Lazard Inc (LAZ) 2010 Q4 法說會逐字稿

Welcome to Lazard's fourth quarter and full year 2010 earnings conference call. This call is being recorded.

(Operator Instructions)

At this time I'd like to turn the call over to Judi Frost Mackey, Lazard's Director of Global Communications. Please go ahead, ma'am.

Good morning, and thank you for joining our conference call to review Lazard's results for the fourth quarter and full year of 2010. Hosting the call today are Lazard's Chairman and Chief Executive Officer, Ken Jacobs and Chief Financial Officer, Mike Castellano. A replay of this call will be available on our website Lazard.com beginning today, after 1.00 p.m. Eastern Standard Time.

Today's call may contain forward looking statements.These statements are based on our current expectations about future events and are subject to known and unknown risks, uncertainties and assumptions. 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. 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. Lazard assumes no responsibility for the accuracy or completeness of any of these the 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. Today's discussion may also include certain non-GAAP financial measures. A description of these non-GAAP financial numbers and their reconciliation to the comparable GAAP measures are contained in our earnings release which has been filed with the SEC and our current report on Form 8-K.

For today's call we will focus on highlights of our performance. The details of our earnings can be found in our press release issued this morning, and in our investor presentation, both of which are posted on our website. Ken and Mike will be happy to answer your questions following their remarks. I will now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Thank you for joining us this morning. Lazard's solid performance underscores the power of our advice driven intellectual capital model. Revenues in our core operating businesses of Financial Advisory and Asset Management increased 17% for the fourth quarter and 23% for the year, compared to the same 2009 periods, with combined revenue matching our 2007 performance, which was a record year. Our results continue to improve both for the fourth quarter and the full year of 2010, compared to the equivalent 2009 periods, with the fourth quarter showing strong sequential improvement over the 2010 third quarter. Annual net income grew from $11 million in 2009, to $281 million for the full year of 2010, excluding special charges in both periods.

A few points about our Financial Advisory and Asset Management businesses. At Final Advisory, we demonstrated significant growth year-over-year, quarter-over-quarter and sequentially. During 2010 we advised on over 350 transactions across a broad range of industries in over 40 countries. This morning we reported over 50% growth in M&A and strategic advisory for the 2010 fourth quarter, compared to the fourth quarter of 2009, and reported annual growth of 36%. We achieved 62% growth sequentially from the third to the fourth quarter of 2010.

We have continued to build our pipeline to work on visible and complex advisory assignments and to capture greater wallet share. In fact, we rank 4th in financial advisory revenues over the past year compared to a list of the largest integrated banks. Our capital structure advisory business continues to be involved in important government and sovereign assignments. Lazard's restructuring business, while decreasing in revenues due to the decline in the number and value of corporate defaults, is still the clear world leader. As the M&A cycle begins to strengthen, a number of our former restructuring clients are now turning to us for M&A and balance sheet advice.

Our Asset Management business recorded record results. We achieved record revenues in Asset Management for the quarter and for the year. Management fees grew 33% for the fourth quarter and increased nearly 50% for the year; both records, for each period. Our Asset Management business invested or served clients in over 70 countries during 2010. Assets under management grew 20% over the year to a record $155 billion. We achieve net inflows of $3.2 billion for the quarter and $9.3 billion for the year, and have had positive inflows for each of the past five years. Asset Management now represents 43% of our revenues.

Lazard has generated solid results in 2010, and we are entering 2011 in a strong competitive position. Our strategy is simple and powerful. It is built around two businesses, Financial Advisory and Asset Management, which we believe are the two most attractive businesses in the financial services industry. Both generate returns from intellectual capital, not financial capital. We compete on equal footing with firms many times our size without undertaking the inherent risks and conflicts associated with capital. Lazard thrives locally and competes globally, with deep coverage across industries and geographies. Our scale allows us to compete against our largest competitors worldwide and distinguishes us from the boutiques.

