Lazard LTD.

Good morning and welcome to Lazard's full year and fourth quarter 2022 earnings conference call. This call is being recorded. Currently, all participants are in a listen-only mode. Following the remarks, we will conduct a question and answer session. Instructions will be provided at that time. If anyone should require assistance during the call, please press the star key followed by the zero on your telephone keypad. At this time, I will turn the call over to Alexandra Dagan, Lazard's Head of Investor Relations and Corporate Sustainability. Please go ahead.

Thank you, Gretchen. Good morning, and welcome to Lazard's earnings call for the fourth quarter and full year of 2022. I'm Alexandra Degnan, head of investor relations and corporate sustainability. In addition to today's audio comments, we've hosted our earnings release and an investor presentation 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, or achievements 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 these forward-looking statements. Today's discussion also includes certain non-GAAP financial measures that we believe 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 presentations. Hosting our call today are Kenneth Jacobs, Lizard's Chairman and Chief Executive Officer, and Marianne Vetsch, Lizard's Chief Financial Officer. Marianne will start the discussion with an overview of our financial results, then Ken will provide his perspective on the outlook for our business. After that, Ken and Mary Ann will be joined by Peter Orszag, Chief Executive Officer of Financial Advisory, and Evan Russo, Chief Executive Officer of Asset Management, as they open the call for questions. If you are currently on the call, please make sure your line is on mute. I'll now turn the call over to Mary Ann. Thanks, Sally, and good morning, everyone.

Today we reported fourth quarter 2022 operating revenue of $671 million. a 31% decrease from record revenue of $968 million in the fourth quarter of 2021. Operating revenue for full year 2022 was $2.8 billion, 12% lower than full year 2021. For context, this represents the second highest annual operating revenue in Lazard's history, following the firm's record operating revenue in 2021. In financial advisory, we've reported fourth quarter revenue of $404 million, down 34% from last year's fourth quarter. For the full year, operating revenue was $1.7 billion, 7% lower than record revenue in 2021. Despite the challenging market conditions of 2022, robust strategic M&A activity drove financial advisory to a record first nine months, with activity slowing during the final months of the year. While the pace of announcements and completions moderated amid rising macroeconomic uncertainty, our client engagement remains active across geographies. In restructuring, our discussions with clients are increasing as a result of rising interest rates and demand for liability management, and we are currently engaged on a number of assignments in both the U.S. and Europe. In asset management, fourth quarter operating revenue was $259 million 25% lower than the fourth quarter of 2021. Annual operating revenue was $1.1 billion, 17% lower than 2021, primarily reflecting lower average assets under management and lower incentive fees. Management fees and other revenue was $245 million for the fourth quarter, 18% lower than the prior year period, reflecting a 21% decrease in assets under management year over year, partly offset by a slight increase in the average fee rate. Management fees and other revenue was $1 billion for full year 2022, a 15% decrease from the prior year. 2022 was a year of significant market volatility, geopolitical tensions, and quantitative tightening, which manifested in lower valuations across asset classes globally. Although markets showed signs of improvement in the fourth quarter, investors reallocated portfolios at year-end to de-risk assets and increase liquidity. The strength of the U.S. dollar was also a sustained headwind for our asset management business, as approximately two-thirds of our AUM is held in non-U.S. dollar-denominated assets. As of December 31, 2022, we reported AUM of $216 billion, up 9% from September 30th. This increase was driven by market appreciation of $14.4 billion, foreign currency appreciation of $7.7 billion, and net outflows of $3.7 billion. Net outflows in the fourth quarter moderated significantly from the $6.7 billion in net outflows during the fourth quarter of 2021. Average AUM for the fourth quarter was $211 billion, a decrease of 23% from a year earlier. On a sequential basis, average AUM was essentially flat compared to the third quarter of 2022, reflecting stabilizing market conditions and the weaker U.S. dollar. As of January 27th, our AUM was approximately $230 billion, driven by market appreciation of $11 billion foreign currency appreciation of $2 billion, and net inflows of $200 million. Now turning to expenses. We accrued compensation and benefits expense at a 59.8% full-year adjusted ratio in 2022 compared to 58.5% in 2021. The 2022 ratio primarily reflects lower than anticipated advisory revenues in the fourth quarter along with investments to expand our businesses and to ensure we are well positioned to capitalize on market conditions when they improve. Our adjusted non-compensation expense for 2022 was $518 million, 10% higher than the prior year, reflecting the impact of increased travel and investments in technology. Our effective tax rate for full year 2022, as adjusted, was 25.7%, versus 23.9% in 2021. The year-over-year increase was primarily due to the geographic mix of our earnings. We expect our annual effective tax rate in 2023 to be in the mid-20% range. We generated strong cash flow in 2022, returning a record $936 million to shareholders, including $182 million in dividends AND 692 MILLION IN SHARE REPURCHASES. ADDITIONALLY, YESTERDAY WE DECLARED A QUARTERLY DIVIDEND OF 50 CENTS PER SHARE. DURING THE FOURTH QUARTER, WE BOUGHT BACK 2.4 MILLION SHARES AT AN AVERAGE PRICE OF $32.91 PER SHARE. DURING THE FULL YEAR 2022, WE REPURCHASED A RECORD 19.7 MILLION SHARES AT AN AVERAGE PRICE OF $35.17 PER SHARE. Our weighted average share count as of the fourth quarter was 97 million shares, a reduction of 14% from the prior year quarter. Our total outstanding share repurchase authorization as of December 31st was $302 million. Ken will now provide his perspective on our performance and outlook.

