Earnings Call Transcript - LAZ Q1 2022

Operator, Operator

Good morning, and welcome to Lazard's First Quarter 2022 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Alexander Degen, Lazard’s Head of Investor Relations and Corporate Sustainability. Please go ahead.

Alexandra Deignan, Head of Investor Relations and Corporate Sustainability

Good morning, and welcome to Lazard's Earnings Call for the first quarter of 2022. I'm Alexandra Deignan, the company's Head of Investor Relations and Corporate Sustainability. In addition to today's audio comments, we have posted our earnings release and an investor presentation, which you can access on our website. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, those factors discussed in the company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update these forward-looking statements. Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and investor presentation. Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Evan Russo, Chief Financial Officer. Evan will start the discussion with an overview of our financial results, then Ken will provide his perspective on the outlook for our business. After that, we will open the call to questions. I will now turn the call over to Evan.

Evan Russo, CFO

Good morning. Today, we reported an 8% increase in operating revenue for the first quarter and strong performance by both our businesses. In Financial Advisory, first quarter revenue of $388 million increased 22% from last year's period, reflecting continued momentum, particularly across Europe and North America. Despite heightened geopolitical risks and concerns about inflation and supply chain challenges, our engagement with clients has remained robust and activity remains at historically high levels. Regarding restructuring, we are seeing a continuation of lower levels of deal activity, but we are experiencing an increased level of dialogue with clients. In Asset Management, operating revenue of $312 million decreased 5% from last year's period, reflecting lower average AUM for the quarter. As of March 31, we reported AUM at $253 billion, 5% lower than last year's period, and 8% lower on a sequential basis from December 31. The decrease was primarily driven by market depreciation of $12.4 billion, net outflows for the quarter of $6.5 billion and foreign currency depreciation of $2.1 billion. Average AUM for the first quarter was $256 billion, 2% lower than a year ago, and 6% lower on a sequential basis. Since the start of the year, a number of drivers have been impacting market valuations of several asset classes, with a consequent impact on our AUM. These drivers have included Russia's invasion of Ukraine, surging inflation globally and rising interest rates. Incentive fees were $25 million, representing the second highest incentive revenue we have reported in any first quarter, driven by the strong performance of our funds, including European equities and fixed income, as well as Japanese equities. Gross flows showed strong demand, including in global and multiregional equities. We had net inflows in a number of strategies, led by emerging markets debt and alternatives. Additionally, we continue to see strong demand from our increased focus on distribution in Europe. As of April 22, our AUM was $243 billion, driven by market depreciation of $5.4 billion, foreign exchange depreciation of $3.6 billion and net outflows of approximately $240 million. We continue to invest for growth across the firm. In Financial Advisory, we are continuing to increase our team of senior talent through internal promotions as well as strategic recruiting. In Asset Management, we are growing the business through our investment in people, technology and distribution. This includes focus on strategic investments in recruiting and building out of new teams and strategies such as sustainable private infrastructure and climate action. Now turning to expenses. In the first quarter, we accrued compensation expense at a 58.5% adjusted compensation ratio, consistent with our full-year 2021 ratio and compared to 59.5% in the first quarter of last year. Our adjusted noncompensation ratio for the first quarter was 16.8% compared to 15.8% in the first quarter of last year, primarily reflecting higher travel and business development expenses as COVID-related restrictions began to relax in many parts of the world, as well as the continued investments in technology. Regarding taxes, our effective tax rate for the first quarter, as adjusted, was 25.4%, which compares to a 28.6% effective tax rate in last year's first quarter. We currently expect this year's annual effective tax rate to be in the mid-20% range. We continue to generate strong cash flow, which supports the return of capital to shareholders. In the first quarter, we returned $281 million, including $47 million in dividends and $176 million in share repurchases. During the first quarter, we bought back 4.7 million shares of our common stock at an average price of $37.26. These repurchases more than offset potential dilution from our 2021 year-end equity compensation. Our weighted average share count at quarter end was 109 million shares, reflecting a decrease of 6% from the prior year quarter. Going forward, we expect to continue to use excess cash flow toward share repurchases. In addition, yesterday, we declared a quarterly dividend on our common stock of $0.47 per share. Despite the significant market volatility and uncertainty, which impacted global markets in the first quarter, the resiliency of our quarterly results underscores the strength and stability of our model and the continued high performance of our businesses. Ken will now share his perspective on our performance and outlook.

