Lazard Inc (LAZ) 2018 Q1 法說會逐字稿

Good morning, and welcome to Lazard's First Quarter 2018 Earnings Conference Call. This call is being recorded. (Operator Instructions)

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

Good morning, and thank you for joining our conference call to review Lazard's results for the first quarter of 2018.

Hosting the call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Evan Russo, Chief Financial Officer. A replay of this call will be available on the Lazard website beginning today by 10 a.m. Eastern.

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 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 measures and their reconciliation to the comparable GAAP measures are contained in our earnings release, which has been issued this morning.

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.

Following their remarks, Ken and Evan will be happy to answer your question. I will now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Good morning.

Our year is off to a strong start.

In the first quarter, we achieved our highest quarterly operating revenue in Lazard's history.

These included record first quarters for both Financial Advisory and Asset Management significantly higher than last year's record levels.

Our long-term trend remains strong. On an LTM basis, Lazard's operating revenue was a record $2.75 billion.

Our adjusted results show the significant operating leverage in our model with operating revenue up 16% for the quarter, pretax income up 28% and our earnings per share were up 52%.

We continue to benefit from increased productivity and investments we've made in the franchise for both our businesses achieving broad-based growth.

In Financial Advisory, we are serving clients with a differentiated model that combines deep local insights and relationships with an unrivaled global network. Our investments in areas such as Shareholder Advisory are having a significant impact on our business by helping us identify opportunities faster and provide innovative solutions for clients.

In M&A, we continue to be a leader in advising on large complex strategic transactions. We are advising on 3 of the 10 largest announcements made globally in the first quarter.

We continue to invest for growth, beginning with our people. In Financial Advisory, all of our recent Managing Director promotions are individuals who built their careers at Lazard. This ability to develop our own talent remains a powerful competitive strength.

We also continue to hire senior talent selectively, including 5 MDs and a Senior Adviser so far this year in Europe and the U.S.

In Asset Management, record first-quarter operating revenue reflects the strength and quality of our global franchise. Despite significant market volatility, we finished the quarter with record AUM at $252 billion and net inflows of $2.4 billion. The quarter ending AUM was 11% higher than average AUM for the full year 2017.

We continue to benefit from a primarily institutional client base, which is focused on the long-term strategic allocation of capital.

We are achieving organic growth in Asset Management through the incubation, development and scaling up of new strategies across our investment platforms. We continue to expand our distribution capabilities globally.

We are also capitalizing on inorganic growth opportunities, including team lift-outs. Since the start of the year, we have brought on teams in international equity and quantamental strategies. We continue to look for talented asset management teams that would be a good fit with our business and culture.

Evan will now provide color on our financial results and capital management. Then I will comment on our outlook.

Thank you, Ken.

Lazard's first quarter results underscore the strength and stability of our model and the continued high performance of our businesses.

Quarterly operating revenue of $724 million was an all-time record for the firm, 16% higher than last year's first quarter record.

Diluted net income, on an adjusted basis, increased 52% to $1.26 per share.

In Asset Management, operating revenue of $330 million was a first-quarter record, up 18% from its record level last year.

Management fees and other revenue increased 19% year over year to reach an all-time high of $324 million. Incentive fees were in line with last year's first quarter.

AUM reached a record quarter-ending level of $252 billion, 1% higher than the start of the quarter despite significant market volatility. The sequential increase in AUM was the sum of net inflows of $2.4 billion with positive foreign exchange movement of $2.6 billion offset by market depreciation of $2.8 billion.

Our net inflows were driven primarily by strategies in our global and emerging market equity platform and strategies in all of our fixed income platforms.

As of April 20, AUM was approximately $251 billion, driven by market appreciation of $1.9 billion, offset by net outflows of $1.1 billion and negative foreign exchange movement of $0.9 billion.

Financial Advisory revenue in the first quarter increased 16% over last year's record level. The increase was driven primarily by record first-quarter M&A revenue, partially offset by a decrease in Restructuring, compared to last year's elevated level.

