoint?

So let me try to take both questions. I'd say with regard to PE activity, we've all been waiting for a high on discussions with the top of the house at a lot of alternative asset managers and more pure-play private equity shops also that 2026 is likely to be the year in which this occurs. I know this has been a little bit of waiting for [indiscernible].

And the reason for that is the one I mentioned, which is LPs that are getting increasingly desirous of some cash return even outside of the continuation and secondary type approach. Along with the I'd say, narrowing of the kind of bid-ask spread on expectations around valuations.

There still is some gap there, and that may get to your -- the second part of your question. But again, this is not just what our bankers are saying, but also what the heads of the large alternative asset managers are saying in terms of what is anticipated for activity in 2026.

Look, with regard to continuation funds and also secondary is writ large, I think there has been this question about whether the pickup in activity will continue even as more traditional M&A exits occur and our belief is the answer is yes. And the reason is that the secondary vehicles are still a relatively small share of the penetration rate is still relatively low. It's growing, and we think this is going to just be a new permanent feature of the private equity landscape.

The dimunition of M&A activity as an exit may have helped to jump-start additional secondaries business, but we think that that's a jump start, not a aberrational increase that will go away. It's going to be a new permanent part of the landscape. And this is one of the reasons why we're really excited about the growth that we're experiencing in our PCA business and our investments for the future in this business, expect a lot more from us in this area in the years ahead.

Okay. Great. And just a quick follow-up here on the asset management side of the business. So certainly, some positive movement in the fee rate here in the fourth quarter. Is the exit rate from the quarter relatively in line where it was for the full quarter? And as you think about that $13 billion one and not yet funded, that's a great number. What is the asset mix in that $13 billion? And how should we think about the fee rates versus your blended fee rate?

I'll let Chris take that.

Yes. Thanks, Mike. This is Chris. So the exit rate was modestly higher than the quarter run rate. the large subadvised relationship that closed that we reported in the November AUM release, obviously happened in November. So that was -- and that was a lower fee significantly lower than our average fee rate. So that's -- it didn't hit the full quarter. So the exit rate would be modestly higher than the [indiscernible] average.

As I look at the book of business in that encouraging $13 billion of 1 but not yet funded, there's clearly a mix in there. It's predominantly emerging market equities listed infrastructure that tend to be quite healthy fees. There's also some more of systematic services that tend to be slightly lower fees.

So as I look at that mix, I think it's broadly in line with the fee rate that we experienced in the fourth quarter. But the timing of when those hit, and the mechanics will -- there's a little bit of uncertainty around.

Thank you. We will move next with Brendan O'Brien with Wolfe Research.

I guess to start, while there's clearly a lot of optimism on the M&A outlook, we've seen a notable uptick in geopolitical tensions and political uncertainty within the U.S. latter of which is likely to only intensify into the U.S. midterms. So I just want to get a sense as to whether you've seen any impact on dialogues from this increased rhetoric intention, and if you anticipate the U.S. midterms will have any negative impact on activity?

So the short answer is no impact on the corporate discussions that we've been having. But I think the fact of the matter is I'm going to come back to this concept of contextual alpha, Boards and C-suites recognize that they need to take into account a broader array of variables today. And this is one of the things that's fueling Lazard's rise. We've always been good at this, but we've now professionalized it more, it's deeply investment processes, and it's a competitive advantage for us. So anyway, that's -- the direct answer on that.

On the midterm, I do not anticipate any material change in the environment from the midterm. I think people mostly misinterpreted what the impact would be if there were a shift in the more likely outcome is that the house shifts the back half of an administration typically does not involve any big legislation. So I don't think even if the House and Senate were to remain under their current configurations that you should anticipate any large pieces of legislation.

What may happen if the house does flip is that there will be a lot of hearings, there will be a lot of subpoenas, a lot of tension between the legislative branch and the executive branch over executive privilege and so on. That will all be a lot of noise, but I don't think it has any direct corporate impact. The thing that could have some corporate impact is some of those hearings that [indiscernible] then extend out to increase into what companies have been doing, how they've been interacting with various different players. But we're now getting into a very speculative ZIP code.

Final thing I'd say is I do think a lot of companies are realizing that the regulatory environment under the current administration is more accommodating to deals. It is also more political, but it is more accommodating. And so I think the more important thing in the midterm is this sense that -- that may or may not shift and so there's an incentive to try to get deals in and [indiscernible] are willing to consider things that -- for example, under the prior administration, I don't think would have even been a debate.

That's helpful color. I guess for my follow-up, I just wanted to touch on the comp ratio. I understand that it will be an output of a revenue environment. But just given the robust hiring you've done in '25 and plan to do in 2026, I just want to get a sense as to how we should be thinking about incremental comp leverage from here if we begin to see better revenue growth, and how we should be thinking about that path back down to that 60% level?

Yes. We do anticipate additional operating leverage in 2026 despite the robust hiring. Obviously, as you noted, it's dependent on revenue growth. I'd say it's also -- I mean, it's also on the advisory side, very sensitive to those ongoing increases in productivity, which is why we're very focused on that variable because that gives you operating leverage against the non-Managing Director compensation ratio.

In addition, one of Tracy's top priorities is going to be to look to -- for additional operating efficiencies in our corporate functions and across the board. And so there are other levers that we're able to deploy to continue to reduce the comp ratio over time.

We will move next with Daniel [ Cocchiaro ] with Bank of America.

I know it's early, but we've gotten some questions around a slower-than-anticipated start to the year for M&A. And just given Lazard's global footprint, I was hoping you guys can help unpack some of the trends that you're seeing across geographies in the business and how your expectations for domestic M&A compared to deal activity outside of the U.S. in 2026?

Look, it is super early. So I would treat what I'm about to. But at least with regard to our business, we're seeing a nice build in January. So that may be idiosyncratic to us. We'll have to see how it plays out very early days.

With regard to the geographic mix, I would say U.S. CEOs seem a bit more confident in non-U.S. CEOs right now. But we're seeing significant interest in transactions both in North America and Europe and frankly, across the globe. The thing that you need to remember about most European companies is there -- at least the ones that we're interacting with tend to be global in their business operations. So while they may be headquartered in Harris or in London or in Frankfurt or wherever, their operations are global. And so they are affected by what's happening across the globe and not just in their home countries.

Final thing I'd say is this fracturing of the global economy into a pull around China and a pull around the U.S. with some questions about where the rest of the world kind of goes that is leading to a lot of discussions with clients about how that affects their own operations. The move towards industrial independence is affecting supply chains and also both selling businesses and buying other businesses.

So what I would say is to the extent that Prime Minister Carney is correct that we are in a period of what he referred to as rupture in the global economy that is a time when our clients ask for a lot of assistance and look to a place like Lazard for helping reading between the lines and what's happening. So we're engaged in a lot of client dialogue right now.

I just want to go back to the first part and the kind of low conviction because it's very early days and uncertainty band around how the year plays out at this time of the year is always very wide.

That's very helpful. And as a follow-up, this one maybe more for Chris. You've come in and made some personnel changes. I was wondering if maybe you could spend some time on just discussing what areas you think you need to see some significant change in maybe some areas where you actually see some healthy momentum.

Yes. Thanks, Daniel. So look, I think -- we've already laid out in our Lazard 2030 strategy, the direction and goals for the asset management business. So I think my focus really has to be around execution. That execution really comes down to sort of 3 areas. The first of which is around delivering for our clients through strong investment performance, I'm encouraged that through last year, our investment performance actually improved sequentially through the year if you look at the percentage of AUM that's outperforming.

But by appointing Eric Van Nostrand as CIO, put somebody a lot of bandwidth there to work with the investors to help them deliver good performance, evolve their processes, bringing the breadth of Lazard's asset management platform to bet because fixed income investors should be having Eric a CIO really helps us bring out that breadth of insights across the platform. So we need first priority is delivering investment performance for clients.

But the second is really around growing. The most important thing we can do there is to scale our existing products, so we'll be focusing a lot on that. But then there's secondly, a lot of white space around us, whether that's in traditional markets, private or our wealth channel that over time, we'll explore and evaluate the best way to execute on those growth options.

And then the third is just ensuring that we drive efficiency in the business so that the growth that comes through is profitable growth, and that's why we appointed Rosalie Berman as our COO, to really focus on a lot of the efficiency and cost control, but secondly, to really ensure that we're integrating AI as fulsomely as we can across our business. investments in client experience and in our operations. So it really is, Daniel, a focus on execution to deliver those Lazard 2030 goal.

That's very helpful. And Mary Ann wishing you all the best in your future, and Tracy, look forward to working with you.

Our next question comes from James Yaro with Goldman Sachs.

I want to dig in a bit further on asset management. I think it would be helpful if maybe you could identify for us some of the moving parts here, so we can get a little more comfort on the guidance for positive net flows in '26. Specifically, is there any way that you could give us a little more granularity on the verticals by asset class, geography, however you wish to define it within asset management that are growing versus those that are shrinking and specifically, which you view as most material going forward for growth and where the outflows may be slowing.

Sure. So thanks, James. Look, if you think about net flows, it's the difference between 2 big numbers. So if you look at last year, we had record gross inflows. We also had an elevated level of outflows because of the closure of that large supervised mandate that we previously disclosed.