Thank you, Marianne. While the global macroeconomic environment remains uncertain, conditions are generally better today than many were anticipating six months ago. Lazard enters 2023 having adeptly navigated the volatility of the past year. The diversity and breadth of our business allowed us to weather the worst of these conditions and achieve the second-best annual operating revenue in our history. However, the global slowdown in M&A activity and announcements in the second half of 2022 caught up with us in the fourth quarter and is likely to continue to impact our financial advisory performance through the first half of 2023. Although the near-term outlook remains uncertain, we are cautiously optimistic regarding an improvement in the macroeconomic environment going into the second half of this year based on several factors. While global inflation remains elevated, recent data indicate that price increases are beginning to moderate. Central banks are slowing the pace of rate hikes which may mean a shortening of the current tightening cycle. Equity markets have rallied, spreads have tightened, and volatility has receded. Unemployment is generally holding steady around the world, and most developed economies are maintaining GDP growth. And since the beginning of the year, we've noted an increase in M&A dialogue, while market sentiment seems to be improving. We also took advantage of last year's downturn to make strategic investments in our financial advisory business. These investments included adding senior financial advisory hires in the U.S., Europe, and the Middle East, broadening our private credit and infrastructure advisory capabilities, launching our new geopolitical advisory group, and expanding our venture and growth banking group into the U.S. Because of these investments and others taken over the past year, as the M&A environment picks up, we are well positioned to capitalize on the recovery and gain market share. Turning to our asset management business, there has been a notable improvement in the overall climate for asset management since the end of the third quarter. Assets under management are up approximately 16% since Q3 2022, positively impacting both revenue and the business's operating leverage going forward. Looking at performance, approximately two-thirds of our composite strategies with benchmarks are outperforming on a one-year and three-year basis. The weakening of the U.S. dollar is also providing a benefit as longstanding headwind for our business is abating. Amid this improving outlook, we remain focused on our asset management clients, many of whom are reallocating portfolios in the wake of last year's repricing of risk. Investor sentiment also continues its shift towards the research-driven fundamental investment style in which Lazard has global breadth and expertise. Our asset management business has momentum behind it and is well positioned for 2023 with a diverse array of innovative strategies and custom solutions to meet the investing needs of a sophisticated client base. Finally, 2023 marks the 175th anniversary of Lazard's founding. For the better part of two centuries, our firm has thrived by staying focused on our core businesses and guiding principles, striving for excellence, empowering our people, and engaging with clients. Lazard continues to strategically invest in people and technology, maintain discipline around expenses, deliver profitable growth and shareholder value, and remains focused on serving our clients. Let's open the call to questions. Thank you.

If you have a question at this time, please press star 1 on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. We'll take our first question from Manon Gosselia from Morgan Stanley.

Hey, good morning. Morning. I wanted to focus on the asset management side. It looks like another strong quarter on the fee rate here. And I know you noted earlier that part of this was from a mix shift So is this the right rate to assume going forward, or are there any other put-and-takes there?

