Lazard Inc (LAZ) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to Lazard's full year and fourth quarter 2008 earnings conference call.

(Operator Instructions)

And at this time I will turn the call over to Judi Mackey, Lazard's Senior Vice President and Director of Global Communications. Please go ahead.

Good morning and thank you for joining this conference call to review Lazard's results for the full year and fourth quarter of 2008. Participating on the call today are Lazard's Chairman and Chief Executive Officer, Bruce Wasserstein, Vice Chairman Steven Golub, and Chief Financial Officer, Michael Castellano. A replay of this call will be available on our website, www.lazard.com beginning today after 1:00 p.m. Eastern Standard Time. Today's call may contain forward-looking statements. Any forward-looking statements are based on current expectations and projections about future events. They are subject to known and unknown risks, uncertainties and assumptions. There are important factors could cause our actual results, level of activity, performance or achievements, to differ materially from those expressed or implied by the forward-looking statements. These factors include, but are not limited to those discussed in Lazard's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Management cannot guarantee future results, the level of activity, performance or achievements.

Moreover, Lazard assumes no responsibility for the accuracy or completeness of any of these forward-looking statements. Investors should not rely upon forward-looking statements as predictions of future events. Lazard is under no duty to update any of these forward-looking statements after the date on which they are made. Further, investors should keep in mind that Lazard's quarterly revenue and profits can fluctuate materially, depending on many factors including the number and size of completed transactions on which we advised, as well as on seasonal factors. As such, Lazard Management believes that annual reports are most meaningful. Accordingly, Lazard's revenue and profits in any particular quarter may not be indicative of future results. It is for this reason that Lazard hosts conference calls twice per year, to review our first half and full year results. I will now turn the call over to Mr. Wasserstein.

Thank you for joining us to discuss Lazard's 2008 full-year and fourth quarter results. Today I will discuss our strategy and our focus on long-term growth. This environment is the time of opportunity for Lazard. Although this has been a tumultuous year for investment banking. I am pleased that Lazard performed well, relative to the industry, due to our differentiated intellectual capital approach. In addition to our M&A activities, we have an increasingly important restructuring and capital structure advisory practice. The impact of market depreciation reduced assets under management, but our Asset Management business had positive net inflows, and offered many superior investment strategies for the year. Our strategy is to take the long view and focus on our client relationships, as we have for over 160 years. We will reinforce our areas of strength, invest in areas of growth, develop new products, contain costs, and maintain liquidity in order to take advantage of future opportunities.

We intend to continue to hire key professionals on a selected basis, and to redeploy employees into areas where we see potential for growth, restructuring and capital structure advisory, financial institutions and other sectors, and selected areas in Asset Management. During the past years, new hires include a European-based Vice Chairman of Lazard International specializing in healthcare, UK-based managing directors in financials institutions, a European managing director specializing in mining and metals, and European debt advisory professionals in France, Germany, and the UK. Key hires in the US, include senior advisory professionals in restructuring and capital markets advisory, the aerospace and defense sector, and the Lazard middle market business, as well as the return of our global head of power utilities and infrastructure. Global economic challenges may persist for some time. Based on our continuing performance and ability to find opportunity in turbulent markets, I remain confident in the strength of our model. For the long term, our growth drivers will be the resurgence of M&A, the continued need for restructuring, and capital raising, and our Asset Management business. Steve Golub will now discuss our core operating businesses in more detail.

Thank you, Bruce, and good morning, everyone. As Bruce mentioned, I will elaborate on our core operating business, which includes our Financial Advisory and Asset Management businesses. Net income on a fully exchanged basis was $206 million, or $1.72 per share diluted for the full year of 2008. These results excluded the aftertax LAM equity charge, and provisions for losses from counter party defaults of $0.07 per share diluted, relating primarily to the bankruptcy filing of one of our prime brokers, all occurring in the third quarter of 2008. Including such counter party default provisions, our diluted earnings per share was $1.65. These results compared to net income of $322.7 million, or $2.77 per share diluted for the full year 2007. Net income on a fully exchanged basis was $61 million or $0.50 per share diluted for fourth quarter 2008, compared to $122.6 million for the 2007 fourth quarter, or $1.04 per share diluted. Operating revenue for our core operating business was $1.7 billion for the full year of 2008, and $378 million for the fourth quarter 2008. Financial Advisory operating revenue was $1.02 billion for the full year of 2008, and $252 million for the fourth quarter, compared to $1.24 billion and $393 million for the respective 2007 periods. M&A and Strategic Advisory operating revenue was $815 million for the full year of 2008, compared to $969 million for the full year of 2007, and was $193 million for the fourth quarter, compared to $314 million for the fourth quarter of 2007.