As I look forward into 2026, we're budgeting for strong gross inflows again. Our goal -- our internal goal is above the goal that we set for last year. And we don't expect -- there's not another large subadvisory client that could close. So we wouldn't expect that large level of outflow to repeat. We'd expect a more normalized level of outflows and then the net of that should give us confidence around the positive net flows for this year.

Secondly, we start the year with a healthy level of 1, but not yet funded business at $13 billion. Within the areas where we're seeing a lot of client interest, it's areas like our emerging markets platform, our systematic platform, listed infrastructure and real asset platforms as well as some of our alternatives businesses.

So -- and that's where, as I look at the sales goals that we would expect to see more growth through the year. As Peter said in his remarks, what we are hearing, I hear this as I meet with asset owners around the world, we are starting to [indiscernible] looking to diversify the margin away from the U.S. into international markets, and we feel well positioned given the services that we have and the investment performance we're delivering in those services to benefit from that diversification as it comes through.

That's super helpful.

Yes, James, just really quickly. [indiscernible] about this time last year, we were flagging the sub-advised account was because that was something that we knew had performance issues and challenges and was at some risk. Now while there may be normal puts and takes and you have to see there is no flashing red concentration like that. The business is much more diversified as a result.

And so just to underscore what Chris was saying, we not only see significant investor interest in the quantitative in the emerging market and in customized solution type of products and strategies that we offer, but we also don't have a concentrated risk. There may be outflows that occur, but it's not as -- we're not highlighting something for you like we did last year.

Excellent. Super helpful there. Maybe just one other one for you, Peter. Could you just help us think through the secondaries outlook from here? Do you expect the strong CAGR in the business we've seen over the past -- let's say, 3 to 5 years to slow at all in 2026?

The short answer is, I think I may have mentioned before is we don't anticipate any slowing. And the reason is I understand the rationale behind asking the question, which is as M&A picks up, does the secondaries business slow? The reason we don't think that's a material part of the outlook, while it may be true in some isolated situations is because the penetration rate of secondaries in the space remains relatively modest, well under 50% and probably closer to -- we can get you the exact number of maybe 1/3 or so.

So there's lots of room to -- for that to continue to expand as part of the landscape of private equity. And we think it's just becoming a more normal part of the marketplace, and so it's here to stay.

We will move next with Ryan Kenny with Morgan Stanley.

Chris and Tracy. Welcome to the call. Congratulations and best of luck to all. I have another 1 on the asset management side. So when we think about the growth drivers that Chris, you just walked through, how do you think about inorganic opportunities to get there? And what would be the framework on any inorganic opportunities that come your way?

I think -- firstly, we will always look at inorganic opportunities. But we would want to look at them quite carefully to see do they -- is it additive to what we have? Is there an attractive return stream -- is that a result of a robust process that we can believe in? Is it a cultural fit? Can we get the economics to work. And that narrows a funnel down pretty quickly. So while there are a lot of opportunities out there, you could expect that we're going to be super selective.

As Eric gets settled into his seat and this is my second month too, we will start to really kind of put together a framework of the highest priority areas for us to look into -- I'm very happy to come back later in the year to sort of share more thoughts on that.

But look, inorganic is something that we'll look at, but we'll be highly selective looking at any opportunity. We do see broadly the 3 drivers around us in public markets, private and then our wealth channel.

Got it. And then separately, a question on restructuring. What's the view on where we are in the restructuring cycle? We've heard from some peers that maybe we're in [indiscernible] period? Do you think restructuring has peaked? Or is there more growth ahead?

Well, as I again said earlier, I think that we're in a different environment now than we were -- than may have been the case in past cycles because important and I think little notice change in the landscape of companies have increasingly grown disparate in terms of their performance.

So if you look at -- take any metric you want return on invested capital, whatever, in terms of corporate performance, the 90th percentile is pulling away from the 50th percentile in each sector and the 10 percentile is falling relative to the 50th percentile. This is different than it was 10 or 20 or 30 years ago. And it means that there's a very important shift in the correlation between M&A cycles and restructuring and liability management cycles.

This is beyond the shift within restructuring and liability management towards the latter part -- towards the latter term and away from the former term, because those companies at the 10th or 20th percentile that are falling increasingly need liability management and restructuring assistance. So -- we are seeing continued activity. I mean that continues in our own business. But I think the other point is, I think the marketplace is different because of this -- this increased spread across companies.

And so I'd also note, by the way, that, that increased spread also creates a very strong incentive for mergers and acquisitions because the firms that are at the frontier have a big incentive to try to take over the ones that are at the median and then improved performance. And in fact, if you look at research from Nick Bloom at Stanford, you get massive efficiency benefits from mergers and acquisitions because of exactly what I just said, which gets accentuated as the spread between the top firm and the goes up.

We will move next with Devin Ryan with Citizens Bank.

Peter, Mary Ann, and welcome Chris and Tracy. Question on kind of the productivity discussion and I appreciate all the additional detail per and kind of the updated framing. I also appreciate it's an output with a lot of moving parts into it. You had a big recruiting year, it might dip down, but the productivity of the existing group is improving.

So to that point, can you just talk a little bit about when you're underwriting somebody that you're bringing in externally, what should that person be doing once they're ramped relative to the blended average? I mean, can they increase that because you bring on kind of [indiscernible] pound per pound higher productivity.

And then I know you're operating an integrated strategy, but just talk a little bit about the productivity potential between businesses, whether it's private capital restructuring. Just trying to understand if there's any mix shifts here could that also change the trajectory one way or another?

Sure. So on the first one, look, we actually, as we have brought on a large number of new managing directors that we have really upped our game on the diligence that we apply, and therefore, the quality of the people that we're bringing in and the result is that the so-called ramp may be a bit faster than in the past. We have had -- actually, we had a examples from -- I think it was last week, where one of the new managing directors that we brought on in the last couple of months already has 2 new mandates, which is -- I don't know if it's a record, but it's a very rapid ramp.

But these things do vary and in general and on average, obviously, you become more productive after you settle in and get used to the platform and are able to it takes time for clients to switch over and so on and so forth. So there's -- on average, there still definitely is a ramp.

With regard to -- with regard to -- and by the way, that's why let me just highlight that. That's why as we move from 40% of our managing directors being within the first 3 years of being on the platform down to a more normalized level of 30, there's an additional kind of coiled spring effect that will play through on our productivity. I had been anticipating that, that would happen partially in 2025, it did not because we had so many opportunities to grab exceptional talent.

So the -- ahead of schedule productivity we accomplished in 2025 was despite not benefiting from that kind of ramp down in the share of bankers that are [indiscernible] on the ramp. That is still yet to come, which is great.

And then with regard to the different parts of the business, -- there's no -- I wouldn't say there's any material difference between the non-M&A and M&A parts. One thing that is noteworthy is that on average, and this is not an individual by individual, but on average, productivity tends to be a bit lower outside of the U.S. than in the U.S. I tend to remind our bankers. That's not because the U.S. bankers are more talented, more terming, whatever it's because the fee levels tend to be higher for the same deal size in the United States.

And the result of that is somewhat higher productivity on average and over time in North America relative to other geographies, but no massive difference between non-M&A and M&A bankers. And we often do have very, very, very -- if you look at the very top of our productivity, the top 10%, 20%, 30%, that is also tends to be a mix of M&A and non-M&A bankers. So it's not just average, but also the top performers tend to come from both sides.

Yes. That's great. Thanks, Peter. I really appreciate the detail there. And then as a follow-up, what the -- ask about AI and the investments you're making. You've been talking about this for a couple of years, so it's not new thematically, but you recall, you mentioned some of the investments. I still think it's a bit abstract from the outside as people think about applications to your business.

And so I -- the question is, do you think what you're doing will be table stakes in the market? Or do you think you're leading, meaning this could actually drive an increased impact with clients or increase market share for the firm over the next few years? And anything else you can just share about kind of tangible areas of success or opportunity where you feel like you can really differentiate.

Sure. Let me tackle it in a couple of different ways. I believe that we're at the forefront. I don't think that that's -- I believe that we're at the forefront, but I also believe that other firms will follow. And so this is an advantage, but it's not one that others won't replicate and try to follow.

I think the goal here is to always remain 1 step ahead. I would note, for example, I think we are the only firm on Wall Street that has a has on our Board, someone who is native to AI in the form of [ Demetri Chevalenco ], the Deputy of Complexity. That's one small marker of what we're doing relative to the peer set.

With regard to what it can do, I'll give you a few examples. So in my own experience, let's just talk about my day to day. What are some of the applications. First, I'll reveal that the terminology contextual alpha, which I think describes the Lazard's, what Lazard brings to clients in a very apt way actually comes from an LLM about 3 or 4, 5 months ago, I was inquiring how to describe what Lazard does and not a human being suggested the terminology contextual alpha. So there's one small example.

My daily briefing is now increasingly done in the first instance with artificial intelligence and then supplemented by humans that look over it, as opposed to being entirely human drawn or human done. I was at 2 different C-suite Board level discussions the day before yesterday. In both cases, the deck that we presented, I loaded querying it in terms of how will the Board respond to this? What's new here that the CEO hasn't spoken about publicly et cetera, it makes it a much more interactive form of preparation for the meetings as another example.

