Lazard Ltd (LAZ) Q4 2013 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Lazard's Fourth Quarter and Full Year 2013 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I will turn the call over to Judi Frost Mackey, Lazard's Director of Global Communications. Please go ahead.

Good morning, and thank you for joining our conference call to review Lazard's results for the full year and fourth quarter of 2013. Hosting the call today are Ken Jacobs, Lazard's Chairman and Chief Executive Officer; and Matthieu Bucaille, Chief Financial Officer. A replay of this call will be available on our website beginning today after 10:00 a.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 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 reconciliations 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 of supplemental information, both of which are posted on our website at lazard.com. Following their remarks, Ken and Matthieu will be happy to answer your questions. I will now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Good morning. Lazard achieved solid results in 2013 with record operating revenue of more than $2 billion, a 29% increase in earnings from operations and a 40% gain in earnings per share. Financial Advisory gained momentum with operating revenue in the second half up 26% over the first half. This included a strong fourth quarter in M&A, where revenue increased 43% sequentially from the third quarter. Asset Management had record quarterly and annual operating revenue of 20% and 16%, respectively, on record AUM, record gross inflows and record management fees. We achieved our interim margin objectives on both an awarded and adjusted GAAP basis. And Lazard continues to generate a substantial amount of cash that benefit shareholders. Last year, we returned $416 million in capital to our investors. Last week, we announced a quarterly dividend increase for the fourth year in a row. We have more than doubled our dividend in that time. These results underscore the power of our business model, the strength of Lazard's franchise and our operating leverage. In Financial Advisory, we continue to advise on the most consequential assignments for public, private and sovereign clients globally. These include many of the largest mergers and acquisitions. In 2013, we advised on 40% of global completed transactions valued at more than $10 billion. Our global platform and network of relationships with key decision makers enable us to create exceptional value for clients in complex and strategic transactions. Some examples include 3G Capital's -- 3G Capital with Berkshire Hathaway on their acquisition of H.J. Heinz, Fiat on its acquisition of Chrysler and Google in its purchase of Nest and sale of Motorola Mobility to Lenovo. The breadth and depth of our advisory services further differentiate our model. For example, our Capital Advisory business is counseling global corporations and governments on balance sheet matters and capital raising. In 2013, Capital Advisory was highly active in the revival of the European IPO market. Our Sovereign Advisory franchise continues to serve governments and their agencies globally. In 2013, we advised U.S. Treasury with respect to General Motors and Ally Financial. We remain active in Greece, and we won significant new assignments in Latin America and Africa. Lazard remains the world's leader in restructuring, advising on the highest profile assignments globally such as the Retirees of the City of Detroit, OGX in Brazil and Dubai Group in the United Arab Emirates. Asset management is a powerful growth engine for Lazard. Strong absolute and relative performance in the majority of our strategies led to a record-setting quarter and year in 2013. We continue to win significant mandates from large institutional investors globally. Our multiregional equity platform achieved substantial net inflows for the year and fourth quarter driven by growth in international and European equities. Demand for our emerging market debt strategies drove net inflows for the year and fourth quarter in our Fixed Income platform. And despite challenging markets, our emerging markets equity platform achieved net inflows for the year. As we enter 2014, global markets are volatile, but our Asset Management has solid fundamentals with leadership in growing asset classes across equities and fixed income, a strong pattern of performance, a healthy RFP pipeline and platforms with significant capacity for organic growth. We remain focused on revenue growth, operating leverage and returning capital to shareholders. We're delivering on all 3, and we remain committed to our 2014 financial targets. Matthieu will now provide color on our financial results and capital management.