Lazard has maintained and strengthened its role as the independent advisor for clients on complex transactions, or situations with needs that transcend economic cycles. We closed significant transactions during the fourth quarter, including InBev's $52 billion acquisition of Anheuser-Busch, the largest cash deal in history, the Ministry of Finance of the Netherlands, in the State of Netherlands EUR 16.8 billion acquisition of the Dutch-based banking and insurance businesses of Fortis, and Fortis's share of ABN Amro Holding, Lloyd's TSB Bank's GBP 12.2 billion of HBOS, Mitsubishi UFJ Financial Group's $9 billion investment in Morgan Stanley, and ENI's EUR 2.7 billion acquisition of Suez's 57% stake in Distrigas.

Among the pending announced M&A transactions on which Lazard advised in the fourth quarter, continue to advise or completed since December 31, '08, are the Nuclear Liabilities Fund in British Energy's GBP 12.5 billion recommended sale to EDF, Exelon on its $13.7 billion exchange offer for NRG Energy, the shareholders of Essent on the EUR 9.3 billion offer by RWE. Hapag-Lloyd's EUR 4.5 billion sale to Hamburg-led consortium, Banco Santander's $1.9 billion acquisition of Sovereign Bancorp, the AstellasPharma's $1 billion proposal to acquire CV Therapeutics, the Caisse Nationale des Caisses d'Epargne's planned merger with Banque Federale des Banques Populaires.

Restructuring operating revenue is $119 million for full year 2008. Restructuring revenue was $47 million for the 2008 fourth quarter, compared to $24 million for the third quarter of 2008. Restructuring assignments normally are executed over a six to 18 month period, which will affect the timing of the recognition of restructuring revenues. Given our leadership position in the restructuring business, we have seen a dramatic increase in the level of restructuring and capital structure advisory activity in the last quarter, which we expect to continue this year. Lazard is currently engaged on more than 70 restructuring assignments worldwide, many of which are not publicly disclosed assignments.

These assignments involve over 20 industry sectors. We are helping our clients with our deep talent and advisory experience in Chapter 11 and out of court restructurings, sales of distressed assets, debt advisory, and capital raising around the world. In North America, we have been advising on 11 of the top 20 bankruptcies that were filed since January 2008. These include bankruptcies for Lehman Brothers, Tribune Company, Smurfit-Stone, Nortel Networks, Tropicana Casinos, Pilgrims Pride, WCI Communities, TOUSA, LandSource, Vertis and Hawaiian Telecom among others. We continue to advise the UAW in its dealings with Ford, GM, and Chrysler, and to advise a number of automotive suppliers in the US and Europe. We also are seeing a heightened level of restructuring and debt advisory activity in Europe, and around the globe, including advising on the restructurings of Metrovacesa and Premiere and advising the steering committee of note holders in connection with Belvedere's restructuring. We're also advising Ineos on its covenant negotiations,Olympic Airways on the sale of certain assets, and Ecuador on its debt restructuring.

Corporate finance and other operating revenue was $90 million for the full year 2008, compared to $144 million for the full year 2007, and was $12.5 million for the 2008 fourth quarter, compared to $47 million for the fourth quarter of 2007. These results were due to declines during the third and fourth quarters of 2008, in the value of fund closings by our Private Fund Advisory Group, as well as declines in equity capital markets transactions, and private placements by our Capital Markets Group. Asset Management operating revenue was $629 million for the full year 2008, compared to $717 million for the full year of 2007. And was $125 million for the fourth quarter of 2008, compared to $231 million for the 2007 fourth quarter. Management fees were $568 million for the full year of 2008, compared to $596 million for the full year of 2007, and were $108 million for the fourth quarter of 2008, compared to $165 million for the 2007 fourth quarter. Incentive fees were $35 million for the full year of 2008, compared to $67 million for the full year 2007, and were $16 million for the fourth quarter of 2008, compared to the $49 million for the 2007 fourth quarter.