Our restructuring specialists remain active, considering the strength of the global economy and the low-interest rate environment. The retail industry accounts for a significant proportion of our current assignments, and we are seeing significant activity outside of the United States.

Starting in this quarter, we are no longer breaking out our Restructuring revenue within our Financial Advisory segment.

We have done this now because our Financial Advisory practices have become highly integrated, and our assignments with clients often incorporate several disciplines.

We will continue to provide commentary on our activity in restructuring and related assignments, but we believe that presenting unified Financial Advisory revenue is a more accurate representation of our business.

For our Financial Advisory business overall, as we anticipated, Europe was a primary driver of the first quarter's increase in operating revenue. Our European business appears poised for continued growth.

Looking ahead across our franchise, Asset Management entered the second quarter in a strong position, with AUM about $37 billion higher than 1 year ago and $25 billion higher than average AUM for 2017. In Financial Advisory, our announcements this year are off to a strong start with significant representation in the largest M&A transactions globally. In the second quarter, we will have challenging comparisons based on last year's record second quarter, but we will have easier comparisons to 2017 in the second half of this year.

Turning to expenses, we are maintaining our cost discipline. In the first quarter, we accrued compensation at a 55.8% adjusted compensation ratio, consistent with our full-year 2017 ratio and compared to 56.5% in the first quarter of last year.

Our adjusted non-compensation ratio for the first quarter was 15.8% compared to 17.2% in the first quarter of last year. Non-comp expenses rose 6%, reflecting our continued investments in the business, marketing expenses related to higher levels of activity, as well as the impact of foreign exchange movements in the quarter.

Turning to taxes, Our effective tax rate in the first quarter, as adjusted, was 13.9%, reflecting the impact of net tax benefits relating to share-based compensation as well as the reduction of the U.S. federal corporate tax rate. We expect an annual effective tax rate this year in the low 20s, and for the coming years we continue to expect an effective tax rate in the mid-20s.

Turning now to capital allocation. We continue to generate strong cash flow, which supports our share repurchases and dividends. In the first quarter, we returned $449 million to shareholders, including $202 million in dividends and $146 million in share repurchases. We have already exceeded our objective of offsetting potential dilution from the 2017 year-end equity grants.

We remain committed to gradually increasing our quarterly dividend over time, and we are increasing it again this year from $0.41 to $0.44 per share.

Ken will now conclude our remarks.

Thank you, Evan.

The global macroeconomic environment for the near to mid-term remains supportive for our businesses.

U.S. economic activity is robust, and Europe's recovery continues to gain momentum.

The environment for M&A continues to be favorable. Sentiment remains constructive among CEOs and in boardrooms globally and is motivated by the need to address top-line growth, shareholder activism and the increasingly disruptive impact of technology. Financing remains widely available at historically low rates for investment grade credits. And valuations are supported by continued macroeconomic growth.

Our Financial Advisory business has momentum and is in an excellent competitive position for this environment.

Our Asset Management business also has momentum with a record level of AUM, a diversified set of investment strategies, and a strong pattern of long-term performance. We continue to extend our platforms with innovative strategies for the evolving needs of a sophisticated client base.

I'll wrap up with these takeaways. We achieved record operating performance in the first quarter with momentum across our franchise. Despite market volatility, Asset Management finished the quarter with AUM 11% above its average level in 2017. Financial Advisory's activity remains strong in a healthy M&A environment. We are investing in our businesses for continued growth, We are maintaining our cost discipline. and we continue to return substantial cash to our shareholders.

We remain focused on serving our clients well, while we manage the firm for profitable growth and shareholder value over the long term.

Now let's open the call to questions.

(Operator Instructions) (technical difficulty) We shall take our first question from Mike Needham from Bank of America.

Just first on opportunities for growth. So you guys had touched on it. In the Asset Management business, you've got the team lift-outs and new strategies you've built over the last few years. Is the Asset Management business really where you're focused on pursuing these growth opportunities? Is there -- are there things in the Advisory as well as things appear to be getting better, particularly in Europe?