Thank you, Ken. On an adjusted basis, Lazard's 2013 net income increased 38% over 2012, and diluted net income per share increased 40%. Operating revenue grew 3% in the year and 8% in the fourth quarter driven by strong Asset Management performance and also end-of-year momentum in Financial Advisory. In Financial Advisory, M&A declined 3% for the year but gained 8% in the fourth quarter. Financial Advisory 2013 operating revenue was impacted by a 27% annual decline in restructuring revenue. We believe the restructuring market is close to trough levels, which should make it less of a headwind to our annual revenue growth going forward. In Asset Management, operating revenue increased 16% for the year and 20% for the fourth quarter, setting records for both periods. Operating revenue increased during each quarter of the year. Overall, the 2013 increase in revenue was driven by both record management fees, up 12% for the year, and higher incentive fees. 2013 incentive fees were $78 million compared to $44 million in 2012, reflecting strong investment performance in both traditional and alternative strategies. AUM also increased each quarter. It ended the year at a record $187 billion and was approximately $180 billion as of January 31, 2014. Average AUM in 2013 was a record $174 billion. Asset Management had fourth quarter net inflows of $1.5 billion primarily from our multiregional equity and emerging market debt platforms. However, the year ended with net outflows of $1.9 billion. As we have previously discussed, net outflows were driven in particular by outflows in single strategies in 2 platforms, global equity and local equity. Turning to expenses. We continue to see benefits from our cost saving initiatives announced in 2012. In 2013, we held our awarded compensation expense essentially flat even as operating revenue grew 3%. As a result, our 2013 awarded compensation ratio was 58.3%, down from 59.4% in 2012. The corresponding adjusted GAAP compensation ratio was 58.8%, down from 61.8% in 2012. We continue to be disciplined with deferred compensation, maintaining a consistent rate of deferrals each year and consistent vesting periods. This highlights the quality of our earnings. Adjusted non-compensation expense in 2013 declined 3% despite the 3% increase in operating revenue. This also reflected the results of our cost saving initiatives. In 2013, our tax rate was approximately 22%, in line with last year and, due to geographical mix, slightly lower than the mid-20s estimate we have discussed in the past. Regarding capital management, in 2013, we returned $416 million to shareholders primarily through dividends and share repurchases. This included a special dividend in the fourth quarter. With these repurchases, we exceeded our annual goal of offsetting potential dilution from year-end equity grants. In the fourth quarter of 2013, we also refinanced a portion of our outstanding debt. As a result of the refinancing, we expect interest savings of approximately $60 million in 2014. Finally, we have achieved a 2013 operating margin of 21.1% on an adjusted GAAP basis and 21.6% on an awarded basis. As we maintain our focus of profitable growth, we continue to believe Lazard is on track toward achieving the 25% operating margin target in 2014, assuming a similar level of activity in both of our businesses as in 2012. Ken will now conclude with our remarks.

Thank you, Matthieu. I'll provide some perspective on the business and our outlook, and then we'll open the call to questions. We believe there's substantial operating leverage at Lazard. Our global platform in Financial Advisory is scaled so that as activity increases, we expect to see commensurate productivity gains, driving further profitable growth. Our cost saving initiatives over the last year were focused on realigning the firm's investments to create greater operating leverage with increased flexibility to invest in growth areas of Financial Advisory and Asset Management. In Financial Advisory, we continue to make select senior-level hires globally. In Asset Management, we continue to focus on expanding our investment coverage and distribution in selected regions, including Asia and the Middle East. In 2013, we opened an office in Singapore with investment managers and marketing staff. We are seeding new investment portfolios and building out Asset Management sales and marketing capacity worldwide. Turning to our outlook. The macroeconomic environment is gradually improving in the developed world. The U.S. is leading the recovery, and Europe is stabilizing. As the real economy recovers, CEO and board confidence is returning. Confidence has been the missing catalyst for an upturn in the M&A cycle as financing remains cheap and valuations are generally reasonable. The financial markets were strong in 2013 and have been volatile so far this year, but long-term trends for Asset Management remained positive. Aging populations in developed economies are driving increased demand for investment services. Investors around the world continue to expand their investment horizons beyond local markets, and institutions continue to look for solutions for their complex investment goals. Building on the investments we have made and the efficiencies we have created in our business, Lazard is in an excellent position. Our global platform and network of relationships are unrivaled. Financial Advisory is positioned in every major market and across all global industries with a seasoned team that has worked together across business cycles. Asset Management continues to have significant capacity for organic growth. We are maintaining our discipline on costs even as we invest in our businesses. Lazard has momentum and substantial operating leverage to drive profitable growth on any increase in activity. And the firm continues to generate substantial cash flow, and we are returning capital to shareholders. Let's open the call to questions. Thank you.