Our traditional long only strategies generated incentive fees of $31 million in 2008, compared to $19 million in 2007. For the fourth quarter of 2008, fees from traditional long only strategies were $13 million in 2008, compared to $10 million in the fourth quarter of 2007. Assets under management at the end of the fourth quarter of 2008 were $91 billion, representing a 35.6% decrease from the level of assets under management at year end 2007. The results primarily reflect $1.4 billion of net inflows during the 2008 full year, offset by $51 billion of market depreciation, and the impact of strengthening US dollar during the fourth quarter. There were $2 billion of net outflows, as well as $20 billion of market depreciation and foreign exchange adjustments during the fourth quarter of 2008. Mike Castellano will now provide more details on our financial results.

Thank you, Steve. Bruce and Steve have addressed the the key elements of our growth strategy and core business results. Additional details of our results can be found in the earnings release. I will clarify a few points regarding our corporate operating revenue, compensation, and noncompensation expenses, and our capital position. We will then be happy to answer your questions. Corporate operating revenue was $22.5 million for the full year 2008, compared to $57 million for the full year of 2007. The revenue for 2008 was adversely impacted by investment markdowns and losses primarily in the first quarter, and by unrealized losses on private equity investments, primarily in the fourth quarter. This was offset by gains in the fourth quarter of 2008, from the repurchase of a portion of our senior notes and from foreign currency transactions. Corporate operating revenue for the fourth quarter of 2008 was a positive $25 million, compared to a negative $7 million during the fourth quarter of 2007.

During the 2008 fourth quarter, gains of $20 million on the repurchase of a portion of our senior notes, gains of $12 million on foreign currency transactions, and investment returns on average cash balances, were offset by $12 million in unrealized losses on private equity investment. The ratio of compensation and benefits expense to operating revenue was 55.6% for the full year of 2008, compared to 55.7% for 2007. We were able to contain our noncompensation expenses in the fourth quarter 2008, compared to the fourth quarter 2007. Noncomp expenses in the fourth quarter were $83 million, compared to $102 million in the fourth quarter of 2007. Excluding the provisions of approximately $17 million in each period, relating to our tax receivable agreement, and also excluding the amortization of intangibles of $300,000 in the 2008 quarter, compared to $3.4 million in the 2007 quarter. The full year 2008 noncompensation expenses, excluding transaction costs associated with the third quarter LAM equity charge were $385 million in 2008, compared to $359 million for the full year of 2007, again in each case excluding the provisions relating to our tax receivable agreement. The ratio of noncomp expense to operating revenue was 22% in 2008, and 17% in 2007.

Finally, our financial position remains strong. With approximately $1 billion in cash and marketable equity securities at the end of 2008, we are continuing to invest in growth areas of our business. To further optimize our mix of personnel, we also have have been reducing staff in other areas and our back office, to create greater efficiency, productivity, and shareholder value. As a result of these reductions and realignments, we expect to record a pretax charge of approximately $60 million in the first quarter of 2009. As Bruce stated, our strategy is to focus on client relationships, and we will reinforce ourselves in areas of strength, invest in areas of growth, develop new products, contain costs, and maximize liquidity in order to take advantage of future opportunities. We continue to believe that we are well positioned in these markets, and that our intellectual capital model should continue to exceed. Thank you again for joining us, and we will now take your questions.

(Operator Instructions)

Our first question is from Devon Ryan from Sandler O'Neill.

Good morning.

Good morning Devon.

Could you just give us some detail on the projected expenses saved as I guess as a result of the $60 million restructuring charge. What percentage of overall headcount is being reduced here?