While we enter 2011 in what is still an uneven economic recovery, there is significant operating leverage in our model, and we are well positioned to benefit from an improvement in the cycle, as demonstrated by our current results. We expect to build and execute on what we accomplished in 2010. We remain laser focused on costs, and plan to grow compensation expense at a slower rate than revenues. We have judiciously hired senior people and teams, and will continue to do so.

Before I turn the call over to Mike, I would like to say a few words. As you know, we announced a year ago that our CFO, Mike Castellano, plans to retire at the end of March. Mike will stay on as a senior adviser to the firm. I just want to say that we, as a firm, have been very fortunate to have Mike as our CFO over the years. He was instrumental in the success of our IPO in 2005, building the finance infrastructure of the firm, and serving as our spokesman with the investor and analyst community. On a personal level, I am privileged to have worked with Mike, and he has been an enormous help to me in my first year as CEO. I will miss his calm, quiet wisdom. I know that our incoming CFO, Matthew [Bukai] , is fortunate to take on the CFO responsibilities with a financial infrastructure that is in excellent shape. Thank you,

Thank you, Ken. We are pleased with our fourth quarter and full year 2010 results which demonstrate the momentum in our businesses and our discipline in managing costs and continuing our strong liquidity position. Here are a just few highlights. This morning we reported fully diluted net income per share of $0.76 for the fourth quarter and $2.06 for the full year of 2010, on a fully exchanged basis and excluding special charges. Our operating revenue of $610 million in the fourth quarter and $1.98 billion for the full year of 2010, increased 19% for the fourth quarter and 22% for the year compared to the 2009 periods.

Both our Financial Advisory and Asset Management businesses contributed to that growth. In Financial Advisory, operating revenue increased 12% for the quarter compared to the 2009 fourth quarter, and increased 38% sequentially over the third quarter of 2010. This includes a quarterly increase of 53% in M&A and strategic advisory compared to 2009. And as Ken mentioned, a 62% sequentially, compared to the third quarter. Our senior bankers continue to advise clients worldwide on complex, global, M&A, and other strategic transactions, some of which are mentioned in the press release.

Our pipeline includes a number of major transactions announced recently, such as Progress Energy's merger with Duke Energy, Mosaic's split-off and distribution of Cargill stakes, IT&T's plan to separate into three independent publicly traded companies, ACS's announced tender offer to acquire the shares of Hochtief, and Wind Telecom's combination with VimpelCom. In restructuring, the business where we hold a clear leadership position worldwide, fourth quarter revenue decreased 54% year-over-year and decreased 28% sequentially, due to the decline in the number and value of corporate defaults since the peak in early 2009.

As Ken mentioned, our Asset Management business reported outstanding results, obtaining records in many aspects. Asset Management operating revenue increased 25% in the fourth quarter and 40% for the full year, achieving record highs in both periods. Management fees increased 33% to a record $203 million for the fourth quarter compared to the prior year quarter, and increased 47% to a record $716 million for the full year 2010. And assets under management at year end were a record $155 billion, a 20% increase from year end 2009, and an 8% sequentially increase from the end of 2010 -- 2010 third quarter. We are particularly pleased that our trend of achieving net inflows every year for the past five years continues with net inflows of $3.2 billion in the fourth quarter and $9.3 billion for the full year. Our results also demonstrate our discipline in managing discretionary spending, while continuing to invest in senior level hires worldwide for future level growth.

We stated a year ago our goal to grow annual compensation expense at a slower rate than revenues. We have achieved that goal. While operating revenue increased 22% for the full year of 2010, compensation and benefits expense, excluding special charges, increased 1% compared to 2009. And excluding the effects in 2009 of head count reductions related to the first quarter of 2009 restructuring charge, and certain other former employees, the increase this year was 10%. Our compensation ratio was 57.1% for the fourth quarter compared to 91% for the fourth quarter last year. And was 59.1% for the full year of 2010, compared to 71.8% for the full year 2009, excluding special charges. We achieved these results without increasing deferrals.