[Operator Instructions] Our first question will come from of Alex Blostein of Goldman Sachs.

Ken, I want to just pick up on the last point you made around CEO confidence and board confidence, especially in light of the recent U.S. macro choppiness in January but also the EM turmoil. Can you give us a little bit more color, I guess, whether or not this has changed? And any sort of level of cautious optimism that you guys have on the M&A backdrop for this year and beyond?

Sure. Look, I'd sound -- probably sound a little like a broken record with these 3 points -- with the following points. The M&A cycle for us tends to be driven by 3 factors: valuation, financing, sentiment. Financing, obviously, is available at attractive rates pretty much throughout the developed world today, that is U.S., Europe, increasingly parts of Asia. With regard to valuations, they obviously ticked up in '13, a little more reasonable this week than they were. But if you have a more optimistic view of the macroeconomic environment, then the valuations are probably okay going forward. The real key here for us in terms of the M&A cycle is sentiment. And you know, we said since the beginning of the financial crisis that until the real economy recovers and people start to be more optimistic about that, we were unlikely to see a real fundamental shift in sentiment. We think that the U.S. economy, while choppy, is recovering. We think, generally speaking, the signals are pretty good about that recovery. We think that Europe is more stable than it's been in quite some time and that you're beginning to see signs of growth in a few markets, which is all positive from the standpoint of sentiment among CEOs, boards. That said, volatility in markets is not a good thing for sentiment, and we've seen a lot of volatility, particularly in the emerging markets, over the course of the first month of this year. But we think the real driver here is going to be the real economy. So if the real economy continues to improve in the U.S., we think that we are -- that the final factor for the -- or the missing factor for the M&A cycle will start to kick in.

Got you. And then a second question just on the Asset Management business. I was hoping you guys could give your view on the most recent action in emerging markets, and I guess, more importantly, whether or not has that impacted at all the institutional allocations, how that's -- how your pipeline are looking into this year. And then just broadly, how we should think about the allocations to the asset class.

Sure. So first of all, there are a lot of cross-currents here. It's kind of hard to generalize the emerging markets at the moment. Clearly, there is the -- first thing, there's an impact associated with tapering going on here that's having some impact broadly across the developing markets. But I think how that plays out or we think how that plays out over the next couple of months or couple of years is going to depend on each individual country or market and the factors in play in those markets. That said, look, we saw this last spring, that is May, June last year. There was a lot of turmoil when the first signs of tapering appeared. It settled down over the course of the summer. In our platforms, we had net inflows in the emerging markets platform over the course of last year in spite of that turmoil. Global allocations, international and to emerging markets, on the part of the big institutional investing -- institutions are still relatively low compared to where they probably want to get to. But I thank everybody is going to keep a careful eye on how the -- how these markets unfold over the next couple of months or so, and so are we.

We'll go next to Ashley Serrao of Crédit Suisse. Ashley N. Serrao - Crédit Suisse AG, Research Division: I guess staying on Asset Management but just looking at longer term, can you just update us on, I guess, your broader growth initiatives, be it geographic expansion with new offices, such as the one in Dubai, growing existing strategies or seeding new ones?

Sure. So it's a big question. So let me take a couple of pieces of it. Obviously, you can see from our efforts with Singapore and Dubai that we're placing some importance on having -- on expanding the franchise globally and also on having more local investment teams. We think that's important. It's an important factor in strengthening our franchise and also in terms of where the investing world is headed. We also, this year, put some effort into building out our sales and distribution capability. We did some significant hires in that area, and that's really to take advantage of a range of new products that we've developed across a range of strategies. In particular, over the last couple of years, we've added an emerging markets debt team and has had a great start. We've built out our international equities platform, which has had a great run for the last couple of years. And we continue to seed new strategies across asset classes. And our real goal here is to bring as many of those to the market that are ready to be brought to the market as we can, and that's part of the reason why we've invested more in our sales and distribution capability over the course of this year. Ashley N. Serrao - Crédit Suisse AG, Research Division: Great. And then when you increased your savings program goal, $260 million, you spoke to reinvesting some of those efficiencies back into the franchise. How have efforts gone so far? And are there any industries or other verticals that you're looking to bring investment to?