And so on and so on. I could keep going. But the fact of the matter is, it is infused in my own daily experience as the CEO of this firm. And I think that's increasingly what's happening across the board with our ability to gain insights from our CRM our ability to take out some of the mechanical route parts of the job and then lift people up so that they can do higher value-added work and so on and so forth.

So I think the -- the question then becomes, so what? How is this going to improve our ability to serve our clients. And I think the answer is going to be, we would love to be able to focus on those parts of the job that we think add the most value. That is the curiosity that leads you to ask good questions because as [indiscernible] puts it, answers will become commoditized. The ability to ask insightful questions will not.

So encouraging that curiosity, which we think has always been part of Lazard will be -- will allow us to continue to serve our clients in an effective way. Putting increased focus on personal relationships and connectivity with clients. So increased convening, increased time directly in-person because trust and judgment are going to be difficult to -- for the LLM to place because they lack contacts, they lack the subtle in-person signals that you can get. So we're encouraging our bankers to even more so than in the past, go out and spend time in person with clients and so on.

So we're really excited about this technology in the form in its ability for us to deliver high-quality advice, trusted advice and judgment to our clients. And we also think it will be an important part of Tracy's efforts to drive more efficiencies throughout our back office and, frankly, even some of the ways in which we support our clients.

We will take our last question from Alex Bond with KBW.

I actually have a follow-up question on AI and how it specifically relates to comp leverage. I realize it's still early days here, but can you share how you're thinking about AI-related comp leverage, maybe the timing around when we could see this show up in the comp ratio? And then also maybe the potential magnitude of that impact?

Yes. Look, I think there are a couple of different ways of thinking about that question. One is -- to the extent that the tools and using them in the ways that I just mentioned, additional insight with regard to clients, additional -- coming into a meeting even better prepared than may have been the case in the past that, that raises productivity per MD, which we believe it will.

That's one way of getting operating leverage because the higher the productivity per MD, the lower the non-MD comp ratio tends to be.

Secondly, though, over time, we do think that this technology is likely to lead us to be able to have a smaller team associated with each managing directors, each manager director. Again, we're going to be expanding our total Managing Director size over time, as I previously articulated. So -- what happens to the aggregate number might be unclear. But with each managing director on each client, we think the teams could be smaller. That provides a lot of upward mobility to our analysts, associates, VPs and directors in terms of taking on additional responsibilities.

And we think that's a feature not a bug because it allows us to cultivate the skill set, trust, judgment, curiosity that leads to effective managing directors over time. And so the hope is, and we're spending a lot of time designing our HR and other systems to be able to encourage this that as the opportunity to -- I call it, practice at the top of your license is a smaller team allows more upward trajectory in the responsibilities that we're going to be even better at cultivating and picking out those people that we think are really promising future managing directors.

Got it. No, that's helpful color. And then just for a quick follow-up, and apologies if I missed this in the script, but did you provide any noncomp expense guide for 2026? And if not, maybe if you could help us size up what the right growth rate is there for the full year ahead.

Marry Ann will take.

Yes, I'll take that one, Alex. So the way I think about it is that you should expect us to make continued investments in growth on both sides of the business, whether that's client development, staying on the cutting edge of technology, et cetera. So I would probably be expecting kind of mid- to high single-digit increase in dollars depending on how FX rates evolve throughout the year. And importantly, that we're aiming to get back into our target range in 2026 as the revenues grow in both businesses.

Thank you. This concludes Lazard's fourth quarter and full year 2025 earnings conference call. Thank you for your participation, and you may now disconnect.

Okay. Let's get started here. So we'd like to welcome back Peter Orszag CEO and Chairman of Lazard, who joins us for the third consecutive time at the conference. Peter assumed the CEO role on October 1, 2023, and the Chairman of the Board role on January 1 of this year, after having previously served as CEO of Financial Advisory. Prior to joining Lazard 2016, Peter held senior roles at Citi and in the Obama White House, and thank you so much again for joining us.

Great to be with you.

All right. Let's jump right into it. So we're nearing the 2025 and you're more than 2 years into your role as CEO and with the new Chairman role. What are the big lessons so far? What are you most proud of? And where do you see the most opportunity for Lazard going forward?

Thank you so much, James. We actually just held our Financial Advisory Managing Director conference globally yesterday. It is fantastic to see the progress that we've made, and let me highlight a couple of things. I think I will now talk about what we have done in a way that I was not comfortable doing while we were doing it, which is a massive amount of transformation. So out of 212 managing directors on the advisory side at the end of 2022, we separated from 87 of them over the past 2 years and then hired or promoted 91. That has been key part of the cultural transformation that we have -- we're sort of very far down the road in terms of having accomplished. And you can feel the vibrating energy internally in terms of the commercial and collegial culture that I've been talking about.

In addition to that, the cultural transformation, the fact that a lot of the hiring and promotions that we were doing over the past 2 years, which are very high quality, we're offsetting that kind of -- for lack of better phrasing stable cleaning with regard to the separations means that going forward, our growth rate should be significantly higher because as we add new talent now we're not filling in the hole from the separation, it's just pure growth. And so we're very excited about that.

Another reflection of that, and I've talked about this a little bit before that today, as we sit here, 40% of our managing directors on the advisory side are in the first 3 years of being on the platform because of that significant hiring and talent promotion, but also because of the separations. If you roll forward our plan, you should anticipate that, that will go down to about 30%, which is more of like the steady state, and the benefit of going from 40% to 30% is worth about another $1 million per managing director on productivity.

So we've made huge progress on productivity. We're already ahead of where we had said we would be and there's a lot of room to continue down that path. So that's one bucket, culture, future growth, productivity. The second is in terms of how we see the marketplace. We have been building out -- and actually before I do that, normally, when you do these separations, you -- or do this transformation, you go through a J-curve where you have the kind of negative side. We've been able to do this all under the surface while still growing over the past couple of years, and I find that very, very encouraging, including for the pathway forward now that we have that all behind us.

Second, with regard to Lazard's positioning, what we have found is that the emphasis that clients put on contextual alpha is higher today than it was a decade ago. Now what do I mean by contextual Alpha. Contextual alpha on the advisory side means doing the analysis, whether it's on the accretion dilution on the M&A front or on the financing costs on a capital structure, et cetera. But then in addition to that, taking into account all the other factors that a C-suite or a boardroom needs to take into account in order to make good decisions. The regulatory approval, the backdrop, the geopolitical piece, et cetera, that contextual alpha concept, I think, is something that Lazard excels at, and the premium that clients put on it today is much higher than it was a decade ago. So we're encouraged by that.

Third thing is with regard to business model. We have invested a lot in expanding our connectivity to private capital on the advisory side. And you see that in the numbers. We've gone from -- in 2019, roughly 25% of advisory revenue being tied to private capital to today, 40%. We are confident we'll be able to bring that to 50%. And that's a series of different things from our fundraising business where we see a lot of growth ahead, both primary and secondary; two, our restructuring and liability management team that has now diversified into creditor work in addition to debtor work in a much more balanced structure there; two, our Lazard Capital Solutions team to sponsor coverage and so on and so on and so on. So significant work has been done on what I would call the underlying business model.

And then the final thing I'd say is on the advisory side, and then we'll get to asset, which is, I think 2026 is a year shaping up right now that will feature both strong M&A and a lot of strength in those other baskets of activity. Now why do I say that? With regard to M&A, and I know this is -- I think becoming conventional wisdom, and therefore, maybe we should be a little bit careful about it. But nonetheless, it does appear that what's going to happen is that private equity sponsors will become more active out of necessity in order to return more cash to their LPs, and that will more than offset any lingering concerns around valuation for their portfolio companies, and that is the next stage of the M&A cycle. And we do see that momentum picking up.

But in addition to that, I think there's a view that historically, when M&A booms, other things kind of fall by the wayside, and that's not how we see it. We see that M&A cycle coexisting with significant restructuring and liability management, and I can talk about why I think they're going to coexist in the future in a way that didn't exist in the past and also significant amounts of both primary and secondary fundraising and other businesses that we have that are associated with private capital.

With regard to restructuring and liability management, I think one of the key facts about business and the economy today that was not true 20 years ago is that the diversion across companies in performance is much wider today than it was 2 decades ago. And that means there's a strong incentive for M&A, but also a lot of restructuring and liability management, one that happens kind of at the upper tail disproportionately trying to maybe buy lower performers and then one that happens at the far left tail, the companies that are in trouble, but they can coexist much more easily today than in the past. So anyway, a lot to unpack there. I guess on the advisory side, a lot of momentum. You could feel that in the room yesterday with regard to the managing directors that were gathered and the cultural transformation has been remarkable.

On the asset management side of the business, we actually have with us here in the front row Chris Hogbin, who has taken over as the Head of Asset Management at Lazard. We're very excited about that. I said that this would be a year in which the business had an inflection. I believe that, that is the case. We've got new leadership. We've got a lot of excitement around many of our products and strategies -- systematic, emerging market equity, customized solutions, many others that we believe not only are showing strong investment performance, but where we're seeing very substantial and very significant net inflows over the year.