Hey, Manan and Sevan, I'll kick that off. Yeah, look, we've seen, as you've seen over the last couple of quarters, the fee rate is starting to tick back up. As we've said in the past, the bulk of that is driven by the asset mix. A little bit more on the vehicle side this time as well. We saw some vehicle mix have a positive impact for us. We saw more coming into funds, a little bit less from some of the sub-advised and some of the SMAs that we have in our business. Also, as we pointed out over the last couple of quarters, some of the larger outflows that we had were in lower fee mandates. So that would, as you pointed out, sort of lead us to a starting run rate that's probably a little bit higher than it was a year ago. So I think in general, yeah, it seems to be the outlook seems to be more stable than certainly the past few years where we were seeing it more contracting and on a more steady pace and now it seems to have leveled off a little bit. I think it'll be a little bit bumpy still. I mean, there's going to be quarter to quarter movement because all these flows sort of do play into it. The mix has a huge impact of it. And so as markets move around, you're going to continue to see that, that jump around a bit, but generally it feels a lot better than it's been over the last several years.

Great. Thanks Evan. And maybe just a big picture question on the strategy and the asset management space. Um, What is the environment like for liftouts? What is your capacity and willingness to do them? And any general updates in your strategy as we look ahead to 2023?

Yeah, sure. So when you think about the market last year, certainly the volatility has played a huge role in the way a lot of the teams, certainly smaller firms, have been thinking about their own strategies and whether or not they can go at it alone. The shift more towards larger institutional clients thinking about having less managers in their portfolio, all that plays into the idea that there's a lot of these smaller firms and certainly smaller teams from smaller firms that are looking for homes on bigger platforms. And certainly, they're focused on ones that have global distribution, which is a significant benefit for us given the breadth and depth of our distribution capabilities, the breadth and depth of our research. So We are certainly sought after by many of these teams. We are constantly reviewing what's out there from both a strategic acquisition and a lift-out scenario, sort of bringing teams onto the platform. We've done that selectively over the last couple of years. I would say from the market environment, you're asking how it feels today relative to the last couple of years, I would say the pace, given the volatility of markets over the last year, has certainly picked up in terms of the number of conversations, the to show the number of firms that are looking to join larger platforms. And so I would expect that to continue over the course of the year.

Great. Thank you.

Our next question comes from Devin Ryan from JMP Securities.

Hey, Devin. Hey. I guess first I want to start on the move in the dollar. So, you know, for Lazard, that's a bigger deal than some of your peers. And so I'd like to just maybe – remind us kind of the order of magnitude of the benefit of the weakening dollar on both advisory and asset management, and then just kind of bigger picture how that's driving strategic dialogue with clients as well, just given the marked shift we've seen here recently.

Let's break it into two parts. Evan, do you want to take the impact on the asset management business? And I'll cover the advisory and then the client side.

So, Devin, as we pointed out in past calls, Our asset management business is certainly weighted towards non-US dollar AUM. Approximately two-thirds or so of our AUM is in securities that are non-US dollar. And so that translation impact has had a big impact on our AUM generally as a firm over the last several years. I mean, even last year, the FX that we call out was a $9 billion negative, just that translation impact of our securities. So, It certainly is a positive, as you've seen just in the last four months, so Q4 plus January, where you've seen a significant turnaround on the FX side with a weakening dollar. So that plays in just both on the translation of AUM. It also speaks to the way in which the investor sentiment and general investor sentiment of allocation of portfolios has been changing a little bit, too. There's been a big focus on U.S. dollar investments, U.S.-centric investments, and people shifting portfolios to where the growth has been and where market appreciation has been, which has been more U.S.-focused than international, global, and certainly EM over the last several years. So as that starts to tilt and as people start to think about an environment where you may have several years of not only a weakening U.S. dollar, but certainly not a strengthening U.S. dollar, if that starts to abate, as we just called out, that would certainly be a positive for our business. And that generally will work from both the focus of investors thinking about allocating their portfolios as well as the translation of AUM back into our business as well.

And on the advisory side, two things to comment on. First, the advisory business itself, less impacted one way or the other. We tend to have a lot of our costs in local currency where the revenues are, so not as much impact. And in terms of clients, look, again, over time, I don't think that small shifts in currency make that much difference in terms of cross-border activity. When you have a large shift, maybe there's a unique positioning of a company, its cash flows, the way it can be financed, that would help. But generally speaking, if someone's buying an asset in a different geography, they will finance it accordingly. And so... One way or the other, it hasn't had as much impact as I think many observers think it does.