Sure. First of all, let me correct you. It was $160 million, not $260 million. Ashley N. Serrao - Crédit Suisse AG, Research Division: Yes, sorry, $160 million.

Okay. And as I think we stated, midyear we're on target to achieve our objectives. We're more than 2/3 of the way through on this. We saw some savings kicking in, in 2014. I think we did a pretty careful job in 2013 of, as we said we would, between modulating between cost savings and investment. Net, I think we're -- we said we would reduce headcount by about 250 from its peak in the quarter 3 of 2012. We've achieved that at this point, and we've probably added back about 50 people. And that's been part of the investment program over the course of this year. And I'd say it's kind of split between the advisory and the Asset Management side. As I said on the Asset Management side, it's -- they focused on the build-out of a couple of offices globally and also some additional capability in the sales and marketing side of the business. And then with regard to the advisory side, it's really been around adding some senior bankers, again globally. We've added a couple in the U.S., a couple in Europe and a couple in some new markets outside of the U.S. and Europe.

We'll go next to Brennan Hawken of UBS.

Yes. So just sort of following up on that question there. You talked a little bit about hiring some senior bankers on the advisory side and such, but we -- when we look at the comp breakdown you guys gave, which is really impressive and very helpful, your sign-on and other, especially deferred incentive, awards ticked down pretty substantially here in 2013. So can you help us reconcile the statement that you guys are investing but then the fact that the numbers are actually declining on the line item we expect to see a tickup? Is that just environment and people becoming cheaper? Or is that something else?

It's kind of all of the above. I mean, we -- as we said, we modulated the investment a bit. We were cautious, and I think rightfully so given the environment on advisory in the first part of the year. We also amped up investment a bit in Asset Management, which has different terms of trade than the Financial Advisory business does. And then third is the environment for hiring has changed, and some of the costs associated with signing people on are less than what they used to be, and we're taking advantage of that. So it's a mix of all 3.

Okay, that's helpful. And then I guess when we think about that versus your outlook, Ken, which seemed kind of upbeat and it seemed as though you sort of think that what's happening in emerging markets probably isn't going to hurt sentiment too badly, are you guys going to maybe reevaluate the investment and think about upgrading seats and such in different regions?

Well, let me start. On the environment itself, I think we're cautiously optimistic subject to the volatility going on in the markets right now. I think that would be the way to describe it. I think with regard -- with an eye on the volatility in the markets right now. On investment, look, our advisory platform is fully scaled, and we feel very comfortable with the quality of people on the platform today. So the kind of hiring we're doing on the advisory side is opportunistic, and then there may be some select areas where we see potential growth, there may be a market here or there, an industry here or there or a capability here or there where we're going to invest. So we can be cautious about that until we see how the environment unfolds. And yet at the same time, there's a lot of areas for growth in our business that are just going to come as the market returns.

Okay. And then on the uptick in marketing and business development, how -- this quarter, how much of that was activity related? And certainly, it was a good quarter for Asset Management. So did activity from that business drive those expenses higher as well?

Yes. Look, on the Asset Management side, there are a number of expenses in the non-comp line that are just directly tied to activity. That is, the more AUM goes up, the more you have to pay in terms of some of the processing of trades and processing of accounts and things like that. And so that's kind of a good sign. On the banking side, there were some increases associated with the sales and marketing in second half -- in terms of -- to the -- what we call the travel associated with higher revenues for the second half of the year. But I think overall, the non-comp line was -- we were very disciplined around costs associated with non-comp this year, as you can see.

Yes, agreed. No, it was terrific results. And then the last one for me. So when we think about the advisory and then the finish in the year here, then the very strong finish that you guys had, was some of that driven by basically the really strong open capital market conditions, particularly that what we saw in the equity markets? And given that we're starting out 2014 on a, as we've discussed here a few times, a much choppier note and maybe a bit more volatility, how should we think about that interplay as we look forward in the new year and modeling out your revenues?