This is Steve. We don't really view this as a cost saving issue at all. We view this as, as we look at our business, we continue to hire people, we continue to invest for growth in our business, as a long-term strategy in developing client relationships, so what we're looking for is the right optimization of mix of personnel to maximize our revenue generation, as we go forward in time as opposed to thinking about in terms of cost savings. It's much more focused on what's the right level of efficiency and productivity for us in a business model.

Okay.

I think one thing that's different about the way we approach these things is -- we're looking at the next two, three years, rather than the next quarter or half a year, and what we're trying to do is to anticipate the needs of the business world at that point in time. In order to do that, you have to reallocate and, like any company, set your priorities and be efficient about doing things. So that applies to all areas of the firm. It applies to new areas, new challenges, and asset management. It applies to back office. It applies to the nature of our advisory activity, because the nature of advice people have been seeking has shifted somewhat. And we are getting very much involved in things like debt advisory, capital structure advisory which require somewhat different skills, and obviously generally, capital markets. So, what we try to do is to figure out our strategic objectives, then mesh backward in order to readjust for that, so as we all emerge from this period of economic turbulence, we have come out in a resilient, very strong fashion. So that's our main purpose. That's our strategy. We want to continue to put Lazard in a preeminent position.

Okay. Thanks for that detail. And just a question on the current environment. We've been seeing a number of announced M&A deals, at least for the industry recently running into apparent problems due to either lack of financing or even in some cases, financiers backing out. Is this a trend that, just want to get your view, is this a trend that you expect will continue, accelerate, or are the deals that have run into problems just more function of company or deal-specific issues?

Yes, so the M&A business is a combination of a bunch of different types of businesses, different industries, different structures, and one overall trend doesn't quite catch it. It is true that when the commercial banks are under pressure, the availability of liquidity is limited. On the other hand, you have seen large transactions where there have been cash financing available to the right parties. So I think the think the thing to think about during the year and the next two years is, if you are a successful large company, and if you had access to capital, what's the optimal time to deploy it? And that's what people are thinking about, and we don't have a crystal ball, we don't know when that will happen. What I can tell you is people are thinking seriously about that strategic issue, which is where will they be at the end of the economic crisis, and is it a time of opportunity for the larger companies strategically?

The second point is, different industries have different dynamics. What's going to happen in natural resources, is very different than what might happen in the auto industry. And so you have to track each of those and for us, the nature of the advice has become much broader. Because in this type of climate, people want not only that they buy or sell assets, but also their capital structure, their strategy, and that runs from companies, but it also runs to governments. And as you probably know, we've been quite active on the government front, most of which is not public. But some of which is, and so -- what we're trying to do is to adapt to this environment, and at this point feel fairly comfortable that the firm will be in a strong position.

Okay. And then just lastly, professional services expenses in the quarter seem to be about 40% below the quarterly run rate for the year, and I know this can bounce around a bit, but how should we think about this expense item going forward, just given how low it was in the quarter?

Well, it's one of those discretionary expenses that we look at, one of the things that goes into there is things like recruiting costs. The recruiting environment is a lot different today than it was a year ago. But we're looking at all of our noncomp discretionary expenses to see how we can continue to get better efficiency out of the whole system, and pro fees are just one of elements of that.

Let's just dig deeper into that recruiting cost item. We're in an environment now where one is deluged with a large number of resumes, just because of the turbulence on Wall Street. So we have to be very selective, obviously, on what we're prioritizing and who we're interested in, but the needs for very high recruiting costs are obviously less in that type of situation.

Okay.Thanks for taking my questions.

Moving on, our next question comes from Guy Moszkowski from Bank of America.

Good morning. A couple questions on Asset Management. First of all, I was wondering if could you provide us with an update on the relative performance of your strategy for the (inaudible) going forward in 2008 and maybe a look back?

Guy, somehow we got a lot of feedback while you were making your comments. I'm not sure where that was coming from, but if you could repeat your question.

Yes, sure. I'm not on a speaker phone or anything. Just a regular line. I was wondering if you could update us on performance track records of your key Asset Management products, sort of 2008, and then maybe a three and five-year look back.

I think the question was could you go over the long-term performance of your Asset Management products. You might think, Guy, of reconnecting, because somehow we're getting feedback. If you are still there.