Okay. So first on the Asset Management side of the business, this is just a steady progression of investment we've made in the business in terms of incubation of new strategies and lift-outs. We think it's a particularly interesting time to be looking at these lift-outs because some of -- because of some of the turmoil in the hedge fund industry and certainly in the small or midsized hedge funds. And so there are probably more teams available today than there had been in the past. And there are certain specific areas that had been particularly attractive to us, some that are consistent with our core platform, some in areas where we've had recent success. As an example, a really strong success recently in the Quanta area, which we're trying to add to. So that -- I think that's consistent. On the Advisory side, look, we've made, I think it's a 5, 6 hires in the first quarter. 4 of them in Europe in the first quarter, 1 last year into the year in the first -- in the end of last year. We were anticipating this turn up of activity in Europe, and we've -- I think we're very well positioned for that. On top of that, we've also made significant investments into our Shareholder Advisory capabilities, which had been sort of the leading edge of our marketing capabilities for the Advisory business as a whole. And we continue -- and I think still there's a lot of room for growth for us in the United States. And we're going to do -- we're going to really balance that growth between a mix of growing our own people, which we've got a lot of success with over the life of the firm and where we see people that can really make a difference to our platform and from the outside.

Okay. And then the other on fund flows. The quarter was, I think, pretty good and a quarter that was challenging for some active managers. It sounded like there may have been some outflows so far this quarter. Maybe if you could just drill down on the things that are working, the strength of the emerging market strategy, which looks like it continues to attract assets. And if you have any comments on the unfunded pipeline or just how that business you think is going to do for the rest of the year.

Okay. So first, just in terms of performance post the volatility of the first quarter or during the volatility of the first quarter, I think we show a strong pattern of performance across a range of our strategies, which was very reinforcing of, I think, our platform as a whole. And in terms of flows, first, we've seen it really across a range of platforms, including the emerging markets. And we've seen some flows actually over the course of the end of last year, this year into some newer platforms for us in fixed income and also into the quant area that has been strong. And generally speaking, the outlook looks pretty good right now.

Our next question is from Brennan Hawken of UBS.

One, just a follow-up actually on Mike's -- on your response there to Mike's question. Ken, you referenced hedge funds and quants when you were speaking about the lift-out opportunity. Is that where you intend to focus here as opposed to more traditional asset management teams? And would you expect to pursue this lift-out opportunity here? Is that more like a 2018 as we think about things? Or is that more like the next few years a shift in how you're approaching it?

Well, I think it's going continue to be a mix. If you look at the growth of our asset management over time, it's been a mix of waiting towards seeding our own strategies, incubating them, getting them to a level of maturity and then rolling them out. And even in the cases where we brought in teams from the outside, usually, there's a period of incubation that takes place before they are mature enough so they can be rolled out. So there's nothing inconsistent with what we're doing. I just think the environment is probably more conducive to it today than it has been in a long time. And then also, there's a few areas that we think are particularly interesting for us to build out on right now where we've had significant success. And so that's really the objective. I don't think it's just a 2018 event, this has been a -- well, this has been going on for a while, and I think it's going to continue into the future. But it's something we're very focused on at the moment.

Okay. Great. And so it's not -- the hedge fund comment, not necessarily that you -- that's just a part of the market that you think may be a -- may result in particular opportunities at this stage. Is that the idea?

Exactly. Exactly. It's just -- because of the relative outflows, turmoil. And relatively speaking, in the last couple of years in the hedge fund market, there's probably more opportunity there than there had been previously, and that may continue for a while. So it's a good area for us to look.

Cool. And then one more here. On Europe, there's a lot of improving sentiment around momentum for Advisory in Europe. It seems and I assume -- you seem to strike a positive tone in thinking about Europe here and in your comments. How should we think about that opportunity here over the next couple of years? Is there a frame of reference that you think is -- would be -- would make for a good parallel in trying to frame how good of an opportunity this could end up being for Lazard?