Look, I think that what happens in the markets over a few weeks' period of time isn't going to really impact the trends medium or longer term. So a lot of -- I think if you're going to see continued turmoil in financial markets over the course of the whole year, it's going to have an impact not only on ours but everybody's results, I suppose. That said, I think that we saw kind of a pickup in activity in the second half last year, clearly, in our results. And we would expect, as I said earlier, that as the -- if the economy continues to improve and sentiment improves, you're going to see a continued -- you should start to see improvements in the M&A cycle. So yes, markets, if they remain volatile for long periods of time, will interrupt that. But if they settle down, then this trend should continue.

We'll go next to Devin Ryan of JMP Securities.

So just to follow up kind of on the comments you were just making on the last question, I'm just trying to think about the backlog today. Just looking at the backlog, it would appear that where we are today heading into 2014, it does appear to be stronger than 1 year ago heading into 2013. So I would love to maybe get your perspective around the actual backlog and then deals that have been announced and kind of how you feel about where that is today maybe relative to 1 year ago.

We generally don't comment on backlog, but maybe I'll give you a little color. Look, we had a good series of announcements in the second half of last year, and I think we started off this year in a pretty good position. We are very comfortable with our market position today relative to where it was 6, 7, 8 years ago. It continues to improve, we believe, and the -- and our -- and as a result, our competitive position continues to improve. In terms of the business itself, let me just give you some highlights. We think restructuring was probably the key driver in terms of pressure on the revenue line last year. That probably has room to go down a little down more, but it's kind of operating, at least the market is, at trough levels, we feel, right now. And there might be some opportunity for a pickup as a result of some of the turmoil in some of the markets abroad, and we've seen a little bit of that in some assignments today. In terms of the Middle Market business, last year obviously we had a very strong year in 2012. I should say in 2012, it had a very strong year; 2013 wasn't as strong. Part of that was the acceleration of closings to the fourth quarter of 2012. Part of it was just a lot of the transactions probably that could have been done in '13 were done in '12, but we expect to see some pick up in that business this year. And the overall broader strategic business, I think we're very well positioned in the U.S. And any uptick in activity in Europe just creates an enormous amount of productivity gain for us and should help us a lot. And we're probably seeing a little bit better market in Europe at the start of 2014 than we saw at the start of 2013.

Okay, great. I appreciate all that color. Moving on to the Asset Management business. Performance in the global thematics product I know had been lagging a bit. So just any update on has performance stabilized there? And just any update on flows? I know that can be a little bit lumpy, so any kind of comment on flows there more recently?

Yes, sure. Just quickly on performance. This is a long-term strategy. 5- to 10-year numbers are still pretty good. The shorter term numbers, 1 and 3 years, are more challenged. It tends to do a little bit better in challenging markets rather than stronger markets, so that might help a little bit over the course of the year. That said, the flows -- we saw some tail-off in outflows in the fourth quarter, but I wouldn't read too much into that because a lot of decisions are made -- or we're not reading too much into that, I should say, because oftentimes decisions about allocations are made or reallocations are made around the end of the fourth quarter. We expect to see continued outflows over the course of this year, and we're just monitoring it very closely.

Got it, great. And then just last for me, appreciate the color, on the expenses in the fourth quarter. I know that the end of the year could be a little bit seasonally higher for non-comp expenses. So just when you think about the expense initiatives more broadly heading into 2014, have all of the savings already been reflected in the fourth quarter? Or is there still a bit more to come kind of in that core expense level?

Okay. So in both the -- in both non-comp and comp, we still had some savings that'll kick into 2014. And as I've said earlier, the key for us is just monitoring the environment and modulating between how much of that we're going to -- will benefit the cost side and how much we're going to use for investment. And we have some room to modulate back and forth.

Got it. Well, I guess with respect to comp, you guys, it appeared, were maybe a little bit conservative just accruing consistently through the first 3 quarters of the year and then you had a little bit of leverage in the fourth quarter and obviously a bigger revenue quarter as well. So that, I'm sure, helped. But just should we think about that as kind of the way the approach into 2014 of how you're thinking about comp and maybe hopefully overaccrue through the first few quarters so that you have a little bit of potential flexibility into year end if there's that opportunity?