Okay, great. Just a follow-up question on the growth of the firm. So the advisory MD headcount, I think, is up about 30% over the last three years. We've tracked a lot of managing directors have joined the firm, so you guys have been, I think, more active over the last three, four, five years in recruiting than you had been for some period of time. So maybe just talk a little bit about just given the lags that occur when you bring somebody in externally or even promote somebody to kind of hitting full run rate of potential, like how this kind of shift has set you up maybe for growth moving forward. And then just also just expectations for continuation of bringing in senior talent, just given the more accelerated pace we've seen.

Peter, you want to take this one?

Sure. So on the ramp or, you know, onboarding, it typically does take, you know, somewhere between a year or two, sometimes three for people to become fully productive. That can stretch out to four in some cases. It depends on the sector and the person, obviously. And the internal promotions are a bit different than the laterals. But I think you should be thinking about, you know, at least a year or two to become fully productive. So you're right that we've got this pipeline of managing directors that we've been adding in private debt in the Middle East, in Germany and elsewhere that will be coming kind of fully online in the months and years ahead. And then with regard to the opportunities, we still do see significant opportunities for us to be picking up additional people and wallet share. And, in fact, the hiring environment may become more attractive. So we need to balance the fact that we're in a, you know, we need to balance the fact that there is a significant amount of opportunity out there in terms of people that are available against just being responsible on costs in the way that Ken already emphasized.

Great.

Thanks so much.

I'll leave it there.

Our next question comes from Brennan Hawken from UBS.

Hi, Brennan. Hey, good morning, Ken and Marianne. How are you? So I wanted to ask a follow-up, Ken, on your tone around advisory. That certainly sounded optimistic and seems like an improvement from the tone that we heard from December when there were a bunch of updates with conferences. So would love to explore that a little bit and get a sense about whether or not it's just dialogue. In the past, we've heard that there's been a bit of a hesitance around pulling the trigger on deals. Are you sensing that that hesitance is abating or is it more that the dialogue is ramping and once there's some improved clarity, then we'll really see it follow through?

Yeah, great question. And I think you're right. There has been a bit of an improvement in sentiments from where we were beginning to middle of fourth quarter. So a couple things to note. I point to these a lot. Equity, credit conditions, equity prices, credit conditions, sentiment, and then usually there's a catalyst. I think I'll use the same old story here. On equity conditions, obviously valuations are probably more reasonable than they were prior to the downturn early last year from the invasion. Credit conditions are clearly improving and spreads have tightened since the beginning of the year. I think yesterday's announcement by the Fed, more importantly, the reaction of the market to it, because I think there may be a disconnect there a little bit, has been constructive. And when you look at credit conditions and you think about where rates are today, historically, they're still pretty low. compared to most periods of time and such. And then finally on sentiment, I think generally speaking, people, most observers would concede that today things are just better off than what they would have guessed they would be six months ago. And I think that helps around sentiment. I think also the fact that the GDP numbers both here and in Europe have been better than what's expected. We have China coming online second half of this year. So generally speaking, I think the overall environment and sentiment in the boardroom is probably starting to improve. That is a precondition for activity. With bad credit conditions and unconstructive sentiment, you're not going to get M&A activity. Now we have all three factors yellow, if not heading in a couple of cases towards something that almost resembles green. I think you're likely to start to see some pickup in activity. And then the catalysts on this, I think they continue to be very similar to what they were prior to the downturn. The energy transition is going to be an enormous catalyst for activity in the M&A space. I think we're going to continue to see enormous pressure on reshoring into the U.S., which, again, will lead to some M&A activity but quite a bit of infrastructure investment around many of these projects. You still have some restructuring activity, which I think will continue over the next couple of years. It may not get to the level that we've seen in previous cycles. I don't think it will, but it may last longer and such. So I think overall we're seeing pickup in dialogue. We're seeing, obviously, an increased rate of activism, which usually results in corporate events. And with credit conditions improving, those corporate events can take place. And so that's likely to lead to some pickup and announcements as the year progresses. So that's kind of the advisory side. Asset management, I think just improving markets and the shift towards where we sit in the spectrum of investing and the fact that the dollar is weaker really portends a better environment for us, probably a better environment for us than we've seen in several years.

Excellent. Thank you for that detailed rundown, Ken. That's appreciated. And also, thanks for the asset management update through Jan 27. Evan, I believe you're on. Usually the end of the month can be pretty active for flows, given your institutional orientation. So any insights into whether that plus $200 million in flows is going to hold and we would see a positive month, or how should we be thinking about that?