Well, look, I think we have a strong -- we have a long history in Europe with a very strong local presence in all of the major markets in Europe. It's one of the great engines of Lazard, and it has been throughout our history. I think we've entered a much more favorable environment macro economically in Europe than we've been in for a very long time. And M&A tends to be highly correlated with an improving macroeconomic environment. It's a period of time when, generally speaking, CEO confidence rises and activity levels pick up, financing is still historically cheap and valuations, more reasonable in Europe than in U.S. and certainly, you're seeing improvement in earnings profile as many companies in Europe. So I think valuations overall are pretty reasonable. So if history is any guide when you have an improving macroeconomic environment and you have building confidence, you tend to get more activities. So that's what we -- just -- we believe this is a favorable time.

Our next question is from Conor Fitzgerald of Goldman Sachs.

On the Asset Management side, just curious what you're seeing in terms of uptight from institution and endowments for quantitative in some of your revised products. And do you get the sense that how these investors are thinking about their asset allocation to these types of products is changing?

Sure. Look, the quant area is an area which we've obviously made a significant investment in the strides then in over the last several years. And we continue to see healthy demand for those products. They're well positioned against other products in the market. And we're seeing a lot of demand there right now. And it's an area which we're building into. We're pretty excited about that.

Got it. And one for you, cash balances are still up kind of year-over-year despite the fact, like you said, you've done more than offset your dilution for the year. So just two questions on that. One, wondering if you think about how to -- how do you think about the pace of the buyback going forward for this year? And then two, you used to kind of reference $350 million as your kind of maintenance level for cash balances. How should we think about your minimum cash need kind of going forward?

Sure. So yes, as you referenced and as you've seen, yes, we reduced our balance sheet -- cash on balance sheet conservatively over the course of the quarter as we expected. We bought back, as you said, more shares that we needed for to offset dilution from compensation, which is our primary goal. And then, of course, continuing to buy back shares post the quarter. As we announced in the earnings release today, we bought back 3.6 million shares since the beginning of this year. So continue to think about share repurchases in the context of excess cash. Quarter-to quarter is always difficult to predict, but primary goal is to reduce dilution from compensation and other dilution effects. We need to keep the share count that's why it's possible slowly declining. And I think going forward, thinking about cash balances, yes, we've made -- in the past, we referenced $350 million plus or minus, that's sort of the minimum cash we need. To operate the business, obviously, we need operational cash as well. We take a look every year at the cash balances that we have around the world and think about the optimal use of that cash throughout the year as well as going into year-end. And as we did last quarter, we sort of announced a special dividend to distribute back the cash at the end of the year.

Our next question is from Steven Chubak of Nomura Instinet.

This is actually Sharon Leung covering for Steven. So first of all, just on your noncomp expenses, as a percentage of revenue, the ratio this quarter was a bit below the low-end of your guidance range. So we're just wondering if the positive revenue momentum continues to hold, how should we be thinking about the trajectory in noncomp expense from here?

Yes. So noncomp expense, as we've said, historically, breaks down to 2 components. There's the variable component we think about 1/3 to 1/2 of noncomp the bit variable with revenues. It moves up and down based on the revenue of the firm. The other half essentially moves around with inflation. And so over time, as you referenced right, this quarter with the increase of revenue, we've held noncomp tight. Always difficult to look quarter-over-quarter or a specific quarter. It's better to look at it over several quarters to get a good sense of the noncomp for the ongoing basis. But we continue to believe that if revenue continues to grow, there should be some benefits from the nonvariable portion of noncomp towards increasing margin.

Okay. Great. And then the second question is we've had some general concerns that M&A and Asset Management businesses are typically very sensitive to equity market levels. What are -- what's your view on your business performance if the current market choppiness continues to persist?