I think you characterize our approach well, and I think that would be consistent with what we've done in the past. And again, it's consistent with the view we take that until you know how the year turns out and what compensation really is, you don't really know. And so the approach we took last year is, I think, and the one you just described, is consistent with how we're thinking.

We'll go next to Steven Chubak of Nomura.

I was hoping you could clarify whether the 25% margin target you reaffirmed for 2014 is on an awarded or on an operating basis.

We're shooting for it on both an awarded and GAAP basis.

Okay. And since those targets assume a 2012 revenue backdrop, is there any reason why you can't do better than the 25% given you're starting from a higher revenue base this year and, on top of that, the outlook commentary that you provided was relatively constructive?

? Well, let's get to 25% first. It's a far cry from where we were when we put these targets out there. And again, one of the things we're careful about here is not starting the business, the fuel we need to grow it because if you remember, the way we do compensation, we're quite disciplined around deferrals. And as a consequence, all the investment we're doing is running through the P&L. And to the extent that we squeeze margin too much, we're also squeezing -- not squeezing. To the extent -- we're always making a trade-off between investments and margin. And so we're very focused on the 25%. When we achieve that, we can have a conversation about how much more we can do.

We'll go next to Douglas Sipkin of Susquehanna.

I just wanted to drill back a little bit on the balance sheet. First off, congratulations on the refinance. It was great to see you guys finally get that done. I guess what I'm trying to figure out is in a perfect world, if you could start from scratch, and I get when you guys became public, things were different, and I'm just trying to figure out, I mean, trying to think about the second piece of the debt effectively. Like what type of debt levels longer term do you guys want to be operating with? I mean, is this the current level? Will you look to either refinance that second piece at some point in the line? Or will you look to sort of just pay that off and operate with the current debt you have now minus that final payment? I think it's in '17.

Great question. Look, in a perfect world, we wouldn't have this much debt. I've said that multiple times. But getting from where we are to where in the theoretical world we'd like to be is not always that achievable because the debt is priced fairly in the marketplace, or -- and frankly, from our standpoint, especially in the marketplace, to achieve that objective. So what we set out to do is the following. First, we took a view that rates were probably had more -- we're more likely to go up than down from where they were when we did the refinancing a few months back. And so consequently, we determined that we probably were around historic levels for our ability to finance out the 2015s. And so we decided to fully refinance that tranche, and we paid that a little bit, but we decided to effectively refinance that tranche in what we thought -- and lock in what we thought would be very attractive rates long term. I think that's proving to be the case. With regard to the 2017s, our view is that if rates are, in fact, going to go up, then there may be more opportunity to retire some of that debt over the course of the next few years at levels that are NPV positive to shareholders. And so consequently, we're going to be monitoring that pretty closely. In a perfect world, we'd probably pay down some of that debt and probably refinance some of that debt. I think it may be ambitious if we're going to continue our program of continuing to return large portions of our capital to shareholders to achieve a full paydown of that debt, but that's something we're going to monitor closely. And obviously, it's pretty tied to how we do from an operating side.

Great. No, that's very helpful. And I guess we'll just have to watch and see how that plays out. Apologize if you touched on it early. I just wanted to maybe dig in a little bit more into the environment for recruiting. I mean, how would you guys characterize it this year versus prior years? Wall Street had a reasonably good year, but, obviously, there are still some structural challenges in other businesses for the bigger organizations. What's your sense for recruiting pipeline? And is it incrementally easier or incrementally tougher, recognizing that I know it's never easy?

Okay. So just sort of big picture. As long as the ROEs of the big financials institutions are under pressure, meaning they're not back at historic levels, then the compensation trends in our industry should remain pretty muted because there's not a lot of appetite for significant increases in compensation while ROEs are low. So I think that's the backdrop. And I think we're in that environment for a while. Therefore, the need to spend enormous amounts of money to recruit people or for the recruiting environment to come -- become really heated are probably less than they were, certainly less than they were pre-financial crisis. That said, our challenge on recruiting is not so much the cost of recruiting, which is obviously more reasonable than it was in 2007, it's just really finding the right people for our franchise, particularly senior bankers that can work well in our franchise.