We believe that excessive deferrals penalize future income with high fixed cost base and can inflate current results. You will notice the deferred component of year end incentive awards was 38% of total incentive awards this year, in line with the 2009 level. Non comp expense, including the amortization of intangibles related to acquisitions, and the effects of our tax receivable agreement, also increased less than the increase in operating revenue. As a result, the ratio of our non-comp expense to operating revenue is 18.0% for the fourth quarter and 18.7% for the full year, down from 19.4% and 20.8% in the comparable 2009 periods. A 10% increase in the nominal amount of non-comp expense in the fourth quarter, and also in the full year, included higher business development expenses for travel, and market related data, and fund administration expenses, related to the increased level of business activity and assets under management. Also contributing was a significant increase in industry wide fees assessed by the UK regulators.

Finally, a few items to note regarding our liquidity and capital resources. Lazard continues to maintain a strong liquidity position and to generate significant cash flow. At year end, total stockholders equity related to Lazard's interests was $652 million. During the fourth quarter, we repurchased 1.3 million shares of Class A common stock and exchangeable interest at an aggregate cost of $45.8 million. The good health of our business has allowed us to continue to invest in the firm for the future. During 2010, we made a number of senior level hires in the US, UK, France, Korea, Japan, and Australia. In our Asset Management business we added to our investment expertise and marketing professionals.

We are well positioned to capitalize on our ongoing investments and the strong reputation and position we enjoy in the markets we serve. We enter 2011 with momentum in both of our businesses. This concludes our remarks. We will be now happy to take your questions.

Thank you, sir.

(Operator Instructions)

We will go first to Patrick Davitt, with Bank of America Merrill Lynch.

Good morning, guys. You talked this fall a bit about how you have been evaluating -- what the proper use of -- what is a fairly sizable cash forward would be. Curious where you are in that process, to what extent you are thinking about more debt repurchases versus share buy backs, et cetera.

Thanks, Patrick. A couple of points. One is clearly there is room, we think, for more capital efficiency, and we are going to, I think, make an effort, obviously, to repurchase shares that we issue when we are in the course of a deferrals. And we will step that up over time. We are, needless to say, sensitive to the rating agencies; so we have to balance that. And to the extent we see opportunities to reduce debt, we will take them. And this is something that we are very focused on. It is really one of the major opportunities we see over the course of the year.

Okay. Great. In Asset Management, do you have any products that you feel like are close to a soft close or closing, and have you noticed any trend away from the global and EM funds that have been so strong, and in that vein, if so, have you seen flows to some of the newer products that you mentioned in the fall that you just kind of started the marketing process with?

Sure. I think we are very fortunate, frankly, to have a broad range platform of global equities which, as you mentioned, certainly have included the emerging markets and global thematics products. And those two products, you know, have more strategies, have been able to attract a good significant number of assets over the past couple of years considering the strong performance they have had. What we have been able to do is to use that and to make investments back into the business that, as you recall, we started right around the time we went public, to improve the investment performance and the outreach for a lot of our other products that might have been poorer performers at that point in time.

And we have been seeding new investment strategies over the past couple of years. So the short line is, many of those are now hitting the three and five year performance market targets and have performed very well. So, we are seeing now, inflows into some of these other products, whether they be US equities, regional non US equity products in UK, Germany, Korea, Japan etcetera, or even in fixed income. So, I think its - we are right now at that point where the fact that your question of which ones have gotten to soft closes, as you know, emerging markets and global thematics are in a soft close right now. But even given that, the performance of the other strategies, and the flows that we have begun to see in them, make us pretty confident for the future.

Okay, great. Then, just finally, on the non-compensation side, with the understanding that things like biz development in marketing will be dependent upon activity levels, last year you saw a fairly big seasonal uptick in the non-comp expense and we saw it again this year. Would you expect that to fall off some in the first quarter from a seasonal standpoint, or are we kind of at a permanent level here do you think?