Kenneth Jacobs, Chairman and CEO

Thank you, Evan. The global macroeconomic environment remains unsettled due to a number of factors, including Russia's invasion of Ukraine, heightened inflation, COVID-related lockdowns in China, a rising interest rate environment, and supply chain challenges. Despite the volatility markets have experienced since the start of the year, we remain cautiously optimistic. The M&A environment continues to be robust, and we see sustained activity across the Financial Advisory business, buoyed by three factors. While interest rates are clearly rising, rates are still historically low, which continues to sustain a favorable financing environment. In spite of shifts in valuations, we are still seeing healthy deal activity and CEO and Board confidence, while challenged, remains constructive. There continue to be a number of catalysts for M&A activity globally. Technology is driving strategic activity across every sector and market cap. We're observing significant flows into alternatives with investors focused on private equity, driving activity for both M&A and capital raising. The energy transition is an increasingly important factor influencing strategic decisions and one that we believe is going to increase in significance in the future. And lastly, we believe infrastructure is a sector that will be transformative and will emerge as central to M&A and strategic advice, both in the immediate and longer term. In Asset Management, investors generally derisked during the first quarter of the year. Looking ahead, we expect to see a greater emphasis on fundamental active investing as a result of rising interest rates as well as volatile and challenged market conditions. Our Asset Management business is well positioned in this environment with a diverse array of innovative strategies and solutions for a sophisticated client base. As announced earlier this month, Ashish Bhutani and Alex Stern are retiring at the end of this year after almost 20 and 30 years at the firm, respectively. I would like to thank Ashish and Alex for the enormous contributions they have made to Lazard over their careers at the firm. I would also like to congratulate Evan on his appointment as CEO of Asset Management effective June 1. I look forward to working closely with Evan in his new role, alongside Peter Orszag, CEO of the Financial Advisory business, who also joins us on the call today. Now let's open the call to questions. Thank you.

Operator, Operator

We can now take our first question from Devin Ryan of JMP Securities.

Devin Ryan, Analyst

I guess first question, Ken, great to hear, I think, some of the commentary on the M&A backdrop and kind of the constructiveness here that remains in the market. I'm curious, we've heard from some of your peers just around the macro pushing out kind of the timing of deals and just maybe slowing the process as kind of both parties want a little more clarity on the macro backdrop. I guess, one, are you seeing that? And then can you differentiate between what you're seeing in Europe given the strong position you have there versus in the U.S. as well?

Kenneth Jacobs, Chairman and CEO

Let's break this down into two parts. First, we will discuss regulatory issues compared to the M&A environment, and then we'll focus on the geographical differences between the U.S. and Europe. Regarding regulations, we've noticed that, generally, there has been an increase in the extension of deal timelines due to regulatory concerns, particularly in the first quarter and the latter half of last year. While we have not experienced any failures in deals that we expected to proceed, we are aware that the timeframes have been lengthened, which has affected us in the first quarter. Turning to the market environment, at the beginning of February, we observed a tendency for deal timelines to be pushed out during times of significant market fluctuations. For instance, the sell-side may not initiate processes as originally planned, and due diligence may take longer for parties involved to reach decisions. These delays are common during periods of heightened volatility, which we noticed at the start of February. Although things have stabilized, major market events can disrupt the deal-making process. However, we were pleasantly surprised by the number of completions and announcements in Europe during the first quarter, particularly given the current volatility. Our activity levels remain strong in Europe, and it is crucial for us to monitor how this momentum builds over the next couple of months. As Evan mentioned, current activity levels are historically high. We experienced a significant acceleration in our business as last year progressed, and we are intently observing how this trend continues this year.

Devin Ryan, Analyst

Okay. Terrific. And then just a follow-up on the non-M&A businesses, the areas that are maybe a little bit harder for us to track from the outside. It feels like or at least it seems like from what we're seeing in the market, activism defense has been very active, and there's probably a lot to do there this year in this type of market. Restructuring, we're hearing some better commentary and particularly on the liability management side, just into a rising rate environment and some of the stress in certain pockets. Can you maybe talk about just the expectations for some of these areas on the year, maybe that are going to be harder for us to keep track of in the public data?