Yes, I'm still here. I'll try calling back.

Okay. Why don't we just move on, then we'll come back when Guy reconnects.

And moving on, we'll take our next question from Lauren Smith from KBW.

Hi. Good morning.

Good morning, Lauren.

I have a couple questions. I guess first off, if you could just give us employee count at year end, and what you ended the year with in terms of MDs.

We'll be posting that information on our website presentation that goes up later today, but at the end of the year we had just over 2400 employees. That includes approximately 151 MDs in Financial Advisory and 56 MDs in our Asset Management business.

I think the more significant -- when you look at headcounts, there's a cyclicality to it. And really the cycle you want to look at is -- the cycle after year end reviews, which actually doesn't occur until after the calendar year. So the reason, as described is we can tell that you pro forma, the headcount will be roughly 2200, which is a reduction of roughly 10% from the high, and is equivalent to our roughly to our 2006 headcount.

Okay. So when you say pro forma, is that also including what you expect, in terms of what will be the byproduct of this pretax charge in 1Q?

Yes, that's right.

Great, thank you. Then just in terms, when we think about comp, what is the mix of -- I'm sure there's a scale, depending upon seniority, but cash versus stock comp, and I'm just curious if that mix changed at all this year.

We don't really -- we don't comment on the mix of compensation, certainly we look at what's going on in the industry. In the past, the more senior levels, as you know, people have gotten a greater percentage of their compensation in equity. But we don't really address anything specifically in a public mode. It's all individual.

Okay. And then just in terms of the repurchase of the sub debt. I'm just, why now, and what do you -- and was there I guess sort of a two-part question, getting to -- trying to get to a core tax rate. But did that gain impact the tax rate in any way? And what do you -- I know I can go back and get the interest rate as well, but what do you expect, maybe the decline in interest expense might be when we think about going forward? And then I guess the broader question is if you could help us or help me at least, walk through the core tax rate? Because it seems like there's a lot of noise, and seems like a lot of people are focusing on that.

Sure. A couple things. On the debt repurchase, we reduced our overall debt by about $500 million from the end of 2007. Now 430 of that related to the conversion of the equity security units that we had issued at the IPO time, which effectively then became equity. But in the quarter, we purchased about $60 plus million of principal amount which resulted in the $20 million gain that we recognized in the fourth quarter. That was just opportunistic purchases. Now with the -- there were some people that were interested in selling that we became aware of, and we certainly felt that the spreads that were in the marketplace recently, it made sense to just take some of that debt off. We don't have any specific target as we've said before. We're perfectly comfortable with our debt levels, and as you can see, with $1 billion on the balance sheet of cash, and marketable securities, 900 of that is cash, we certainly have very significant liquidity to position to us go through any cycle, and to take advantage of growth. So it just was an opportunistic thing to do.

Okay.

That gain, just like any other, revenue item, just flows through the results and flows through the tax calculation. Not a whole lot different than anything else.

I think, though, you put your finger on an important characteristic of the firm, which is that over the last two years, we've come to the point where we feel we have a strong balance sheet, and you can do the numbers yourself, but we feel we're quite strong.

Okay. So then the tax rate really, and I don't want to -- we can follow up off-line if necessary, but so the tax rate credit was really virtually all to do with the tax agreements that you have?

No, the tax rate really is, as we've encouraged people to look at it, that tax receivable agreement goes back to the original IPO transaction and the step up in basis. And as many companies have done in a similar situation, any savings that we receive from the tax benefit of that write-off. is shared between the selling shareholders at that time time and the company. So what we've said is, that's really like tax. So just combine the provision for income tax, and that tax receivable agreement. And that's -- if you work your way all the way back to the last schedule in the earnings release, which is a very busy number reschedule, you'll see we've laid it out that way. You take those two together, and you can see that's the 23% tax rate that we had for the year. As you look forward, without commenting on a specific tax rate going forward, that's the way we encourage people to look at it. Don't worry about trying to break that number between a tax rate and a tax receivable agreement. At the end of the day, it should be viewed as basically a tax equivalent one number. It is just the US accounting requires to us split them.