Well, I think in spite of everyone's best efforts to try to make sure you got the right levels of a crew throughout the year, and I think we achieved that, you always do seem to have a higher level coming in, in the fourth quarter. Now, part of that also corresponds with the fact that traditionally the fourth quarter has been a strong revenue quarter with -- on the Financial Advisory side, clients wanting to close transactions with Asset Management. You have more of the incentive fees get earned in the fourth quarter. So, there is some natural matching where those variable portion of those fees match the higher level of activity in the fourth quarter. So, I think it's a combination of both.

So, you do expect it to come down somewhat?

Yes. Traditionally it has come down in the first quarter. The question is, what might be that magnitude, but it is a little bit inflated in the fourth quarter, primarily because you have a higher level of revenue.

Right, right. Okay. Thanks a lot.

Thanks.

We will take our next question from Howard Chen, with Credit Suisse.

Good morning, Ken and Mike.

Hi, Howard, how are you?

Well, how are you?

Good, thank you.

Ken, in the past you have noted a couple of things that you think about with respect to the advisory environment, I think, optimism, valuation, financing -- was just hoping you could give maybe, a broad stroke view of where you think we are on some of those things that you watch as a management team, and maybe some flavor for across the regions as well, would be helpful.

Sure. So, again, I think you have got it exactly right, optimism, financing, evaluation. Confidence levels at the start of this year appear to be across the board a little better than they were at this time last year. As you probably remember, last fall-- a year ago fall and year ago from now, with the last conference call, I think we said optimism -- confidence levels were improving in the United States and that we were a little soft in Europe or soft in Europe or less enthusiastic in Europe because of the Euro crisis. I think this year they are better even than they were last year at this time in the US and a little bit better in Europe. I would say that there is still an overhang from the Euro crisis, but it's probably a little bit better than it was last time -- last year at this time in Europe.

The emerging markets continue to be strong. And I think they just built off the strength last year. Financing improvement across the board from last year, which, of course, was a big improvement over '08. And evaluations still seemed pretty reasonable, I think that there is a challenge for companies in mature markets like the US and Europe, defined organic growth in their mature markets. And it's difficult to buy things in the emerging markets because of valuation concerns and just competition in those markets and shortage of things to buy.

So, I think what we are going to see, is with strong balance sheets, a lot of cash, difficulty growing organically, some difficulty in buying things in the emerging markets by companies in the developed markets, you are going to see that turn into some M&A activity both in the United States, which we have already seen, and hopefully some more activity in Europe. So, that's kind of the big picture.

Last year there was a little bit of an overhang in the markets because of all of the activity on the government side in the health care, energy, and financial service spaces. I think with regards to health care and energy, most of that has cleared, and we have seen more activity in both those sectors. In the international services sector, it's still complex, because not all the rules are written yet ,and we still have the Euro crisis playing out, and it's a little difficult to sort of envision how big transactions take place, but there is going to be a lot of asset sales and a lot of asset restructuring, we expect.

Great, thanks Ken. That was all really helpful. And then, the firm's continue to grow share across the franchises, the markets have improved. I'm curious if you are you seeing any trends in terms of the competitive landscape for either winning the incremental mandate or making the new higher?

I think generally this has been a good period for Lazard. We came through the financial crisis obviously relatively intact. And the demand for independent advice is as strong as it has probably ever been in my career. And I think we are probably as well positioned -- probably better positioned than anybody, to execute on that. We have a business that cuts across all industries on the Financial Advisory side, and also cuts across all geographies, and we are pretty fortunate to have that, because it allows us to really grow with the cycle and make judicious investments along the way.

As I said last year at this time, I thought that people on Wall Street had paid pretty well in 2009. So, most of our focus last year was where we thought there was value and opportunity to hire, which probably was little bit more balanced toward Europe than the US. This year I think with all the deferrals on Wall Street and everything else, it may create some further opportunities for us. But we are going to be thoughtful about it. I think our platform is in good shape right now.