Kenneth Jacobs, Chairman and CEO

Sure. I will address three or four key areas. In restructuring, while activity levels haven't significantly increased yet, conversations have. This aligns with expectations as interest rates rise and some segments of the credit market face challenges. An increasing focus on potential earnings trends in the economy over the coming year suggests that discussions around restructuring will increase, typically leading to a rise in activity levels. However, we have not observed that activity yet, although the conversations are happening. On the topic of shareholder advisory, there is heightened activity, particularly in Europe, which is experiencing a significant number of campaigns. The U.S. market remains active as well. Next is the private capital advisory business, specifically fundraising for private capital. The primary market appears to be a bit more challenging due to numerous firms currently seeking funding and a slight hesitance from institutional investors in making commitments. That said, the secondary market, especially regarding continuation funds, is as active as ever and is expected to remain so in the current market environment. Lastly, although it's a smaller segment for us, the venture growth banking business is expanding rapidly, particularly in Europe, and we plan to grow this initiative globally.

Operator, Operator

We can now take our next question from Brennan Hawken, UBS.

Brennan Hawken, Analyst

Evan, congratulations on your promotion to your new role. I am interested in hearing about your plans for the Asset Management business. Although you have just been awarded this position, you have extensive experience with Lazard and have served as CFO for many years. I realize it may be early to share specifics, but how do you plan to maintain continuity, and in what areas do you foresee changes under your leadership?

Kenneth Jacobs, Chairman and CEO

So Brennan, I'm going to take a little of pressure off of Evan and just have him qualify his answer a bit here because he doesn't officially start in the job until June 1. And it's a little unfair to ask those impressions this early in the job. That said, Evan, why don't you give a couple of moments to Brennan, and then I promise that, at some point, once Evan's got its feet on the ground, in the job, we'll be back with a much more fulsome presentation to everyone.

Evan Russo, CFO

Brennan, thank you. Yes, as Ken mentioned, look, it's early transition, really not until the beginning of June, but I can say early impressions, obviously, under Ashish's leadership, we built a truly tremendous business providing a truly great foundation for opportunities for growth going forward. I'd say over the last couple of months just spending time more closely with so many of the team members globally, which I've had the opportunity to interact with, I mean, it truly stands out the quality of our people, the talent we have within that organization, within our Asset Management business globally and for sure, the intellectual capital that we have across that business, it's just super impressive. I mean it's a really wonderful business, a great foundation to work for. As you say, no stranger to the business, I worked closely with Ashish and the leadership team and the management team within Asset Management for the past five years in my role as CFO. And I'm certainly looking forward to joining them and sort of helping to drive the continuation of that success in that business over the coming years ahead. And I just think it's a great opportunity, great platform, as you know, to continue to build off of, especially in this environment with all the changes going on in the industry.

Brennan Hawken, Analyst

Sure. Ken, tough questions are somewhat my specialty.

Kenneth Jacobs, Chairman and CEO

I know that. I've learned that, Brennan.

Brennan Hawken, Analyst

Yes. In Asset Management, the overall performance so far this month appears to be better than in recent quarters. Do you believe this is sustainable, or is it too soon to tell? Additionally, the core fee rate, excluding performance fees, improved this quarter after experiencing some pressure towards the end of last year. What factors influenced that change in the fee rate, and how should we approach it moving forward?

Kenneth Jacobs, Chairman and CEO

Evan, do you want to take that? Go ahead.

Evan Russo, CFO

Yes, of course. Let's break it down into two parts. First, regarding the flow situation. As previously discussed in February, gross flows have remained steady for several months. What we observed in terms of net flows was the expected increase in outflows around year-end, following a rise in asset prices over the past couple of years. We anticipated that many clients would reevaluate their portfolios and asset allocations, leading to this reallocation. This trend was not unexpected and aligns with what we discussed in the past two quarters. You can see this reflected in the monthly figures for November, December, January, and February. In March, the situation started to level off, showing a more balanced flow between gross inflows and outflows. The numbers we shared today for April suggest this trend is continuing. I expect there will still be fluctuations from month to month, as significant flows are occurring in both directions at the institutional level. However, we are noticing a strong interest in our value and quality strategies, particularly as the market is leaning towards more fundamental active investing, which aligns with our quality and value investments. Additionally, our thematic strategies, which we've been developing over the years, continue to attract significant interest. This paints the overall picture regarding flows. As for the fee rate, we saw a slight increase from Q4. The average fee rate in our business rose slightly, primarily due to the mix of assets we have. This quarter included a higher proportion of alternative and thematic assets, which influences the average fee rate. A significant portion of the outflows we experienced at the year-end came from lower fee mandates, which has a balancing effect on the average fee rate. Therefore, I wouldn’t point to any specific changes; rather, it's an ongoing evolution of our business mix, and this quarter appears to have shifted slightly in favor of strategies that yield higher fee rates.