And I may as well just while I'm on the topic, briefly divert and then I'll come back to your next question. Clearly, we had a release this morning. I've been saying for about a year that the sub-advised part of -- the large sub-advised U.S. part of the business has a different dynamic than the rest of the business. This morning, we announced that one of those accounts is closed, that occurred slightly earlier than we had anticipated. We had been anticipating that in 2026 or perhaps a little later but mostly focused on 2026. So occurred maybe a couple of months earlier than we had anticipated.

The good news is I can now say with confidence that in 2026, we project positive net flows for the business, given that this is now behind us and that more diversified and repositioned platform going forward is exciting because we feel very confident in the products and strategies that we're offering clients. Outside of that one account as one illustration of the strength that we're seeing, we have had net inflows year-to-date of $8.7 billion. So a lot on the asset side also, and I know that was a long answer, but there's a lot of enthusiasm at Lazard.

And you answered a lot of my questions already, that's great. Okay. So maybe a couple of big picture ones here. So you talked about you've substantially enhance the hiring of senior bankers in advisory, maybe you could just talk a little bit about the sort of talent that you've hired, what you're looking for in these bankers over the past 3 years? And then I guess where the best hiring opportunities are going forward?

So we've had a systematic plan in terms of where our priorities are. Obviously, on the hiring front, you have to match that list of priorities with opportunistic who's available and do they -- do they fit on the platform or not. But very excited if you look, again, systematically going through in the U.S. beyond the private capital investments that we've been -- that I highlighted, which were necessary in order to create an attractive revenue base for that business because that's a kind of more steady flow of revenue than the lumpier M&A transactions.

We've also been investing in many key sectors. So I'll give you a few examples. Consumer retail, where you're seeing a lot of strength in a sector where we had not as strong a practice a few years ago. We've made investments, sports media and entertainment as another example. We've been expanding further in health care. We just had 3 new industrial bankers join us, as another example in North America. So -- and we're basically just systematically walking down our priority list finding people that fit well on the platform. Some of whom, by the way, had been at Lazard before and are now returning, which we're particularly pleased about, and I think it underscores the cultural transformation that I was talking about earlier.

Outside of the United States, we just expanded to a new office in Denmark. Very excited about that opportunity in Europe. We have been expanding in the U.K. and on the continent. And then I think it's very exciting to see what's happening in the Middle East, where we have -- we're getting a lot of traction out of the regional headquarters that we set up in Riyad. We've also been expanding in Emirates, and I think there's more growth ahead for us in the Middle East.

So I always say that you have a unique background given what you've done over your career. So I want to ask this question to you, specifically. So you described the U.S. is making one of the biggest economic bets in history on AI, highly leveraged wager on its transformative potential. At the same time, U.S. economic growth has been fragile, let's say, and obviously concentrated within the tech sector. You've talked about strengthening non-AI industries as a "hedge". What do you think markets and policymakers should do to foster that diversification and, I guess, improve the resilience of economic growth?

Well, there's a lot there. I'll answer that, and then I'm going to talk a little bit about AI at Lazard. So just since we're on the topic. Look, the U.S. economy is increasingly a levered bet on our artificial intelligence. If you look at growth year-to-date for the U.S. -- from a U.S. macro perspective, it really is quite bifurcated. The AI sectors of the economy are growing at a rapid clip. The non-AI sectors are not. And that's what I meant by that -- it's increasingly levered bet on artificial intelligence.

And I don't mean to simplify too much, but the bet will either pay off or it won't. And if it pays off, I think top line growth will be -- will be fine. But there would be more concerns about the labor market and labors markets adjust well to big shocks that happen slowly or small shocks that happen fast. Labor markets don't deal well with big shocks that happen fast. And in the scenario in which this all pays off, that will be a big shock that happens fast. I haven't offered you any solutions to it yet.

But the alternative scenario is if it does not pay off, we wind up with a lot of equivalent of dark fiber, maybe even an inferior version of what was dark fiber, because of the massive amount of capital that's going into data centers and related components here. And that scenario top line growth is going to be more challenging.

We could spend the rest of our time on the policy questions around that. I'm going to skip that with your indulgence and instead, just talk for a second about AI at Lazard. We are clearly committed to being the leading AI-enabled firm among our competitors. Part of what we've been doing is a lot of work internally to not only have best-in-class tools, but also to have the cultural transformation and the adoption that I think is crucial to winning this race. We've also brought Dmitry Shevelenko, the Deputy of Perplexity onto our Board. He's a fantastic addition, both at the Board level and in terms of interacting directly with our AI teams, and I am using the technology a lot I had actually an AI version of myself at this Managing Director conference yesterday that I interviewed for a couple of questions. But I use it extensively in business-related purposes on a daily basis.

Okay. So just another one that you have some expertise in. But it does feel like the regulatory backdrop is a lot better as it relates to M&A. So maybe you could just contextualize in the Board and what that means for the types of deals that companies are willing to look at? And are there still sensitivities from a regulatory perspective on certain types of deals in your perspective?

What I would say is the regulatory environment in the U.S. is -- as I said, it would be significant because there had been a whole bunch of confusion around the merger guidelines, which I think had been a distraction. The regulatory environment in the United States is much more accommodating than it had been under the biggest bad era, but it's also more political. So it is possible to get a lot more things through the process, but it is no longer sufficient. And by any means to just talk about Herfindahl indices and a number of competitors in the marketplace with the staff at the FCC or the Department of Justice, that has to be supplemented or complemented with a White House or cabinet level strategy.

So more is possible, but it also means more nuance about how to get things through in Washington, in particular, and this is what I mean about contextual alpha. So having real insight into how that is likely to play out is, I think, front and center because it's possible to talk about a deal and then not have it get anywhere near completion if you're not sophisticated about how that works. So for example, not only I, but we brought on -- I make regular trips to Washington, as one might expect, but we also have a variety of resources that we brought on at Lazard. I'd highlight Patrick McHenry has been very effective and providing insight into what is likely to be a problem, what is not to many of our clients.

Excellent. So you touched on the sponsor recovery a little bit already, but I do want to dig in a little bit there. Maybe the question is why is this year, the coming year, different than the other ones in terms of a sponsor recovery? And is it an acceleration or it's just a continuum of the need to recycle capital?

I think the reason that 2026 will be different is everything has kind of cycle or breaking point to it. And I go back to, I think what's been happening is a tug of war between kind of bid-ask spreads or valuations relative to where things might sell relative to their marks or just relative to what the sponsors might want versus DPI and cash back to your LPs. And in that type of war, many sponsors have been able to delay disposing of their portfolio companies, but that's getting very long in the tooth from the perspective of many LPs.

And if you listen to most of the heads of the large either alternative asset managers or more pure-play sponsors, they're the ones saying that in 2026, they anticipate being more active. So it's not just that our bankers are anticipating, it's the people running these firms also. And there's just an inherent logic to investors want cash and not just the promise of cash in the future.

Your U.K. and European franchises have, of course, been a strong competitor to financial advisory revenue despite some challenges in the region and a subdued London equity market. There was a mention that in a recent article, the 2026 could bring a large wave of IPOs. What are the factors that give you confidence in that outlook? And how are you positioning yourself to be an adviser to those pre-IPO companies?

Lazard has great traction with many IPO candidates. You're talking specifically about Europe, I think?

Correct.

Okay. European IPOs. We have a fantastic IPO advisory business in Europe. I'd say the factors are a few. One is that many private companies are just getting too big to have change of control outside of an IPO. So as you get kind of north of $10 billion enterprise value in Europe, it just gets harder to configure either a sponsor transaction or certainly a secondary continuation fund kind of thing. So it's kind of the most natural exit for the more valuable private companies.

The second thing is, it's especially in the U.K., the FCA has been trying to get rid of -- or simplify the process a bit and kind of get rid of some of the red tape and the sand and the wheels. And so there's been some regulatory steps. And then I think the final factor is the Mansion House accord that basically has directed U.K. pension funds to invest in more local companies that opens up this possibility for demand on the back end of the IPOs. So you put all of that together, and we see activity being higher in the IPO market in Europe. This is obviously that we've highlighted. This is also a test case for the policymakers and regulators in the U.K. and in Europe more broadly, which is they have an opportunity to kind of stick the landing on IPOs because of those factors, and it still remains to be seen that they will do that, but it is our expectation that they will.

You already alluded a little bit to the Middle East opportunity here. There's a variety of different ways in which new sources of capital are coming out of the region and driving deal flow. Could you just expand a little bit on how you're positioning yourself to benefit from the advisory opportunities in the regions? And maybe what are the trends or sectors or sources of capital that are most promising in the region?

Look, this has been a very exciting part of our global expansion. We have a phenomenal team on the ground. I was just there a month or 2 ago, I think. And so very well connected, and that's obvious as we go to visit clients. I'd also say the connectivity among our senior bankers who are from other regions is also very high, and so that is helpful. With regard to particular sectors, obviously, there's an energy component to a big part of this, but it's well beyond that at this point.

We have -- I'll give you one example. We have done a lot of work to connect with sources of capital. We have a dedicated team that is focused on sovereign wealth funds. There's another example where there's across-the-board connectivity on many different sectors, connecting with the sources of capital in the region, in the sovereign wealth funds that we can help to play an intermediary function, and that's been very productive in technology. There was even a shipping yacht 1 recently. I mean it's across the board across sectors, because the sovereign wealth funds in the region want to invest in a variety of key sectors from their economy's perspective.