There are obviously areas that we can add to, and we will, but we have don't feel this burning need to do that. In terms of the Asset Management business , I think we have taken -- we have really benefited from the flows of wealth from the developed world to developing world, and the position of our Asset Management business in being as global as it is has really, I think, capitalized on that -- those

Great, thanks. And then, finally for me, Ken, I think we touch on this a little bit before, but on Asset Management, maybe just to ask a different way -- obviously, like, continue to see the payoff from the multi year turn around, but really early to identify two products that are in the sweet spot in terms of global thematics and emerging markets. So, I guess I would ask, if you look out over the next five years, what would you, Asish, and the team consider the next kind of global thematics or emerging market products, or are they the next -- are they still in that sweet spot in your mind?

I think they are still in the sweet spot. I would also add that there is a lot of expertise at this firm that derives from having a global capability in asset management. And, in the areas where we are strong, at least our believe is that there is a whole bunch of new strategies we can develop off of that will be attractive to investors. And as you saw, we did some lift-outs this year, bringing in a team that does emerging market debt, and we just think there is a whole bunch of things that can compliment what we are doing today with the core expertise and experience that we have on the Asset Management side.

We will go to our next question with Devin Ryan, with Sandler O'Neill.

Good morning, guys.

Good morning, Devin.

Congrats on the quarter. Just kind of a follow-up for me. When we try to think of the revenue opportunities in the M&A business today, at Lazard, relative to what you guys were doing in the prior cycle, you have fewer MDs today, but I would also say that the overall quality is higher, just after you did the deep culling early last year.

So, my question is, do you feel like we need a 2007 like M&A environment to get back to 2007 like M&A revenues, or with the people you have today and the ground you gained with clients, is it reasonable to think that you could do something more than 2007 M&A revenues, in a similar environment, despite the lower MD count?

I think we are pretty comfortable. We can do more with the similar MD count. If you remember, in 2007, that was kind of the -- I would say a two-thirds of a year, because the markets kind of shut down in the summer of 2007. And so, with roughly similar staffing levels at the MD level, remember -- beginning -- what we did 2007 with is what we ended 2006 with, and that's kind of where we started this year and where we are now. And we were pretty comfortable doing those levels of revenues for two-thirds of a year. I feel like there is still a lot of leverage left in our business right now.

If you think about it, Europe was a soft environment last year. So, we think there is significant amount of operating leverage in our business in Europe, to get back to historical levels. For the most part, the M&A markets in Europe were at 2003, 2004 levels, if I'm not mistaken, for the overall industry. The US -- we have added a lot of capability here, which I think allows us to capture more of the revenue in the upturn of the cycle here, both through what we have done on the M&A side and the US, but also some of the additions like LMN and the like.

So, we feel pretty comfortable that there is still a significant amount of operating leverage in our business here. And look, the thing that makes us most comfortable about all this is, the people that are here we know really well. These aren't teams that showed up in the last six to 12 months or 18 months. It's a big difference trying to perform in markets as they improve, with teams that you know have been here for a long time -- with senior bankers that have been here for a long time, as opposed to people that you just hired, and you don't whether they can work on the advisory platform or not, and whether they can really generate the kind of revenues from these kind of platforms.

Okay. Great. That's very helpful. And then, just when we look at restructuring revenues in the quarter, can you guys just give us a sense of what percentage was retainers, or just some general sense of what have was retainers, versus success fees?

Yes, I can talk directionally about that. You know, as we work through the cycle of course, the levels of retainers have been decreasing. And then of course, as you have completions, you stop the retainers. And, as we have been working down off of the very large backlog that built up post September 15, 2008, obviously you have got a lot more transactions that have been coming to closure.

In the quarter, it was roughly pretty evenly split between the two. And that's how we mention it -- that's how we described it in the release. For the year, because, remember, 2009 was a building year, and if you want to think of it, 2010 was a declining year, you -- the difference year-over-year, that 22% difference, is primarily more on the retainer side, just because you had more completions in the end of last year and more completions relatively, in the beginning of this year. So, the barbell effect sort of made it the -- primarily retainers.