Brennan Hawken, Analyst

Okay. And certainly, based upon the interest that you flagged in the flow commentary around thematic and active and whatnot, assuming that translates into gross sales for you guys, then that also would be supportive of a better fee rate generally, I would think. Is that fair?

Evan Russo, CFO

Yes. That would be more positive into the mix. Obviously, a lot of other things go into that factor. But yes, if everything moves in that trend, yes, the business mix obviously tilts towards the higher fees strategies, that's going to lead us to either more stable or an increasing fee rate. Again, we look at fee rate as sort of an output, not as a target, as an input, right? We try to drive the assets and the flows, but all the product lines we're in and ultimately, the fee rate will just be an output of whatever the mix of assets we have at the time are.

Operator, Operator

We can now take our next question from Steven Chuba of Wolfe Research.

Brendan O'Brien, Analyst

This is actually Brendan O'Brien filling in for Stephen. So on the flow outlook, I know you said that is coming from more of the outside of the EM equity platform this quarter. However, that has typically been the driver of your outflows of late. But the portion of AUM associated with that business now hovering near 10%, we should be getting close to the point where outflows from that business have become less impactful. And maybe we've already gotten there. I was wondering if there's a level as a percentage of your AUM that you'd expect the better flows elsewhere to start overwhelming those outflows there, and you actually start seeing things head in the other direction?

Evan Russo, CFO

Sure. It's Evan. In this quarter, we're still observing net outflows, primarily connected to emerging market equity strategies across our platform. This situation isn't fully resolved yet, as it remains unpredictable. However, there's emerging interest in certain emerging markets due to valuations and changes in asset allocation trends. Although it's early, we may see some positive shifts over time. Our emerging market strategies are performing well, consistent with expectations from previous quarters, alongside many of our global and quant strategies. Moreover, emerging markets have demonstrated strong performance over the past year and a half, which could serve as a positive factor in the coming years. Currently, we are still facing net outflows, but the proportion of emerging markets in our total assets under management has significantly decreased—about half of what it was four to five years ago. While it's a smaller segment of our business now, we are identifying valuable opportunities and positive inflows in areas focused on value, quality, and themes. I believe these will be the key areas where we can find immediate and early positive prospects.

Brendan O'Brien, Analyst

That's great information. Regarding the buyback, this quarter you returned a significant amount of capital, which is wonderful to see. Given the strong pipeline you've mentioned, I would like to know your thoughts on the expected rhythm of buybacks moving forward, considering you still have a considerable amount of cash on the balance sheet and the current valuation.

Evan Russo, CFO

We purchased a significant number of shares in the first quarter of this year, totaling 4.7 million. This follows the 2.7 million shares we bought back in the fourth quarter. We aimed to take advantage of the lower stock prices that we have seen recently, making efficient use of the cash available on our balance sheet. As a result, our cash position decreased notably from year-end. This drop is somewhat typical for us in the first quarter after we disburse year-end compensation and other expenses, but it was also impacted by the share repurchases we've made over the past six months. We are now observing the effects as the weighted average share count has dropped below 110 for the first time in over a decade, sitting around 109 at the end of the quarter. We plan to continue buying back shares using our excess free cash flow, maintaining our policy of returning capital through share repurchases. As the business strengthens and we experience revenue growth, we will likely become more aggressive in our repurchase efforts, which has been a key focus for us, as reflected in the decline of the weighted average share count in the first quarter.

Operator, Operator

And we can now take our next question from James Yaro of Goldman Sachs.

James Yaro, Analyst

Maybe if we just start on the asset management business. You obviously saw a very strong incentive income this quarter. Maybe you could just contextualize for us how you would expect that incentive income to perform given a more turbulent macro backdrop? And just remind us around the seasonality, around that part of the business as well?