So over the long run, obviously, I think all asset managers are going to be impacted by overall levels in equity markets. And obviously, it depends on your mix of assets, where they're invested, is it domestic U.S., is it global, is it weighted towards fixed income or is it weighted towards equity? So you have to disaggregate the performance of markets from where the actual assets are invested. But there is a high correlation between markets in Asset Management business. The Advisory business over the long run is very much driven and -- at least for us, historically, has been very much tied to the GDP cycle, the macroeconomic environment. And there have been a lot of periods of time where markets had performed and there's been relatively stagnant M&A activity. I mean, think of the period '09 to '13 where there was a massive recovery in the equity markets and yet not much growth in M&A activity. And so -- and there's also periods of time -- I mean, I'd go back to the mid-80s where you had stagnant stock markets for a couple of years and you had a burst of activity in M&A. So I think M&A activity tend -- our experience is M&A activity tends to be much more correlated with the GDP cycle, confidence level, availability of financing and valuations than it does per se tied directly to the equity market. I think volatility has an impact, obviously, if you go to long periods of volatility, elevated volatility like you did in the '08 crisis, you can obviously have a big impact on confidence levels, which obviously, then -- it impact things. But right now, we're in a stronger macroeconomic environment globally as we've been in, perhaps, a couple of decades. And so it feels pretty good for the M&A business.

Our next question is from Jeff Harte of Sandler O'Neill.

A couple of questions. Looking at Financial Advisory, so when we look at kind of the visible pipeline data, it didn't suggest close to a record or second kind of record quarter in revenues there, and we don't get the financial Restructuring breakout anymore, that may be part of it. But can you help me to reconcile a bit what drove the revenue strength there this quarter relative to the kind of visible public transaction data we could see?

Evan, do you want to take a shot at that?

Sure. So we started the year off with a strong momentum. I'd say the types of transactions we're working on, sometimes they're much broader, right? They're including a lot of larger transactions, they're including other transactions that are smaller that don't get picked up in the numbers. But we are seeing strength across-the-board, and we're seeing really strength on a global basis in almost every geography. So Restructuring, as we said, was down on a quarter-over-quarter of the last year basis, as we expected, moving into the lower part of the Restructuring cycle. But the M&A business and the regular Financial Advisory as a whole, we continue to see growth in -- on a global basis across all sorts of transactions, many of which just don't get picked up in the visible pipeline that you guys see on the outside.

Yes. And also I think geologic and some of the other data sources do better with U.S. data than they do with global data. And obviously, to the extent that Europe picks up, that maybe something that they have to work, do a little bit of better job on estimating.

Okay. Kind of going along those lines, when we look at the visible industry data out there, announced dollar volumes are way up. But deal counts actually look they're down a bit, admitting that some of the smaller deals are harder to catch. You guys are somewhat unique in being fairly strong in both mega deals and kind of in the middle markets. Are you seeing the type of strength in the middle markets that we're seeing in the megadeal space? Or can you just kind of compare and contrast the smaller versus larger end of the market as far as what you're seeing in M&A?

Look, the year is off to a strong start. I'd say the closings on the smaller deals for us were a little weaker in the first quarter, but the activity levels in that business are strong right now. So -- and again, you have to remember, closings are a function of the activity that took place 6, 9, 12 months before and not what's happening in that particular quarter. So if you look at our deal announcements 6, 9, 12 months ago and you look at the activity level in the first quarter, you see an outlook for the year which is pretty good. I mean, we had tough comps for the first quarter, we had tough comps for the second quarter. We obviously did better than the comps in -- we did very well against the comps in the first quarter. I think the year looks okay. Based on activity levels right now, it feels pretty good.

Okay. Just to touch back to the buyback. I mean, if we combine offsets of comp, looks like a $240 million buyback in the quarter, that's historically really high. I mean, that's just function of having extra cash? Or is it potentially a signal to move away from what you guys have historically leaned on more of a special dividend at the end of year to return excess cash? Any big change in your thinking there?