Okay

And you will see, we are going to post on the -- the site later on this afternoon, the investor deck, and we are still off -- working off, of approximately a backlog of 60 transactions in restructuring. So it's not debt. It's just smaller size and less frequency of adding.

Got it. Okay. That's great. And then just lastly for me, a couple of cleanup items here. First, were there any charges or anything else that fell into the corporate revenues that weighed on that number? And then, just also, the fees that you mentioned, assessed by the UK regulators, was that a one time event? And also, do those show up in other expenses?

Sure. Okay. So on the corporate revenue side first, the only development that we -- that took place in the fourth quarter was, as you know, we have had this portfolio of corporate bonds in our Paris bank that have been treated as available for sale. We made the decision in the fourth quarter to liquidate all those positions. So that -- and there had been some unrealized losses as we have disclosed in the 10Q's before, that triggered those unrealized losses. We also had some unrealized gains and some corporate bond portfolio positions so -- sorry, government bond positions, So, they netted out to a marginal loss, not a real big number but low single digits. But that is the only exceptional thing.

And the only reason I really also mention that, is when you look at the balance sheet, that is in the back of the earnings release, you will notice on the balance sheet, the level of investments is down significantly from where it was at the end of last year, and then again the end of the third quarter it's $417 million now compared to about $800 million. And that is all in line with the reductions in that corporate bond portfolio, to take whatever risk there was in the business, to take that out. Now on -- and you see the flip side of that, a bit, is in the increase, a line that we now have in the balance sheet called, deposits in banks. Those are bank deposits primarily with the Banque de France, that previously had been included in receivables. But, because that is up almost $200 million over the 2009 year end, we broke that out as a separate item. But, that's where a lot of the residual cash went.

Yes.

And then finally, on the -- your question on the UK industry wide assessment, I sure hope it's a one time item. I think everybody in the industry hopes it's a one time item. But, who knows. But, that basically gets back to -- there were a couple of large -- larger size investment managers that went out of business and the UK regulators had to step in and protect clients. And what they did, I'm sure your fight books will tell you around your own shop, they went out and assessed everybody in the industry as they always do.

Right, right.

They didn't give us enough information to know whether this was a new baseline or if it is just a one time catch up.

Got it. But did you put those in other revenues though?

I'm sorry no --

Compared to the other expenses?

I'm sorry, no. That just is another expense, yes.

Another expense, correct. Okay.

And one other thing I would like to say on non-comp expense too, sort of building a little bit on my answer to Patrick's question, but it ties into your question, too. Non-comp expense, well the absolute amount, is higher in the fourth quarter, it's a percentage of revenue, which is the way we manage it as well. We take 18% for the quarter and 18.7% for the full year. Both, about two full basis -- percentage points lower than it was in 2009.

Okay. Great. Thanks so much.

Okay.

(Operator Instructions)

We go next to Jim Mitchell, with Buckingham Research.

Good morning.

Good morning, Jim.

Just a quick question on the balance sheet, because I have noticed that too, that the deposits, -- your supposedly deposits, came out of receivables. I just want to make sure I understand what that reflects. Is that, when we look at cash that you disclosed, and now the bank deposits, and then the securities, should we look at those bank deposits as also a form of cash that you guys control and have discretion over?

And, so, if that's true, I guess the question then becomes, if you add up sort of deposits, cash outstanding plus, I would imagine your securities book is pretty liquid, I mean you are talking closing -- close to $2 billion in liquid assets versus $1.2 billion of debt. Why wouldn't we start thinking about a reasonably big buy back given that net cash position?

Yes. I would say that -- those bank deposits, they are sort of limited amounts of flexibility we have with that to use for general corporate purposes. That is primarily all in the bank in France. And it's basically--because the way the market has been evolving over there, there is no inter-bank lending; everything is done through the Banque de France. If you look on our liability side, we have this line, deposits, in customer payables, which is primarily CDs that were issued by the bank. Those two lines track each other very closely.