One other thing on that, which is I do not anticipate that this will happen in the next month or 2. But if you think about the next year or 2, it's entirely possible that while we won't call it Abraham 2.0, that there will be a broader regional piece deal. Our anticipation is that if that were to occur, the economic activity in the region, which is already attractive is going to accelerate dramatically. And so we are well positioned for that kind of embedded option because we think it's -- that's a plausible scenario, maybe not over the next couple of months, but as you look at a little bit over time.

Okay. That's fascinating. So you worked a little bit advisory mix trending towards 50-50 between M&A and non-M&A. Maybe the question here is, of the non-M&A engines, I guess, fundraising, secondary, Lazard Capital Solutions and restructuring, where are you most constructive in 2026. And after the investments you've talked about, where is the remaining white space in non-M&A advisory?

Look, the biggest components there remain restructuring and liability management and then also our PCA business. I already mentioned restructuring and liability management, we think will remain active throughout 2026 and beyond because of that increased dispersion across firms that means that the kind of correlation with other activities is probably different today than it was in the past and that -- anyway, we're seeing a lot of demand for our services in that area.

In PCA, specifically, we have a substantial amount of -- we have a fantastic team and we have a substantial amount of ambition there. I think you should expect significant expansion in our PCA offerings and strength and presence from an already strong base. And that's both in primary and secondary, it's both in the U.S. and Europe and across the globe. So we see a lot of activity there. I am not a believer that the private equity exits that I mentioned before that play into M&A will dramatically affect the underlying trajectory of the secondaries business. I know that's been a question.

The way we see it is that penetration of secondaries across sponsors as a whole remains still pretty modest or has plenty of room to grow. And so this is going to remain -- well, the lack of other exits may be a bit of a jump start to the secondaries market. There is an underlying demand for secondaries as a part of just the regular way set of options for private companies.

So Chris Hogbin is actually in the front row. So I guess this will be interesting for him. But I accepted this -- just this month into his role as CEO of Asset Management. So what are the key priorities you've set for him? How do you see his leadership partnership influencing Lazard's broader strategic direction in the next few years?

Well, first of all, let me just say when I was thinking about the right leadership structure for asset management Chris Hogbin was at the top of everybody's list and he has not disappointed. So I'd say both during the transition period, but especially since he's been officially part of Lazard, this has gone over extremely well with clients. It's gone over extremely well internally. And so it's only second week, but off to an extremely strong start, that's point one.

Point two, is you'll hear more from Chris in the coming quarters and years about the vision for asset management. But I think -- and this is what Chris has tasked with. It is building on the strength that we have, where we believe active management makes a lot of sense and can generate alpha and we've been able to demonstrate that it does, especially using quantitative and systematic approaches, especially used not only, but especially, quantitative and systematic approaches, emerging market equities, customized solutions and a variety of other offerings where we think both the theory of the case for active management is very strong, and our performance has been very strong. And that's what we're seeing in the flows -- the net inflows that we're seeing in those kinds of products and offerings. That's point one.

Point 2 is Chris is also a talent magnet. And so I think the opportunity that we have to reinvest in research especially, but also our portfolio managers and the distribution team, all of which are strong, but we can always aim for even more strength, I think, is very exciting, and you should be expecting that sort of reinvestment in the years ahead. And then finally, in our asset management business, we have a lot of opportunities to make sure that we're deploying artificial intelligence as well as possible. And that's another key priority.

Fourth thing I'd say is many of you may know that we have a very attractive wealth management business in Paris. We see a lot of opportunities to be expanding in wealth management and also possibly in alternatives, but especially in wealth management in the coming years.

Excellent. So I think you now have, by my account, 7 active ETFs and there's further growth to come in the U.S. In the U.S. what does success look like for the ETF platform over, let's say, the next 1 to 2 years? And how are you integrating ETFs into the broader franchise?

Look, ETFs are very attractive for many kinds of investors because of their liquidity, because of their tax structure. And we see a lot of opportunity to expand the pool of investors that are interested and exposed to what Lazard has to offer through the ETF structure. So you should anticipate continued expansion in the U.S. but also geographic expansion. We already have an ETF offering in Australia. But there will be more coming in Europe specifically. And these are all performing well so far in the U.S. after being launched, and we see them growing over time, because it's a structure that investors find attractive, but also married with the Lazard brand and the performance that I was talking about in many areas where active management makes more sense than passive.

So I think I'd be remiss if I didn't dig in a little bit on the flows comment and the guidance for 2026. So maybe you could just break down the inflows versus outflows. And maybe just highlight for us -- is it just the outflows are really slowing down, and that's what gives you the confidence that you can have these net positive flows for next year? Or are the inflows also accelerating? Or maybe it's both?

So let's again bifurcate the world. We have the kind of historical piece around this one large sub-advised account that, again, I was -- I think last time I was here trying to foreshadow and hint that, and this is not a surprise, the timing is a little bit accelerated but not a surprise. Very small share of revenue. It was an exceptionally low, fee mandate for various reasons. So put that to the side, at this point, the good news is that's behind us. And there's -- therefore, a turning of the page that is the opportunity here.

And as I said, almost $9 billion year-to-date outside of that one account, that gives you some sense of -- on a net basis, the strength of the franchise going forward, which is exciting. And the vast majority of our revenue, as I've already said, was outside of that one account.

Secondly, with regard to the balance between the gross inflows and gross outflows, we've seen an acceleration in gross inflows. So that is -- that is a significant explanation. There also is an effect on gross outflows in those components, a very large share -- disproportionate large share vastly disproportionate revenue of our gross outflows over the past year or 2 has been in that 1 account again or in that category. And so what we have been doing under the surface is you've seen a shift with net inflows outside of that 1 account outflows in that 1 account. Now it's -- given that that's behind us, all of this will be a bit more above the surface. And you'll see not only, I think, very healthy growth inflows, but a pretty healthy positive net inflow -- net inflow in '26.

Great. You target a 60% or lower comp ratio with timing to reach that dependent on the market. Just help us think through the road map to get to 60%, how much is in your control versus the backdrop and maybe just if you're willing to comment on incremental margins across the different...

Well, I think 2 things. The 2 businesses have different key drivers for operating leverage. I've said before that on the advisory side, the most important single driver of operating leverage is revenue per MD. We are making very significant progress there. We exceeded our 2025 target last year. We're on year-to-date above that. I've laid out now that we see just almost mechanically from the ramping phenomenon that I mentioned, another $1 million in per MD in productivity from going from 40% to 30%, and that's if we don't really do very much but we are going to be doing a lot to continue to upgrade our talent, to continue to raise minimum fees, to continue to work on mandate selection, to continue to work on how we structure our fees on the -- on the advisory side and so on. And as that revenue per MD goes up, you get operating leverage, especially on the non-MD component of compensation. So that is the key driver.

There are additional things that we can talk about but that's the single most important thing. And then on the asset side of the business, I think the single most important thing is scale per strategy in terms of generating operating leverage. Many people talk about the overall size of the business, I am less convinced that that's a massive driver of margin than the scale per strategy. And Chris will be very focused on making sure that we are ridding ourselves of products and strategies that are subscale and that don't have the opportunity to grow, investing in those that we think do have the opportunity and expanding those that are already at an attractive size but that could grow further. So lots of room for margin improvement over time, and that's before we get to any of the transformational effects of artificial intelligence, which is likely going to be the case over the next few years also.

Last one for you. So you definitely had a little bit lighter capital return. You've been remixing the business hiring, et cetera, as we've talked about. Just could you update us on your capital return priorities from here?

Yes. They remain what I've said before, which is with regard to excess cash, we will -- we will aim to at least offset the dilution from our deferred compensation schemes. And then beyond that, it's a tug of war between inorganic growth opportunities and delevering in terms of our priorities. We do see a lot of attractive opportunities for shareholder-friendly, shareholder enhancing inorganic growth vectors now on both sides of the business, honestly. I think in the past, I've talked about the asset management side. There are opportunities on the advisory side also. We will be disciplined about this, but we do see growth opportunities as being a very attractive use of excess cash.

All right. That's a great place to leave it. Thank you so much, Peter.

Thank you.

Good morning, and welcome to Lazard's Third Quarter and First 9 Months 2025 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Treasury. Please go ahead.

Good morning, and welcome to Lazard's earnings call for the third quarter and first 9 months of 2025. I'm Alexandra Deignan, Head of Investor Relations and Treasury. In addition to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website later today.

Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance, achievements or other events to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, those factors discussed in the company's SEC filings, which you can access on our website.

Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update them. Please note that unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe that these non-GAAP financial measures are meaningful when evaluating the company's performance.

A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and investor presentation. Hosting our call today are Peter Orxzag, Lazard's Chief Executive Officer and Chairman; and Mary Ann Betsch, Lazard's Chief Financial Officer. I'll now turn the call over to Peter.

Thank you, Ale, and thank you to everyone for joining today's call. We are pleased to report another quarter of strong results, reflecting an ongoing focus on our clients and continued momentum behind our long-term growth strategy. For the first 9 months of the year, total firm-wide revenue was $2.1 billion, including record financial advisory revenue of $1.3 billion.