Yeah, Brandon, as you say, look, the last couple days you can always see some movement, and some of that we don't actually see right away. It sometimes takes a couple days post-quarter end until you get all the specific movement on some of the models and wraps and other things that we manage. So it does take a couple extra days post-quarter end, but so far it feels like a good month for us from a flow perspective. I would say it's very similar to what Ken mentioned earlier. We started to see that moderation increase the more balance in our flow story in November. December had its usual quarter-end, year-end type reallocations. We also, with the volatility in the markets and sort of the shift up, we had less people wanting to put money to work and to allocate. As we got into this year, we're continuing to see good activity levels, a lot of interest in the types of products that we specialize in, our deep research, the fundamental investing that we do. The market certainly has moved a little bit away from the more growth and momentum and more towards relative value and that space, the quality space, which is where we a lot of focus. So we're seeing good activity levels from clients, lots of interest in a whole host of our products across all of our platforms. And so, so far, it feels more balanced, as we said, towards year end. And I think that trend is continuing as we got into the beginning of this year as well.

Great. Thanks for that.

Next question comes from James Yarrow from Goldman Sachs.

Good morning. Hey, good morning. So I just want to touch on your European M&A business. You were obviously very clear on the broader advisory backdrop and outlook there, but given your unique perspective on Europe, how has the outlook for European M&A changed?

Well, I was pretty surprised by our performance in Europe last year because we ended up having In spite of everything, I think record years in Europe on our advisory business. And so given the events of Europe and the slowdown in the economies in Europe and all the fear, I was pleasantly surprised by that. So I'm sitting here today kind of pinching myself. Clearly, the first half of the year is going to be slower than last year. just given the pace of announcements in the second half of last year. But I'd say it's pretty even right now in terms of U.S. and Europe in terms of dialogues. And so we may see the same kind of pickup as the year progresses in Europe as we've seen in the U.S. if these dialogues turn into announcements. And so we'll see. I wouldn't differentiate too much between my comments about the M&A market generally and and thinking there are big differences between Europe and the U.S. at the moment.

That's very clear. And then sort of a related one, obviously financing markets have begun to reopen. Maybe you could speak to the specific impact this is having on your business, or maybe it's too early. And then have there been differences in the impact of financing markets reopening across Europe or the U.S., or is it sort of more similar?

Well, look, I think, as I said before, this is a precursor to M&A activity. These events all have to happen. You need constructive equity markets or valuations in equity markets. You need more favorable credit conditions and improving sentiment for M&A to start to evolve. It tends to be pretty pro-cyclical. So I think right now the fact that credit conditions are improving and they're clearly improving in the U.S. as well as – In Europe, I think you're likely to find that dialogues pick up as a result of that, and then announcements will follow if this is sustained. And that's really the key thing. I mean, we're in a more positive environment right now than we've been in over the last year. I think, generally speaking, the consensus is that things are better than anyone anticipated they would be at this point. If you look back six months, If this market stays, if this kind of sentiment stays intact, that's a good sign for our advisory business as the year progresses.

Okay, thank you so much.

Our next question comes from Matt Moon from KBW.

Hi, Matt. Hi, guys. Good morning. So just one on the restructuring cycle. I think there's been some optimism that the cycle could be Relatively elevated for a prolonged period of time, and it sounds like from your prepared remarks that this thought remains. Just wanted to take a pulse on that sentiment today. I mean, I think there's some kind of shifts in expectations since the start of the year, and particularly for heightened expectations for a soft landing. So just wanted to get your updated thoughts there, particularly as we see Lazard on a lot of mandates and as we sift through the news.

Yeah, I think our view on this is probably a little bit more nuanced in the following way. I'd say that the restructuring cycle here is going to be liquidity-driven more than it is anything else. That is, a lot of the financings were pushed out. They're kind of covenant-like. So I think that the transactions that we're going to see more of are going to be more liquidity-driven. And so from our perspective, this cycle may last longer. because of that, but it may not get to the heights that we've seen in previous cycles. But we'll see. That's premised in part on the improving outlooks for GDP in both here and in Europe. But again, a lot depends on how that unfolds, but that's our hunch at the moment.

Great, and then shifting gears just on the asset management, you guys recently announced the hire of Jennifer Ryan from BlackRock for the asset management business. I'm just curious, Evan, if you could kind of speak to the rationale to hire, especially since you've been at the helm for that business for over a quarter now. Kind of would just love to hear what you expect for her to bring to the table for Lizard and how she'll be additive to the leadership capabilities. And then just you know, appreciate the update to AUM inflows. I was just curious if you could drill down a little further into kind of the products where you're seeing both strengths as well as weaknesses as it relates to that 200 million inflows we've seen so far year to date.