Okay, got you.

And some of that is -- those CDs are anywhere from -- average length is about 90 days, maybe a little bit longer. So, you have got to make sure you maintain the liquidity for that.

Right, right. Fair enough. But, I guess more broadly, even if you kind of exclude that, your cash is building pretty rapidly, and you are now in a net cash position, and your debt isn't due until 2015, given the positive cash flow you guys generate on a quarterly basis, why not -- given the negative carry associated with that debt at 7% coupon, why not buy back now, because it would be much more accretive than cash versus the 7% coupon?

We are clearly sensitive to the inefficiencies in our capital structure and it is something that we are looking at closely. You know, just as a historical reference, we came through the financial crisis when -- in pretty good shape and there was a lot of focus on the liquidity of banks and investment banks' balance sheets. We don't have nearly the kind of risk activities that everybody else has, but we are still sensitive to that. And the rating agencies are sensitive to it. So, we have to sort of thread the needle to come up with something that adds shareholder value, yet at the same time, make sure that we have a reasonably strong balance sheet. And we are focused on it.

Okay, So hopefully we will know more later.

Exactly.

Thanks.

We will go next to Chris Kotowski, with Oppenheimer.

Yeah, just for Ken, sort of a strategic question. I mean -- your investor deck, the pie chart , you would always show yourself as roughly 50% North America, 45% Europe, and 5% rest of the world. And I'm just thinking, I guess strategically, how much of your business these day's, is trans-national versus intra-national, and how does that compare to a couple of years ago, and how does it compare to a couple of years going forward?

And then in terms of, obviously, all the current activity is in the developed world and the all the growth is in the emerging world, how important is it to have feet on the ground in a much bigger way in the emerging world, to position yourself both for the intra-national and then the trans-national activity in the

It's a good question. Well, let me start, just on the advisory side. I think if you were to parse through our announcements, you would find that the announcements and completions in 2010, and even if you go back to 2009 and before, were much -- there were a significant number of transactions that were actually announced and completed, outside of our historic geographies of North America and in Europe. And I think part of it is -- that is really a function of where these deals originate, how we book them, and things like that. But, if you look at the deal announcements, you will find that it's much more than the 5%.

And second--look, we have a pretty good representation today of people in the emerging markets, developing world. It's clearly something we are going to build on in the future. The other thing is, about Lazard, is this is really a global franchise. And, if you think about it, on the Financial Advisory side, as I think I alluded to earlier, we announced deals in 40 countries this year. A lot of those countries were not in the developed world. Second, and the fees were significant. And it's more a question of how we book them, as opposed to how -- and that's how that 50%,45%, 5% shows up, as opposed to where they actually take place.

The second is, when you think of the Lazard franchise, it has tremendous breadth globally. Our Asset Management business is, I think, invested in 300, 400 companies globally in the developing world. And research is probably over 1,000, in the developing world. And so, it's pretty hard to go to most of these emerging markets and meet with management teams, and not have Lazard either have appeared as an investor, or be known to the management teams through the research that Lazard Asset Management does. And, frankly speaking, I think that has been a big asset for us on the financial advisory side, just this sort of brand awareness, network awareness, and such. We don't -- that's not -- we don't have to, sort of, invent ourselves whenever we go to a developing world -- a developing market company. And these companies are huge now.

So, that's a real advantage. And I think that, in part, accounts for why there is somewhat of a discrepancy between the deal announcements, which are pretty significant, and the bookings and such. I mean it's a great platform to have to -- it's a little bit of a high class problem at the moment for to us deal with. We now have to figure out how to build this out in a cost efficient way.