Financial Advisory was active during the third quarter with strength in M&A across health care, industrials and consumer and retail in restructuring and liability management and in primary and secondary fundraising. Our recruiting efforts have resulted in 20 new MDs joining Lazard so far this year with world-class talent attracted to our premier brand and our vision for the future.

Overall, financial advisory performance has demonstrated how our commercial and collegial approach is producing results by capturing new business opportunities. Looking ahead, we see an increasingly constructive environment for advisory activity, which I will discuss later. In Asset Management, it is now clear that 2025 is an inflection point for the business. For the first 9 months of the year, revenue totaled $827 million. And in the third quarter, revenue was up 8% year-over-year.

Improved investment performance, our increased focus on key products and strategies and more favorable market conditions have resulted in record gross inflows for the third quarter and for the first 9 months of the year. Year-to-date, we have achieved net positive flows of $1.6 billion with total AUM up 17%. We look forward to welcoming Chris Hogbin as our CEO of Lazard Asset Management in December, helping to further accelerate our progress and evolve this business for future growth.

Let me now turn the call over to Mary Ann to provide further details on the quarter's results, and then I'll share more on our outlook and the successful execution of our long-term growth strategy, Lazard 2030.

Thank you, Peter. Today, we've reported record third quarter firm-wide revenue of $725 million, up 12% from the same time last year, driven by activity across both our businesses. Financial Advisory revenue totaled $422 million, up 14% from 1 year ago.

Lazard participated in several marquee transactions during the third quarter, reflecting collaboration across banking teams and the strength of our global franchise. Completed transactions include Mallinckrodt Pharmaceuticals $6.7 billion combination with Endo Pharmaceuticals, Ferrero's $3.1 billion acquisition of W.K. Kellogg, Altice France's landmark agreement with creditors and Sixth Street on its investment together with a consortium led by William Chisholm to acquire a majority controlling interest in the Boston Celtics in a deal valued at $6.1 billion.

Recently announced transactions include Keurig Dr. Pepper's $23 billion acquisition of JDE Peet's and planned subsequent separation into 2 independent companies and Caithness Energy on multiple transactions, including the $3.8 billion sale of assets to Talen Energy. In addition, corporate restructuring assignments include company roles with Anthology, CityFibre and Saks Global. We also engaged in several private equity assignments, including advising Norvestor on a continuation fund, advising on the closing of Nexus Capital Management Fund IV and Pacific Avenues Fund II and advising on capital structure and capital raises for Morrisons and Tennant Holdings.

Turning to Asset Management. For the third quarter, revenue was $294 million, up 8% compared to the third quarter last year and up 10% on a sequential basis. Management fees for the third quarter increased 6% compared to the third quarter last year and increased 8% sequentially. Incentive fees were $9 million in the third quarter compared to $3 million in the third quarter last year.

Average AUM for the third quarter of $257 billion was 5% higher than the third quarter of 2024 and up 8% on a sequential basis. As of September 30, we reported AUM of $265 billion, 7% higher than both September 2024 and June 2025. During the quarter, we had market appreciation of $12 billion and net inflows of $4.6 billion, partially offset by foreign exchange depreciation of $400 million. We see ongoing client engagement and demand across our investment platforms, particularly with our quantitative and emerging market strategies.

Illustrative examples of this include $3 billion from a Korean institution into Global Equity Advantage, $1 billion from a U.S. public fund into international Equity Advantage and $1 billion from a U.S. financial intermediary client into emerging markets equity. In addition, we received over $1 billion from a Netherlands-based client for a custom U.S. equity mandate and approximately $900 million from a U.S. institutional investor into international quality growth.

Now turning to expenses. For the third quarter of 2025, our compensation expense was $475 million, resulting in a ratio of 65.5% compared to 66% for the third quarter 1 year ago. Our noncompensation expense for the third quarter was $149 million, equating to a ratio of 20.5% compared to 21.4% for the third quarter last year. We are maintaining a disciplined approach to our expenses, while investing to support long-term growth.

This includes substantially expanding our team of financial advisory managing directors and opening new offices in the Middle East and Northern Europe this year. It also includes the build-out of our ETF business in asset management with 6 strategies launched in 2025 and more to come. Shifting to taxes. Our effective tax rate for the third quarter was 21.4% compared to 32.5% for the third quarter of 2024. As an update to our tax guidance, we currently expect our full year 2025 effective tax rate to be around 20%.

Turning to capital allocation. In the third quarter of 2025, we returned $60 million to shareholders, including a quarterly dividend of $47 million. In addition, yesterday, we declared a quarterly dividend of $0.50 per share.

Now I'll turn the call back to Peter.

Thank you, Mary Ann. Firm-wide client engagement remains strong. While the U.S. government shutdown may temporarily affect the timing of deal approvals among other potential effects, we see an increasingly improving environment for financial advisory activity. In any moment of turbulence, there is also a substantial opportunity for our clients as they navigate shifting geopolitical and macroeconomic landscapes as well as advances in AI.

Demand for M&A continues to increase, while restructuring and liability management activity also remains strong as businesses reposition to address evolving market conditions. Our expanded connectivity to private capital positions us well as private equity comes back on to the playing field and demand remains robust for secondary and continuation funds. This is occurring across all our major geographies, including the United States and Europe as well as now the Middle East, further underscoring the diversification of our business.

We are also making steady progress toward our long-term growth goals. We remain on track this year to achieve or exceed our 2030 objective of expanding our team of financial advisory MDs by 10 to 15 net per year with significant hiring already this year. On productivity, we achieved average revenue per MD of $8.6 million during 2024, 1 year ahead of schedule. And since then, average revenue per MD has increased to almost $9 million. We remain confident in our ability to continue raising productivity, including beyond our 2028 goal of average revenue per MD of $10 million through our focus on mandate selection, our disciplined fee structure, the quality of our managing directors and our ongoing emphasis on a commercial and collegial culture.

Turning to asset management. We have made significant strides in sharpening our focus on the areas of the market, where active management is most likely to add value to clients, leading to improved flows this year. Active management plays a particularly valuable role for clients, where information is imperfect and where technology can be applied to generate excess returns. This includes quantitatively driven strategies, emerging markets and customized solutions that are not readily available in the broader market.

These strategies have delivered significant outperformance this year and represent especially promising future growth opportunities. At the same time, and as we have emphasized before, our sub-advised funds associated with U.S. multi-manager mandates have different dynamics from the rest of our asset management business. These funds have disproportionately contributed to outflows over the past few years, which we have more than offset in 2025 due to our focus on the areas of the business that represent growth opportunities. With 97% of our asset management revenue already outside of this sub-advised category, our prospects going forward are strong as our efforts to strategically reposition the business take hold.

Looking forward, we believe that we can also expand our range of offerings to reach new clients, including through active ETFs. In the third quarter, we launched 2 new active ETFs, the Lazard U.S. Systematic Small Cap and listed infrastructure ETFs, bringing our total to 6 in the United States. Our ETF platform is off to a solid start as we bring our leading strategies to more investors with further global expansion in the coming months.

In addition, we are excited to welcome Chris Hogbin as CEO of Lazard Asset Management later this year. His collaborative leadership style and experience in building and growing a global asset management business will help us to meet clients' evolving needs and accelerate progress toward our long-term strategy. Across Lazard, we are focused on key differentiators that support our ability to deliver for our clients and shareholders.

Lazard has long been recognized for our unique combination of insight into business and geopolitical trends. Building on the success of our world-class geopolitical advisory group, we are honored that Erik Kurilla, retired Four-star U.S. Army General and former Commander of U.S. Central Command, has joined Lazard as a senior adviser. His expertise is particularly valuable given client interest and ongoing developments in the Middle East and our expansion in that area of the world.

Clients turn to Lazard for the most sophisticated advice and investment solutions, and we succeed with the unrivaled collective intellectual capital of our firm. With AI, we have the capability to meaningfully scale this capital, while reinforcing the importance of client relationships. Helping to further advance our efforts, we are pleased that Dmitry Shevelenko, Chief Business Officer of Perplexity, has joined Lazard's Board of Directors. She is already contributing to our efforts to become the leading AI-enabled independent financial services firm.

Finally, as I've recently completed 2 years as CEO, I wanted to take a moment to reflect on our progress to date and the road ahead. In pursuit of our long-term growth strategy, we set forth several objectives in Financial Advisory to boost revenue by increasing average productivity per MD and by expanding our team of managing directors and in asset management to achieve a more balanced flow picture this year by strengthening our research platform and by focusing our distribution efforts on key products and strategies.

We are successfully executing against our plan in achieving these objectives as demonstrated again this quarter. We continue to evaluate our overall success across 3 dimensions: relevance, revenue and returns. Our goals remain consistent to double firm-wide revenue from 2023 to 2030 and deliver an average annual shareholder return of at least 10% to 15% per year over that same period.

While early results are quite promising, what I am most proud of is the degree of cultural change across the firm. Building on our long-standing commitment to excellence, we have meaningfully raised our ambitions and our collaborative approach. We have also transformed our Managing Director group in Financial Advisory through hiring and promotions and with heightened expectations for commercial outcomes and collegial behavior.

At Lazard, we are playing to win and playing to win together. We are only at the start of realizing the sustained advantage that our reenergized culture creates, and we are confident that our success in creating very strong organizational health will increasingly pay off in results as we move forward. This early success and momentum are the result of our colleagues' dedication to our clients and commitment to realizing this vision for our future. And to them, I extend my appreciation and respect.