Now, also, just on your question generally as to tax rate, you have to remember that we have an international business. And depending on profitability of different units and different tax rates, you will end up getting fluctuations, and that can be more -- it can be currency related, it can be just one area of business is more active, and depending on that you can get fluctuations.

Understood. Great. Thanks so much for take my questions.

Our next question will come from Guy Moszkowski from Bank of America.

Hi. Is that better? Can you hear me now?

Much better.

Great, thank you. All right, so the question I was going to ask was -- is there some update that you can give us on relative performance of your most significant key Asset Management strategies? A 2008 and maybe a three and a five-year look-back, just relative performance to give us a sense for what we might forecast in terms of net flows to those strategies going forward.

As you know, Guy, we don't publish specific performance for strategies, because unlike mutual funds, a lot of the money that we manage are based upon customized portfolios, customized benchmarks, which without really understanding all that, makes some of those comparisons irrelevant. I think what I would say -- a couple of things, you will notice we mentioned in the earnings release that the incentive fees that we had this year are dominantly from the long only traditional business. We had roughly $31 million up from $19 million in 2007, where as the alternative business hardly produced any incentive fees this year, not unlike what everyone else is experiencing is. Well on an absolute basis people might say, well, those numbers are relatively small, and I would agree, it is an indication, though, of what we've said is on a relative performance basis.

The production and the steps that we've taken over the last couple of years to improve the performance in the products are carrying through, even in a market like we've been in. Finishing the year with positive net flows for the year, another strong indicator we believe of the relative performance of the strategies. The fact that we had negative flows in the fourth quarter is just as much a function, frankly, of the fact that, as you know people are not funding new mandates. Some people may be taking a little money off the equity table, but even when they have got mandates that they have awarded for new investments, they're still timing the market, and delaying funding, and I think you saw some of that. Actually, remember, you saw in that the fourth quarter of last year with us where, we had about $700 million of net outflows in the fourth quarter, but ended one some decent net inflows in the first quarter.

Yes, without getting into the specifics of it, I think to help you, I think it would be fair for you, Guy, to assume that in -- substantially more than the majority of our products, the products outperform their benchmark.

Great. That was exactly the follow-up question I was going to ask, so thank you for that. Very helpful. In terms of the performance fees on the long only type products, can you help us a little bit with what the structure and the triggers of some of the key ones are, given that as you said, they're not related to traditional alternatives?

These are just -- with certain clients, we have the fee structure is such that it is -- it is a relative -- it is a incentive fee based on relative performance fees. These are just regular equity portfolios, but beyond that, where we -- we won't comment.

And just moving on to the restructuring advisory business, and this is not something for which there's necessarily an answer, but it's just a request, if something can be done along these lines. Do you think that maybe you could develop some metric of restructuring mandate pipelines, that could be related to fee potential which maybe you could begin to provide on a regular basis? Because unlike M&A type advisory fees, it's, of course, much harder for us to see and estimate from the outside what those fee pipelines might look like.

Let me just before, we get into the he detail of it, just pick up on your point and try to flesh out the complexity of this, which is the first thing, nomenclature of all these areas is somewhat -- needs some expansion. Because, just like M&A includes -- in fact, advisory activities to companies, what we call restructuring is a phrase that sounds like it's companies that are going through some sort of court-mandated reorganization. But, in fact, it relates to anyone who is changing their capital structure and thinking about it. So in the broader definition, that takes in a lot of companies. Basically, anyone who has a maturity coming up in the next couple of years begins to think about, "well, do I have the ideal capital structure, and what are my alternatives, and what can I do". And that may eventually result in asset sales or equity issuance or private placements, or it may end up with a court situation or pre packaged court situation.

So we look at it more broadly, and having said that, the measure we use, is we know these mandates, but there are two difficulties. One is timing. Timing on the recognition of revenues. The way this works often is we get a retainer or a monthly fees, and there is some back end incentive fee, that either may not be determined at the beginning, or is sometimes on some formulaic basis, or may be something negotiated in the future. So, unlike announced M&A assignments where everything is in a contract, you have to go on an intuitive feel of what you think with the portfolio of these assignments where things will end up.