So, as Ken mentioned, look, we seek to continue to focus on investing in talent when we find, you know, great people. And I think this is just a continuation of that. We obviously have a tremendous focus on continuing to strengthen the team we have and add to it, frankly, to take advantage of what we're seeing in the marketplace today. In many ways, you know, making senior hires and distribution is not surprising for us, right? We've been expanding our distribution network, our global distribution across all of our channels over the last several years. It's been a strategic focus for us to continue to broaden, strengthen, and deepen in every channel we have. You know, adding... Gen to this team is just in the continuation of that and continues to show the focus that we've got to make sure that we're capturing all the potential value off the great performance of so many of our funds. As we said, more than two-thirds of our funds have been outperforming on a one- and three-year basis. It's a great opportunity for us to be out there. We're seeing a lot of interest in so many of our products, and I think just continuing to strengthen and deepen those relationships and just continue to build out a broader team and augment the great work that's been done for so long by so many of our other teams. It's just a great addition to the team. I don't think there's anything more than that, just the continuation of all the things that we're doing to strengthen that focus. Our focus on distribution will continue. We're going to continue to build out and strengthen and deepen that team. There's just a lot of places that we have opportunities for. It's been a strategic area for us. It will continue to be under my realm as well, and I'm very excited to continue that. this early part of this year. In terms of the flows, I would say it's been fairly broad. I'd say the areas of strength, we continue to see strength in Q4. It was a lot driven by fixed income, quant, some of our local strategies, U.S. equities and others saw some very nice flows. The beginning of this year continues on that strength. We're starting to see it more broad-based. Even the EM space is seeing A lot of quant searches, a lot of quality searches that we're participating in working with clients for new mandates that are coming online over the first six months of this year. So I would say it's not any one specific area. It's been spread out over most of our platforms, and it continues to feel like it's been strengthening. And it's across the board. I'd say particularly our quant business continues to be very, very active in this environment and continues to play well in the spaces that they're in. And a lot of that is driven by just the great performance of so many of the teams. I think you're starting to feel, as I mentioned, moving away from markets that were momentum and growth and sort of getting back to fundamentals across the board the way we invest. I think you're starting to see that in performance. because the markets are becoming more rational. These are the types where areas where you can truly see the benefit of the Lazard platform and the great people that work here that produce great returns. And so I think it's all sort of coming together. The markets are starting to move in our direction. And I think investors' sentiment and allocations are moving into that area. And, you know, we're just going to continue to get out there and try to capture as much of it as we possibly can.

Great. Appreciate the callers.

Our next question comes from Jim Mitchell from Seaport Global. Hey, Jim.

Hey, good morning. You talked a little bit about, Ken, about starting some new groups like geopolitical advisory. We've talked a little bit about restructuring, but maybe taking a step back and thinking about your non-M&A businesses more broadly. Is there any way you can kind of help us think through the size contribution from those businesses and how you think are they a little bit less volatile than M&A? Can they help you kind of get through this slower M&A period in a reasonably good way? How do we think about those businesses near term and over the long term?

Peter, you want to take that one? Sure. Look, I think that they are less volatile in the sense that they're less lumpy. Many of these businesses tend to be more retainer-based fee structures rather than deal or success-based fee structures, and for that reason, they are less lumpy. With regard to the size, look, we're... I mean, geopolitical is a great example. We just launched it a few months ago, so it is in the growth stage, and we're really pleased with the initial feedback from clients and the mandates that we're exploring and winning, but it's early days, and so you shouldn't expect something after a few months to be a significant share of revenue, obviously. What we're excited about is building that over time, so... Broadly speaking, you're spot on in terms of the objectives, which is to obtain not only additional sources of fees and revenue, but things that have different volatility characteristics. And then another thing I noticed, and geopolitical is a great example of this, Anything that expands our network gets us into boardrooms and C-suites, um, can have spillover, uh, spillovers in a good way into our M&A business also. And so that's another objective for many of these new things that we're trying.

Okay. Fair enough. But I, you know, I think sort of some of your more established non M&A businesses, whether child advisory, sovereign advisory, private capital, all those things. How are you thinking about those in this environment?