Now we'll open the call to questions.

[Operator Instructions] We'll take our first question from Alex Bond with KBW.

Peter, maybe just to start on the hiring environment. It seems like the backdrop and your competition for senior talent appears to be relatively high at the moment. And you've noted that you expect to be at or near the high end of your targeted net MD addition range for the year.

Can you just walk us through how you're thinking about balancing bringing on strong talent, who can add to the revenue base while also considering how that impacts the ultimate level of comp leverage moving forward? And then also curious how talent retention fits into this narrative, just given your peers also remain active on the hiring front as well.

Sure. So we've had a lot of success bringing people on to the platform. I think there's a sense of a reenergized Lazard and a lot of excitement about our momentum in key areas like industrials, health care, the Nordics, Middle East, FIG, private equity coverage among many others. And the quality of the people that we're attracting, if you look not only at their personal trajectory, but also where they're coming from is very high. So we're excited about that.

With regard to the opposite direction, we've had very, very few regrettable departures and I'd say the state of our Managing Director pool is very strong. We just completed an internal survey as 1 example, and the MD engagement scores on the financial advisory side are extremely high, which, again, I think speaks to the organizational health point that I made.

With regard to comp leverage, the reason that we're out hiring these people is because we believe that they'll not only lead to growth over time, but also to helping to continue to raise our productivity per MD. And that then speaks to the comp leverage point because I want to reemphasize something I've made -- point I've made many times before. A substantial amount of comp leverage comes from raising productivity per MD.

And the reason for that, in turn, is that the non-MD expense associated with a more productive partner is not that different from the non-MD expense compensation associated with a less productive MD partner. So as you raise productivity per MD, you get a substantial amount of operating leverage because the non-MD compensation declines as a share of revenue and you get the operating leverage there.

So we're bringing on to the platform people that we believe are going to be super productive moving forward. We've added a significant amount of diligence to our hiring process, that increases our confidence about that. And if you look at the early results of some of the people that we've been hiring over the past couple of years, that seems to be paying off. So comp leverage over time because the folks we're bringing on are going to help contribute to raising productivity. That is one of the factors that gives me confidence to say that as we move past 2028, we're going to continue raising our productivity per MD aspirations. And I think, for example, something in the range of $12.5 million by 2030 is imminently achievable.

Great. That's helpful. And maybe just switching gears for my next question, but maybe if you can just speak to the recent success you've had driving that inflows in the Asset Management unit. And to the extent these recent inflows are being driven by new client wins. I mean it sounds like the geographic distribution here, there's a pretty good mix. And then also curious as to your confidence level in achieving net neutral flows for the year now that we're a decent way into the fourth quarter.

Sure. So on the first part of the question, the flows are -- again, it's a bit of -- we've got to be clear about it on a gross basis, significant inflows into the part that I'm going to talk about and then ongoing outflows from the sub-advised accounts that I mentioned in the script, with regard to where the inflows are coming from, they are disproportionately in areas of the business that we're very excited about the kind of go forward on, our quantitative and systematic strategies, emerging market equities, customized solutions, global listed infrastructure and other examples like that.

And also among European investors, our sustainable products are areas of interest. With regard to the geographic mix there is also increasingly play towards diversification outside of the United States. And so the vast majority, 80% to 95% of our current one, but not funded mandates are for products and strategies outside the U.S. and among clients that are also geographically outside of the United States. So to your point, yes, the global footprint that we have, both on the product side and on the distribution side is beneficial.

With regard to the year as a whole, I had put forward the flat flows or net zero flows as a stretch goal. I think many of the people on this call may have been skeptical that, that was even remotely possible. And again, therefore, I think the year-to-date results are particularly striking, given that there was -- there had been so much skepticism. As we approach the end of the year, obviously, we are increasingly looking to actually hit that bogey.

We'll have to see. But I think, again, I'll just go back to year-to-date, things look very good, and we continue to win new mandates, including 2 that I got notified about this morning. So we will see that everything looks very positive in terms of the overall flow picture right now, especially in those products and strategies that I was highlighting.

And that is the second point I want to make, which is what's happening here is that even while the net number is positive, we're also seeing a significant transformation of the business towards those areas that we think are the most promising on a sustainable basis over time. Highlight again quant areas of equities, where there are more information in perfections and therefore active management is more likely to have some sort of edge emerging market equities is a great example of that. And then customized solutions, where it's just harder to put together the portfolio that clients are looking for on their own.

So overall net positive, but also we're losing -- or we're seeing outflows in the large sub-advised accounts, and we're seeing disproportionate inflows into those new areas of the business. So under the surface, there's also a shift towards those products and strategies where we have a high degree of confidence that the theory of the case for active management makes a lot of sense.

Our next question will come from Jim Mitchell with Seaport Global Securities.

Maybe just a follow-up on some of those -- that discussion there first on the Asset Management business. You talked about record gross inflows. Are you seeing any change in the trends in gross outflows, I guess, not just within the sub-advisory group, but just more broadly because I think if you look at the trends that you guys disclosed, your gross outflows have still been relatively high. You're seeing any improvement there?

Yes. Gross outflows are lower than they were last year. And again, they're disproportionately accounted for by the sub-advised accounts. So if you were to do a net flow picture outside of subadvised accounts, the trajectory looks even more promising, and I think that may be an important way to consider things given that 97% of our revenue is outside of that category. So that might be a paradigm that's worth continuing to highlight on a going-forward basis.

Okay. And then -- and just maybe when you think about Asset Management and the turnaround there, you have a lot of momentum, obviously, assuming the markets hold up, especially heading into next year, it seems like you have more operating leverage and comp leverage in that business. So does that lower the bar on the Advisory side to carry the weight to get to that 60%? So just how are you thinking more positively about getting to that 60% in the intermediate term? Just any thoughts on getting to that goal?

I am quite confident that we will see operating leverage kick in further in 2026 and so that we'll make progress on reducing the comp ratio. I don't want to attach a particular timetable because that's obviously dependent on a variety of factors. So let me just unpack some of the things that will lead to operating leverage over time.

1 is that ongoing improvement in productivity per MD that I mentioned. Part of that also is the mechanic -- almost mechanical or arithmetic kind of effects of what's been happening with our big step-up in hiring because when we hire people, there's a temporary ramp that kind of artificially depresses productivity per MD or raises the comp ratio either way you want to look at it because they're getting used to the platform and what have you, as they mature that affect flip sign or kind of attenuates. And so there's almost a mechanical uplift in productivity that we expect to be occurring as we move through time, even at a higher hiring rate because these are all sort of transition effects as we've moved to a much more aggressive hiring stance over the past couple of years.

On the Asset side of the business, there will be operating leverage that comes from these inflows, but also from a lot of care and attention that we're paying to what I would call scale for strategy. So if you wanted to highlight the big -- obviously, there are many things that go into operating leverage, but to simplify it on the Advisory side of the business, a lot of operating leverage comes from revenue per MD.

And on the Asset side of the business, a lot of operating leverage comes from scale per strategy, not overall scale, but scale for strategy. So, those are the types of metrics that we're looking at to produce operating leverage. Obviously, lots of other things go into it in terms of the ability for us to find further efficiencies in many of our processes because of artificial intelligence and other factors, but those are 2 big drivers on each side of the business.

Our next question will come from Brennan Hawken with BMO Capital Markets.

First, Peter, I'll definitely caught to it. I was one of the doubters in you guys getting and turning around the flows as quickly as you did. So no question there, just tip of the cap.

Thank you for that, much appreciated.

You're welcome. I'm impressed with how well it's gone. And you still have leadership inbound. So actually, I'll turn it into a question. I know we've got new leadership coming in December. When do you think it's realistic for the analyst and investor community to hear Chris' plans for the business?

I know he's not started yet, but I also, I'm sure about executive of that caliber I doubt he didn't start hatching plans, when going through the whole hiring process and interviewing process. So how long do you think it will be before we'll get an idea or at least a framework of what he's thinking?

I think it will be relatively fast. We do want him to find his way around the hallways and what have you. But to your point, he's a very experienced leader in the space, so comes into this with that advantage. And I think has a very good sense of our business and the opportunities for it. So to be specific, let's say, January, maybe or at least January or February, when we want to get past our fourth quarter results, but sometime in that time frame, it's not going to be 6 months.

Right. Okay. We'll call it at some point in the first quarter.

Okay, that's great. We're happy to set up the appropriate kinds of discussions.

Perfect. Okay. And then thinking about Advisory, right? So you've done a lot of changes. You've spoken to bringing up the productivity number and the productivity numbers that improved really quite well under the new strategic direction. And so all that's really encouraging. I'm guessing this might have changed how we think about the mix within Advisory.

So can you give us maybe like a high-level sense of the major buckets within Advisory. And if you want to talk about it on like an LTM basis or like how it's been trending recently versus maybe historical levels, like how does it break down in between like M&A, PCA, like there is a Private Capital Advisory business, your Restructuring business, the major buckets that you would break it into. How does that break down versus the history? And has that changed a lot?