The last point I want to make was one on timing, which is historically, and you heard Steve talk about that restructurings take a six to 18-month time frame for the fees to roll in. Every cycle is different, and it is possible that that time frame may really vary significantly from case to case during this period, because there are more situations where a drawn-out process can't be financed, which would accelerate the resolution of the situation. Example of that being, obviously some of the activity in Lehman Brothers, where we've been the restructuring advisor. And so when we look at this, we know that we're extremely active in this area, and we know that there will be an income effect over the next period of time. Precisely when that will occur is something that at this point, would be very difficult to forecast. Mike?

The only thing I would add to what Bruce is saying, Guy. We'll think about it some, but obviously a number of our assignments are nonpublic, that makes the metric harder to kind of deal with. That's why we tried to aggregate some things for you. But we'll take it under advisement and think about it.

For example, Guy, the majority of our government assignments are non--

Very much appreciated. Thanks for clarification.

Our next question today is from Dan Quirk from Seacliff Capital.

Are you guys there?

Good morning, Dan.

Just to follow up on Guy's questions on the incentive fees for the Asset Management business, are those sustainable with equity markets continuing to decline?

Again, with the traditional products being the source of most of those incentive fees this year, I would say yes.

Okay, great. That's it. Thank you very much.

Moving on, our next question is from Justin Hughes from Philadelphia Financial.

Good morning and thanks for taking my question. On the debt repurchase, you said you repurchased $60 million of face value, and you had a $20 million gain, so I'm assuming you spent $40 million in the quarter.

Correct.

And that's about what you had been spending last couple quarters on share repurchase. So did you repurchase debt in -- in lieu of repurchasing stock?

We looked at the balance of -- either one. We did repurchase as we outlined in the earnings release a significant amount of -- what I call anyway -- a significant amount of equity in the fourth quarter. And we will continue to look at the trade offs between where the pricing is on the debt and the stock.

Okay.

We still have $126 million worth of remaining authorization under our debt repurchase program.

It's not -- what you seem to be assuming is a trade-off -- we don't -- we don't assume. It's not necessarily the case that you do one and not the other. You might do both, you might do neither.

Okay. Yes, that was my question. I thought maybe you saw more value in the debt than the equity at that time, but sounds like did you both. And then my last question was on the private equity mark that you took in the quarter, what was the percentage markdown that you took on those investments?

Well, our total private equity investments on our balance sheet are in the 10-Q, but the percentage really -- it goes company by company, as you know. So rather than looking at on a portfolio basis, we just really look at it -- obviously have to look at it on a securities by securities basis. And it varied by different positions.

Okay. So this isn't private equity fund that you are invested in. This is individual holdings?.

Well, these are -- it's private equity funds, but the companies within the portfolio, is what gets looked at.

But you don't know what the weighted average markdown was?

We're not going to talk about that.

Okay. Thank you.

(Operator Instructions)

And our next question will come from Michael Wong from Morningstar Investments.

Hi. I was just wondering why was there a big change in the amount of investments that are done under the equity method from the end of 2007 to the end of 2008?

Oh, that's primarily related -- there's two investments there. In January, we had closed on a SPAC -- Sapphire Industrial, where we made an investment in that of about $62 million, and the other $10 million related to an acquisition we closed, the 50/50 joint venture we had, also in the first quarter. So they're -- so there haven't really been any changes in that number since the end of the first quarter.

Okay. Are your -- most of your management fees based on a percent of committed capital or invested capital at the moment?

The management fees in Asset Management are based upon, of course, committed -- I'm sorry, the invested capital, assets under management.

Okay -- just a question about what's exactly in your other investments on the balance sheet and the increase from the third quarter. Hello?

Yeah, I'm just trying to -- just trying to recall all of it. It's all going to be in the 10-Q. It has to do with that SPAC investment that you pointed out before, but let me -- I'm sorry, that's compared to the end of the year. Michael, let me -- why don't we just get back to you on that.

And that's all the time we have for questions today. Thank you. This now concludes the Lazard conference call. We thank you for joining us.