No. I think, as we said, I mean, we continue to focus on offsetting compensation dilution, as you said. This year, I mean, obviously, that the stronger -- or stronger levels of revenue, we had to buy back a few more shares. Also the impact of -- of trying to offset some of the impact of the treasury stock method on the higher share price. So it required us to buy back more shares already in the quarter. There really isn't a change or a significant change in our capital management strategy that we've seen but we continue -- as we saw yesterday, we bought back a significant number of shares. Therefore, we had increased the share or purchase authorization. When we -- much into that other than saying we continue to look for opportunities to buy back shares, and we take a balanced approach through the year when we see the opportunities to make sure we're offsetting dilution and at the end of the year, we take another look and see what -- at excess cash and return to shareholders.

(Operator Instructions) We shall now take our next question from Ann Dai of KBW.

In your presentation, you highlighted your business development efforts in areas like LatAm, China and Canada. And it's very helpful you sized the market by the number of deals. And I was just wondering if you could elaborate a little bit about the nature of those markets and the addressable fee pool relative to more established markets like the U.S. and parts of Europe, just maybe compare and contrast a little bit.

Sure. Well, look, the predominant fee pool is North America. And then second to that is really Europe as a whole. And then you can break down geographies in Europe and such, and I think we basically matched people with fee pool. The opportunity in Canada and Latin America was to -- number one, we've been incubating a business in Latin America for some period of time in Lazard MBA, and it reached the level of maturity both in terms of its performance and in terms of the development and -- at least we've got the -- take the opportunity in those markets where it makes sense to bring it completely into Lazard. And Canada is just the natural extension of our business in the United States and North America as a whole. The opportunity in Canada and Latin America also ties very directly to the businesses we have in Asia and in Europe because a lot of the activity into Canada is driven not only out of North America, but also out of Asia. And a lot of the activity into Latin America that we're are seeing right now is also not only driven out of North America, but especially driven out of Europe and in Asia. So this was a natural way to complement platforms that are very strong for us in our -- the 2 core fee-producing markets, which in U.S. and Europe.

Okay. That's very helpful. And just a quick one on Asset Management. The color on the strategy that contributed to net flows in first quarter was very helpful. Can you provide some of that same color on what's been driving the net outflows quarter to date?

Well, look, there's a -- kind of a natural attrition in the Asset Management business where you have just decision-making changing at different institutional managers, life of assets and such. So I think the important measure for us in every quarter is not only net inflows, but the -- just the absolute level of gross inflows. And this is one was -- I think one of our best quarters ever for gross inflows. And that is a very important statistic for us. And the outflows, I don't think we're dominated by -- I know we're not dominated by any one particular area. It was kind of across-the-board and very similar to what's been the case in the past. And we've had a -- just as we've had sort of a diversified set of outflows, we've had a very diversified set of inflows as well during this period of time at the gross level.

We shall take our next question from Devin Ryan of JMP Securities.

So I guess first question here. When you think about the various advisory revenue businesses and, I guess, the revenue pie, if you will, the opportunity in M&A Advisory has always been by far the largest for the industry. But clearly, there's some ancillary advisory activities that are becoming bigger opportunities like Capital Advisory and Shareholder activism, which I know -- you can't completely disconnect from M&A. So the question is really when you think about the growth outlook for Lazard over the next 10 full years, based on how you see some of these ancillary areas growing and then just to your outlook for how big those revenue pies could evolve into, would love to just get some perspective around like how much more meaningful those businesses can become for Lazard and just kind of within the mix of Lazard.