Evan Russo, CFO

Sure. James, it's Evan. I'll take that one as well. So look, incentive fees in the quarter, $25 million, certainly a strong quarter for us, first quarter strength there we had amidst a really turbulent and volatile market environment. I think it really points to the performance of a lot of our funds. As we mentioned, some of that this quarter was driven by European equities, multi-asset, fixed income that we have across Europe. Japanese equities quant just a whole host of strategies participating in driving that incentive fees in the quarter. And I really do think that reflects some really strong performance we had in these turbulent markets. From a cadence perspective, look, it's hard to predict, especially in these types of volatile markets. It really does depend on the performance of markets as well as the performance of our funds. And we have a lot of different various shapes and sizes of the types of things that have incentive fees. And so it does move around from quarter-to-quarter. Generally, what we have seen is, first quarter, there's opportunities for incentive fees. Q4 is really where we have the largest opportunities for incentive fees. And you can see that in the incentive fees we've captured in the fourth quarter of the last several years. And then sometimes a little bit in Q2, although I'd say, given the performance, given the market volatility that we've seen and sort of the turn down in so many asset classes in different markets, just over the last several weeks, I think you'd expect it to be more muted towards the middle of this year. But look, over time, as you've seen just in the last 2 or 3 years, incentive fees are becoming a bigger portion of the sort of the fee structure that we have and a little bit more in terms of the total revenue across the asset management business. So it's hard to predict quarter-to-quarter, but I think if you look at it over a reasonable period, over a 4- or 8-quarter period, you'll just start to see that continue to be a part of the revenue picture in asset management.

James Yaro, Analyst

Okay. That's really helpful. And then as you think about restructuring, we obviously have the data that business performed during the 2008 recession and it obviously performed extraordinarily well back then. But obviously, it's evolved since since 15 years ago. So if we did enter a deep recession this time around, to what extent do you think your restructuring business could perhaps offset a decline in M&A? And are there other more countercyclical revenues we should also be thinking about that could offset that decline?

Kenneth Jacobs, Chairman and CEO

Great question. So I don't think there's any reason to believe that in a cycle like we had in '08, '09, and I'm not predicting that by any stretch, that we wouldn't see the same kind of buffeting of the revenues or support of the revenues in the advisory business by the restructuring business. So I think that's intact. One of the unique aspects of our restructuring business at Lazard is that we have a lot of flexibility in moving people from one part of the business to the other. It's not dependent entirely upon just the restructuring team. It's really very much integrated with the industry groups and the geographies to ensure that when we need to flex to accommodate a change in cycle, we can do that, and that's something that we've done over numerous cycles and is sort of built into the DNA of the place. So that's kind of Point one. Point two is we've got obviously other revenue streams around fundraising, shareholder advisory, capital markets advisory, which all I think in some ways are not truly countercyclical in the same way that restructuring is, but do have some countercyclical aspects to them, which I think would help in an environment where you saw a sudden decline in M&A activity.

Operator, Operator

We can now take our next question from Michael Brown of KBW.

Michael Brown, Analyst

So I guess I just wanted to start with the announced management changes. And I guess the other element there is that you guys are looking externally for a CFO. So, Ken, just given the strong internal talent at Lazard, can you speak to why you guys are committed to looking externally? And then can you just give us a view into what the key strengths are that you are looking for in your next CFO?

Kenneth Jacobs, Chairman and CEO

It's not necessarily going to be an external outcome, but we are considering an external element in our search. That’s the first point I wanted to clarify. Secondly, over the last decade, the finance group's systems and capabilities at Lazard have significantly improved due to the efforts of Matthew McKean and, more recently, Evan. As a result, the type of leadership we need has likely evolved as well. The ideal candidate will have the core qualifications to be CFO while also being able to thrive in Lazard’s challenging and intellectually demanding environment. If we find the right person externally, that’s great, but we also have some internal candidates.

Michael Brown, Analyst

Okay. I apologize for the mistake. Thanks for correcting that.

Kenneth Jacobs, Chairman and CEO

No, it's okay.

Michael Brown, Analyst

And I just want to dig in a little bit on the advisory activity in Europe. It's certainly a real positive to hear that you guys are seeing really strong activity there, certainly impressive given the turmoil occurring over in Europe. Can you just dive into that a little bit deeper, though, where are the key strengths in terms of sectors, countries? And which elements as you look at the market and the challenges facing the content there. Which elements of the market could really come under pressure as you think about the balance of 2022 here?