Yes. And we -- I'd note a couple differences relative to history, while we're doing this. 1 is M&A versus non-M&A. Over the past year or so, it's been kind of 60-40 M&A, non-M&A, in this quarter. And I think this is a precursor of things to come. The mix is actually closer to 50-50, not quite M&A, non-M&A, as we've seen increasing growth in some of the other Advisory Services.

And the second piece of this is the mix between public company and private capital, where we are also trending towards a much more balanced mix than was the case historically for Lazard. This quarter was a little bit off from that. We had a little bit more tilt towards public companies, but that's just because quarters bounce around a bit.

So bottom line is, I think you should expect a significant amount of growth, not only in the M&A part of our business, but as we built out our Fundraising business, Restructuring and Liability management, those are trending more towards approaching half of the business. And I think that's a reasonable medium-term objective, while maintaining our strength in the core M&A product across the globe.

Our next question will come from Brendan O'Brien with Wolfe Research.

I guess just following up on one of your remarks you just made, Peter, on the Restructuring business. Concerns on the credit outlook you've been building in recent weeks following comments made by one of the big banks on 2 of the recent defaults, however at the same time, the Fed as well as other central banks have begun to lower rates, which should help to alleviate the stresses put on corporate balance sheets. So it would be great to get your perspective around whether your Restructuring business is seeing any signs of building stress at this juncture? And how you're thinking about the outlook for the business given these puts and takes?

Sure. Let me make a few comments on this, just unpack it a little bit. First, we do not view the recent examples of bankruptcies that have gotten a lot of press attention as a canary in the coal mine for broader problems in Private Credit. We are advising on one of those situations now, and so I'll be careful about going into too much detail, but I think that's the broad conclusion.

There are -- it's clear Private credit has grown very rapidly. It would make a lot of sense and one should expect that at some point, there will be wobbles in that market even as it remains a more permanent part of the financing environment. I just don't think that these recent cases are a symbol or a signal of that wobble at this point. So that's the first point.

Second point is, there has been a quite notable change that should affect the timing of Restructuring and Liability Management or the correlation of the covariance between Restructuring and Liability Management and other Advisory Services, especially M&A. Historically, as you know, it was pretty much always the case that when Restructuring and Liability Management was booming, M&A was weaker and vice versa.

What changed over the past decade or even 2 decades is a massive increase in the dispersion across firms and their performance. So if you as one example, if you take return on invested capital as a metric of firm performance and look at the 90th or 95th percentile of firms versus the 50 or 15th or the 25th, you just see this explosion that looks like when those income inequality charts, a lot of growth at the top kind of stagnant in the middle and then declines at the bottom.

And that wider dispersion I think, needs to feed into thinking about the cycle because as corporate performance becomes more varied you can have the coexistence of a very strong incentive for M&A, but also a lot of Restructuring and Liability Management activity occurring. And the reason for that is pretty simple, which is, as actually research out of Stanford shows, one of the motivations for M&A is that the top-performing firms believe they can buy the lower-performing firms and improve their internal operations and productivity through better management, basically.

And as the degree of dispersion goes up, that incentive gets stronger. So that's one of the vectors for M&A activity. But at the same time, as you have more firms down at the bottom that are struggling, you've got ongoing Restructuring and Liability Management. So we just think that this is a -- there's a change in the environment, where both of these things could increasingly occur or could coexist to a degree that may not have been the case historically.

Finally, I'd say one area, where I probably vary from the conventional wisdom somewhat is I still think the markets are being -- just coming back to your point about rates. I think the markets are being a bit too optimistic about the probability of more than one additional rate cut from the Federal Reserve over the next couple of months, the next few months. We can talk about why that is, in my opinion.

But the consequence, if I were right, of rates remaining a bit higher, at least at the short end of the curve would be probably more impactful or have more impact on the Restructuring and Liability Management world than on M&A. Rates are one input into M&A, but I think a kind of secondary tertiary one, they have a bit more effect on the Restructuring and Liability Management side of the equation.

That's a really helpful response. Peter. I mean for my follow-up, I just want to touch on Europe a bit. The expectation last quarter was that the pickup in M&A activity would be largely driven by the U.S., which the data suggests has largely played out that way. However, at the same time, it does seem like trends in Europe has been quite strong as well. So I was just hoping you could unpack what you're seeing in Europe relative to the U.S., if there's any notable divergences, and how you think those 2 fee pools will track relative to each other over the near to intermediate term?

Yes. Look, for the quarter, we saw a bit more of a tilt towards Europe in the revenue mix this quarter. These will bounce around a bit for us. One of the benefits of having a really strong franchise, both in the United States and Europe is that we can kind of surf to, wherever the activity is the hottest, if you will.

With regard to Europe specifically, I think the most important thing to realize is people often conflate the macro with -- I don't want to call it the micro, but I'll call it the micro. There are lots of phenomenal European companies. And even against the backdrop of a bit more challenging macroeconomic situation, which in turn reflects political polarization in a lot of countries that we could talk about, there's a lot of interest among European companies to do something and a lot of strength in the corporate sector.

And as an example, there's been a lot of attention paid to the political turmoil in France. Most CAP 40 companies only have a very small share of their activity inside of France. And so the question is, how can you still have such ongoing activity out of the French market even while there's the backdrop of political drama, and I think the short answer is that many French companies are global, and they are affected by what's happening in France, but it's not the only thing affecting their outlook.

Final thing I'll say is for the M&A cycle as a whole, the next stage of this developing is the return of private equity in M&A, in particular. And so that applies to Europe also. I think the question is at what point and we think this will increasingly play out in 2026, will demand from LPs for liquidity, not be fully satisfied only by secondary/continuation funds, but require M&A by the Private Equity houses.

Our sense is that, that's going to be increasingly relevant in 2026. And our expanded connectivity to those sources of Private Capital will -- the investments that we have been making in our coverage efforts will increasingly pay off therefore in 2026.

Our next question will come from Ryan Kenny with Morgan Stanley.

Want to follow-up on the earlier comment that the U.S. government shutdown could impact some deals. Could you impact which pieces of Advisory are impacted? And how quickly after the shutdown is lifted, can these deals move forward?

Sure. Look, many deals require either some combination of SEC approval or Department of Justice and FTC approval. So anything that requires those approvals or other agencies that don't fall into the kind of essential part of the government component -- could be affected by timing. We think that any backlog that builds up from that will be cleared relatively quickly, matters of weeks, not months after the government fully reopened.

And I would also note that if the government shutdown were to continue for a significant period of time, the administration always has the ability to alter its definition of what's essential and what's not. And I would imagine that if something were to start to affect the macro economy in a quite material way, for example, not clearing important transactions, they may want to reexplore that boundary. So in past government shutdowns, we haven't really seen a very substantial effect because of the kind of catch-up being quite quick, and that's what we would anticipate this time too.

And then separately on non-comp, different topic. Any color how we should think about the trajectory here? You mentioned your ambitions to be a leader in AI. Is there an upfront investments been needed to get there?

The upfront investments in AI are, I think, modest relative to the scale of other expenditures and the returns are so high that I don't think you should be focused on the upfront investments as a material mover of the non-comp component, but more broadly.

Mary Ann, if you want to come in on non-comp trajectories.

Sure. So. I would just maintain the guidance from last quarter, which is we're still expecting a high single-digit increase in dollars year-over-year, high single-digit percentage year-over-year, but in the dollars, not the ratio. And that's driven by the same factors we've been talking about. So continued investments in technology, ongoing increases in business development, some FX headwinds and then asset servicing fees, which are higher as our AUM has grown. So those are the drivers of the increase there.

Our next question will come from James Yaro with Goldman Sachs.

Maybe just could you help us think a little bit in more detail on the secondary's outlook from here? We've seen a very strong CAGR in this business over the past 3 to 4 years. Is anything slowing down there perhaps this year and more recently?

No. I mean that's a pretty simple answer. No. The trends there are -- the tailwinds are very strong, and we see this continuing. I think some people have incorrectly assumed that as M&A and the IPO market reopens that the secondaries business will be negatively affected. We don't really see it that way. We see the kind of artificial priming of the pump from other exit strategies being kind of temporarily harder to do -- as only doing that priming the pump for this asset class, if you will. And I think we expect and most market participants expect that this will be a permanent part of the environment going forward.

And when you look at the penetration rate of this products or this vector, among private equity funds is still relatively modest. So there's tons of room to grow, and that's what we're experiencing in real time in terms of client engagement. So we don't see any deceleration at least in our business and don't expect it, if anything, the opposite.

Okay. Great. You were very clear about where you expect inflows and outflows to come from in Asset Management. Perhaps you could just comment on the fee rates on these outflows and inflows. And I guess, just more broadly, how we should think about your fee rate in Asset Management trending going forward?

Well, as you will have seen, there was a small increase in the average fee rate in the quarter. I think that's because -- well, mechanically, because the things that are flowing in have higher fees than the things that are flowing out. And going forward, we don't anticipate any material change one way or another in the average fee rate.

Obviously, the specifics will depend a little bit on exactly, where the inflows come from among those products and strategies that I was describing as being where we're experiencing the most growth. But I think a reasonable expectation is roughly flat, at least for the near term.

This concludes the Q&A portion of today's call, and it also concludes Lazard's third quarter and first 9 months 2025 earnings conference call. You may now disconnect.