Okay. So a number of these activities don't necessarily generate their own revenue flow. And most importantly, oftentimes, one of the -- as Evan alluded to with the Restructuring revenues, it's very hard to put bright lines around these businesses. Fundamentally, what we're doing here is adding capabilities. Every one of the capabilities we've added to Lazard either addresses the market we're not addressing today, that was probably at the core of why we went and built out the Lazard middle market business or -- but even that business benefits from a lot of the industry expertise and knowledge of the firm as a whole. So it's kind of hard to delineate a separation of the middle market business from the firm as a whole. But almost everything we do is adding a capability that creates a stronger set of -- a stronger proposition for our clients that is why should you hire Lazard is really made more evident by the breadth of the capabilities we're able to bring to the table. So M&A actually is the way we get paid. And that is, is when a deal happens, it tends to be the consummation of that deal results in a fee. But what it takes to get that deal, what it takes to develop a relationship with a client, what it takes to have an overall Strategic Advisory relationship with a client involves a set of skills and a set of capabilities that go way beyond just the execution of the deal, at least for us. And that's always how we've positioned our business. So the things we're focused on are the things that we think are really differentiating in terms of our ability to give great advice. And so that kind of starts with understanding, obviously, M&A and what strategically is important to decision makers at companies and boards, that's really the core strategic proposition that we bring to our clients. The second and just as important, is the ability to speak intelligently about capital structure. And so in that regard, we've developed real core expertise about thinking about balance sheet. I mean, in part, that was helped dramatically when we added a Restructuring capability at Lazard. But we also had great capability around investment-grade expertise. We're very good at thinking about the impact of changes in balance sheets or climate or deals and their impact on ratings and the cost of capital. And then when it comes the time to transact, particularly on the buy side, we're very effective with companies in helping them think through how they go about establishing a capital structure for the transaction. We're not obviously providing the money, but we can get pretty close to the final structure and -- very close to the final structure and very close to the final pricing ever before there's a conversation with the bank. And then on the Shareholder Advisory component, that's been a core, core investment for us over the last decade both in terms of people, but especially in terms of analytical and quantitative capabilities because one of the core areas of concern for any CEO, any CFO is how to -- what are my shareholders going to do, how are they thinking, how are they behaving. And that's not only in an activist situation, but it's in everyday events. What's going to happen if I raise my dividend, what happens if I miss or deconsensus by a lot, what's going to happen if I do this deal, how are my shareholders going to react to a spinoff. These are all things which -- if you have strong capability gives you a real edge in terms of the ability to advise clients. And of course, it is core to our M&A capability because one of the most important aspects of any M&A transaction is how's the market going to react. And there's been such dramatic changes in the nature of equity markets over the last decade with the growth of passives and the importance of passives and the change in the nature of investing by hedge funds and also by active investors that understanding this dynamic is probably more important than ever. And that's part of the -- that's a great reason for the investment we've made here. So when I look out to the future, it's all about complementing the capabilities we have to improve and strengthen the relationship we have with clients and the value that we can add to that relationship.

Okay. Great. Appreciate all the perspective there. And then just a follow-up here. A number of investors we speak with are obviously trying to think about the various scenarios for operating margins and, I guess, really how to think about your positive operating leverage potential from here. And so you touched on some of the noncompensation expense dynamics and the noncomp ratio. When we look at the comp expense and we think about the comp ratio, are we approaching a point where there's just not a lot more room to flex there in neither Advisory or Asset Management? I know we're kind of getting into that mid-50s range. So I'm just kind of curious how we should think about that if we have a view that revenues could still improve from here.

Look, I think that flat revenues or small changes in revenues probably don't give us a lot of ability to have leverage on a -- the -- won't create a lot of leverage on the compensation line. But frankly speaking, if we have strong revenue growth, we should continue to see leverage off of the -- not -- off the compensation line as we have done in the past. I mean, there may not -- you get to the point where it's all [lace] and product. But my guess is in a strong revenue -- very strong revenue environment, you'll continue to see some leverage on the comp line like we've done in the past decade. The area where -- the one offset always is investment. And we want to make sure that we're constantly investing in the business. We built, as you know, all of our investment effectively gets expensed. There's no special carve-outs for that. And we try to go our long ways towards giving disclosure around that. But at the same time, this is a good environment for us. And where we see investments, we'll make them. And that would be the offset to the leverage in a strong revenue environment.

Ladies and gentlemen, this now concludes the Lazard's first quarter conference call. Thank you for your participation. You may now disconnect.