Peter Orszag, CEO of Financial Advisory

Sure. Thanks, Ken. First, I want to emphasize the widespread activity we're observing. It's not just our historical strongholds like London and Paris; we're also seeing significant activity in countries such as Italy and Spain. Overall, the continent is experiencing robust engagement. This trend extends to various sectors as well. It's evident globally, with diverse activity across financial services, industrials, healthcare technology, power and energy, and tech, media, and entertainment. There's no single area driving this activity; it's quite broadly spread out. Looking at our outlook, I want to reiterate what was mentioned earlier: our activity levels, particularly in Europe, are outpacing those of last year. However, as we look ahead, there is some uncertainty due to factors like the Russian invasion of Ukraine, its aftereffects, and the situation in China concerning COVID policies and supply chains. But beyond this layer of uncertainty, we revert to the fundamental drivers Ken highlighted earlier, which include technology, energy transition, and infrastructure. Overall, we maintain a sense of cautious optimism, especially regarding our European operations.

Operator, Operator

We can now take our final question from Jeff Harte of Piper Sandler.

Jeff Harte, Analyst

It was a good quarter. I have a couple of questions remaining. Most have already been addressed, but I'm curious about the strength of the incentive fees. Can you elaborate on their sources? I'm particularly interested in the first quarter, considering the risk of price declines towards the end of the quarter, as well as what seems to be our seed capital losses in the corporate area. Additionally, I've noticed that incentive fees significantly increased in the fourth quarter of 2020.

Evan Russo, CFO

Yes. Regarding seed capital, it doesn't affect the incentive line; it goes through the corporate line item, which was evident this quarter. Overall, we've maintained what we previously mentioned. There are several strategies at play, particularly in our European equities, multi-asset, and fixed income segments. These have been the main contributors, but there are also several smaller factors that added to the incentive fees this quarter. If you look back, we had quite strong incentive fees in the first quarter of last year as well. Many of these elements vary in shape and size, making it challenging to pinpoint exactly what influences any given quarter. However, it's generally related to a mix of market success or performance. Significant outperformance in certain funds can generate substantial incentive fees within our existing fee structures.

Jeff Harte, Analyst

So there's not necessarily a couple of specific strategies or regions kind of responsible for most of it?

Evan Russo, CFO

Yes. I would say the biggest component of it was the European equities, fixed income, and multi-asset. So really more focused on our European strategies. As I said, a host of other strategies participated as well. So I don't want to say it's all that. It really is that the largest component of what was probably 15-or-so different strategies that participated in some level of incentive fees this quarter.

Jeff Harte, Analyst

Okay. Regarding the backdrop commentary, it's encouraging to hear that the M&A environment remains constructive. If I missed it, could you share where your pipeline or backlog currently stands compared to the beginning of the year or the previous year?

Kenneth Jacobs, Chairman and CEO

We typically don't provide specific details on our pipeline and backlog, focusing instead on overall activity levels. Last year, we experienced a significant increase in announcements throughout the year, which led to a higher number of completions in the fourth quarter and the start of this year. Currently, we still have a considerable number of announced deals that you can observe in public data. Our first quarter performed well in comparison to the market for announcements, which is also reflected in public data. As Peter, Evan, and I have mentioned, the activity levels we see in the business are currently at historic highs. However, we remain cautious about the broader environment. The three critical factors in M&A that we monitor—financing, valuation, and confidence—are likely more delicate than they were a year ago. The high-yield market is facing challenges, yet the private credit markets have somewhat compensated for this gap, particularly in the U.S. and to a lesser degree in Europe. Interest rates are still elevated but near historic lows. In terms of valuation, areas of the market with excessive valuations relative to earnings have corrected, particularly in tech and biopharma, where reaching consensus between buyers and sellers may be more challenging in the near term. Overall, for most of the market, valuation trends have not hindered consensus thus far. As for confidence levels, while there was a dip in early February, the situation has improved, and there remains substantial capital in private equity that is being utilized. As long as the financing market remains supportive, this trend is likely to continue. However, if earnings across the economy start to decline and concerns about reception grow, it could negatively affect confidence levels. Looking ahead, strong catalysts for M&A activity include advancements in technology, the energy transition, significant capital committed to private equity, and the influence of infrastructure funds across various sectors. These factors are generally positive, though we are navigating a volatile environment.

Operator, Operator

This now concludes the Lazard earnings conference call.