It really varies by the individual business. So the sovereign business is busy, and the big question there, it almost comes back to the restructuring question that Ken answered with regard to corporates, which is, are we going to see a wave over the next year or two of countries that have significant debt restructurings? There certainly is a class of countries looking forward where that is possible. In the PCA business, that's very tied, as you know, to private equity. And so the trends there, for example, are quite different than in the sovereign world. So we do have a bunch of established businesses, to your point. The trends tend to be different. In aggregate, we are pleased that they provide some offset or some diversification away from just the core M&A business. Okay.

I'd say restructuring business, PCA, shareholder advisory, and these new ads are a pretty significant part of our overall revenues in financial advisory business, and it's been part of our strategy from the beginning to try to make sure that we have some of these businesses that buffet the cyclicality of the advisory business.

Okay. Thanks. That's helpful. And maybe just as a follow-up, a quickie on the The buyback, you guys were very aggressive buying your shares last year. How do we think about the pace in 2023? Marianne, you want to take that?

Yeah, sure. I'll take that one. So obviously, you know, very good year for buybacks in 2022. Got down below 100 million shares outstanding, which was an important milestone. I would, and the price that, you know, the average price that we've been able to buy them back at has been really attractive. So I think looking forward to As we see higher prices and lower volumes, I would expect that to moderate. And, you know, I would also just mention that we continue to plan to buy back shares to offset dilution from compensation and, you know, use excess cash, return excess cash to shareholders based on the prices that we see and the attractiveness of the value.

Okay, great. Thanks for taking my questions.

And our last question comes from Steven Chuback from Wolf Research.

Hi, good morning. Thanks for squeezing me in here. I had a couple on expenses. The first is just on the comp ratio. Ken, you noted the challenging setup for first half 23 advisory revenues, which was really an extension of some of the pressures that you saw in the fourth quarter. Just given the upward pressure on comp that we saw in the most recent quarter, the lower jumping off point for the first half, How should we think about the comp trajectory versus the 60% accrual that we saw this past year? And can you speak also to what drove the divergence in awarded versus adjusted comp in 22?

Sure. Great questions. Spot on. Look, on the comp ratio going into 2023, first, we don't set it until first quarter. Here, I just make the note, which I've been pretty consistent and outspoken on is that when revenues go down, gap compensation becomes more challenged. Gap ratios become more challenging because you sort of have fixed charges against declining revenues. And we saw that in the fourth quarter. To the extent that we see a drop in revenue in the first half of next year, that also poses a challenge. Flip side is you guys can tell our compensation practices by the deferral rates that we show in the earnings release, and you can also see it in what we do on awarded compensation. The disconnect or the slight separation between awarded and GAAP this year really just reflects the investments we've made in the business over the course of the last year and the fact that we're trying to keep them in place depending on how the cycle unfolds. So this is going to be, like for all of our peers, going to be an interesting first half when it comes to thinking about

projections for ratios for the year and a lot of it ultimately will depend on how the year unfolds now thanks for that color can and just for my follow-up because you were talking about some of the investments that you're making in the business you've been making a lot of investments on the technology side we've certainly seen that translate into some level or elevated non comp inflation can you talk about your ability to bend the cost curve on the non comp side and How should we think about non-comp inflation as we look out to 23?

Yeah, so non-comp inflation this year, when you cut through, is a function of a couple of things. I mean, first, rent. We've got a couple of new facilities in Paris, and we're also taking new offices in London. So there's a little bit of elevation that's going to come from that long overdue in both cases and such. The second component clearly was T&E, obviously much more travel in a post-pandemic world, and unfortunately, a lot of inflation in travel expenses. I think some of that inflation will abate over the course of this year if inflation continues to abate across the economy. But let's wait and see what happens there. We're very focused on that. And then third, of course, is IT. I think there was quite a buildup in IT expense over the course of the last year. several years to modernize some of the things we were doing on the advisory side, asset management side, and then importantly on InfoSec. I think at this point, we're probably through most of those investments. And I think you'll start to see that abate over the next couple of years or so. And obviously, this was over the last several years, a very tough environment for for people in that area, and I think we're finding many of those pressures abating as well. So that should help here over the course of the next year or so. So this is something, needless to say, we're very focused on, and I expect there'll be some progress on that.

Very helpful color, Ken. Thanks for taking my questions. Sure. Thank you.

This now concludes the Lazard Conference call. You may hang up. Have a great day.