And then another kind of strategic question, I guess you acquired Edgewater in -- somewhere in the middle of '09, before you became CEO, I think, right? Is private equity -- is it a more significant private equity business, is that an aspirational goal for the firm, and if it were, would you be limited by the Volcker rule of only being able to put in 3% into the funds and all that, or are you carved out from that, and you could have a more significant -- presence there if you wanted to?

Look, today the key focus of the firm are our two core businesses which are the, Financial Advisory and Asset Management businesses. Within Asset Management, we have an alternatives business, and within alternatives, I think one could probably, and probably should, think about private equity. And we do, but the key for us, is doing things which have the kind of returns as our core businesses have. We are not -- we do not want to become an in capital intensive business, so if we can do these things without becoming capital intensive then it's attractive, and if it fits with our core businesses, which are the main show, which are the Financial Advisory and Asset Management businesses.

Okay. That's helpful. Thank you.

And on the Volcker issue, that's not an issue for us.

We will go next to Michael Wong, with Morningstar Equity Research.

Good morning.

Good morning, Mike.

Just a little more sense on Europe. Would you say that it truly is much weaker than Asia and North America at the moment? And for improvement in European M&A advisory, is it more of a long-term issue, such as a long period of economic growth and improved corporate confidence, or is it some short term catalyst that can turn around, such as absence of sovereign debt concerns?

I think it is much weaker, but there are some differences country-by-country, particularly for us. I do think that the overhang from the sovereign debt crisis is significant. I think if that improves or resolves, then I think the same trends that are driving more activity in North America, in particular, will drive activity in Europe, and I referred to this earlier, which is that there is limits to organic growth in the mature markets.

There is a difficulty in buying businesses in the developing markets, and people have a lot of cash and strong balance sheets, and that equally applies in Europe to the major multi-nationals. And to the extent that you can buy things to augment organic growth, and buy things even in mature markets, that allow you to have better access in the developing markets, I think we are going to see activity. But I do think there is more of an overhang in Europe associated with the sovereign debt crisis, and that has to resolve itself before you see a real pickup.

Okay. Do you have any sense if 2011 will have a large, I guess, flow of investment bankers, from the bulge bracket banks to the, let's say, more boutique type advisory firms, as what occurred in 2008 and 2009? And if Lazard is a beneficiary of this movement, if it occurs, do you have any strategy for keeping that talent, in the chance that, I guess, bank compensation ratios go back up in a year or two, if, let's say, there is less public scrutiny on compensation ratios?

Look, first, I think we are pretty comfortable with the platform we have today. We are not a boutique. We don't have, sort of, the need to add people as rapidly to meet the expectations for growth that I think many of these firms have around them. So, I think we can be very -- we can be as judicious as we have been in the past about hiring people. Not everybody coming from the large firms works well on a platform like ours, and so again, we are careful in terms of thinking about how people fit in and how they work on platforms like ours. And I think there will continue to be a stream of people that leave the large firms in part, just because it's less attractive than it used to be, to do this business in the way that historically it has been done, for a lot of people, and it's more difficult. So, I think that's somewhat inevitable. At the same time, I think that the environment is improving and everybody is kind of a beneficiary of that. So, it may not be as dramatic as you think.

Okay, and I guess one final pretty quick question, can you talk about your backlog from let's say the end of 3Q to the end of 4Q, just to try get a sense of, if there is any unusual lumpiness in the fourth quarter M&A and Strategic Advisory revenues.

Well, as you know, we don't talk specifically about backlog levels at any stage of the cycle. But as I mentioned earlier, the fourth quarter is historically been a strong quarter as many clients try to complete transactions by the end of the year. But I think directionally, you have seen an industry statistics, the continued -- to pick up in M&A activity. There have been some decent size transactions announced this year, to date, some of which we have been involved in, the Progress Energy being a perfect example, the Smurfit-Stone being another. So, I think the backlog continues to improve in M&A, but specific levels, we are not about to comment on.

Okay. Thank you and congratulations on a great quarter.

Thank you very much.

And with no other questions we would like to thank you. This now concludes the Lazard conference.

Thank you.