We'll go next to Joel Jeffrey of KBW. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Most of my questions were already asked. But Ken, I was just hoping you might be able to elaborate a little bit on a comment you made about the existing capacity within the Asset Management business. Is that specifically just tied to bringing on additional assets into the business? Or do you see certainly the benefit of increased operating leverage as well going forward?

I think that I wouldn't expect to see significant operating leverage in the Asset Management business going forward. It's operating at good levels. I mean, obviously, it's a business with economies of scale. But we're pretty comfortable with the margins in that business, both on the comp side and on the non-comp side. There's room -- there's always room for improvement when revenues are going up, but there's not step changes there. With regard to the -- and it's just that the other side of that, there is room for a lot of productivity improvements on the advisory side of the business, and any increase in revenues on the advisory side should be significantly attractive to -- should significantly help our margin picture going forward. With regard to capacity on Asset Management, what I was referring to was really in the different strategies. We've opened -- we have a bunch of -- a lot of our strategies are operating above benchmarks, and we have capacity on a -- in a bunch of strategies. And so there's room for quite a bit of organic growth in that business today. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And then just lastly for me, I appreciate the comments on what's going on in Europe. Can you highlight any specific markets where you're seeing either -- is there much stronger trends in other places? Or any markets where you're particularly seeing weaker trends?

Much stronger, weaker, those are -- there are sort of nuances to all this because we're at the early stages. I mean, we're at the stage where things are more stable and early stages of recovery in a few markets. So it's a little difficult to make broader generalizations. But with that in mind, the U.K. macroeconomic environment is improving, and it feels like the activity level is a little bit better than it was this time last year. The same can probably be said for Germany and also, interestingly, Spain as well. And those would be the 2 or 3 markets where we're a bit more optimistic for this year.

We'll go next to Michael Wong of Morningstar.

Okay, touching on recruitment a little bit. Have more of your potential MD recruitments been inbound calls or outbound calls? And to recruit, have you been having to potentially pay off a larger amount of deferred equity compensation?

It's kind of hard to generalize. But again, the recruiting environment -- generally, we know the people that we're interested in for quite some time, and the conversations generally are -- these people are not mysteries to us. They're people that we either have been working across the table from or have known for very long periods of time. So the -- whether their call comes to us or we're calling them, I'm not sure it matters that much. On the deferrals, I suppose in some ways the increase in deferrals at the larger banks tends to make it a little bit more expensive if you're actually trying to recruit those people. But we haven't seen that really too much yet.

Okay. And just to summarize what I think you said earlier, so it's still relatively early in 2014, but do you have a feeling about how much you're going to reinvest in the business? Or are you maybe leaving more substantial potential reinvestments on hold until the later half of 2014?

There's a base level of investment that'll go on no matter what. That is, when we see a few senior hires -- when we see a senior person that matters on the advisory side, we will hire them. And we'll continue to do the things that I described earlier on the Asset Management side, which is to continue to build out the sales and distribution side of the business. And we've got some targeted investment in markets that we think are opportunities for us. That said, the modulation occurs on things that may be good to have but not absolutely must-have kinds of investments. And in that regard, we'll just see how the year unfolds.

We'll go next to Chris Kotowski of Oppenheimer & Company. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Two things. One is, when looking at the good performance this quarter versus either the prior or year ago, is it just more deals or is it average ticket size is up? And if you look at your top 10 or 12 deals, were they just bigger? Or is it just lots more of them?

It's kind of both. The truth is in our business, the difference between a good year and a very good year or an average year and a very good year or a good year is the -- a few of the larger fee, larger deals. The more larger deals with larger fees, probably the stronger the deal is. I mean, that could be exceptions -- there can be exceptions to that. As an example, our Middle Market business is a good business for us, and it could have a -- it could really make a big difference. But on average, when you have a lot of closings, that helps. But also, when you have a few closings that are larger, it helps as well. And we had good market shares, I described earlier, in larger deals. We also had a pickup in activity in the second half of the year. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay. And then secondly, I'm just thinking about the private equity sponsor exits from their pre-crisis investments, and maybe it's just an impression. But I have the impression that there are lots of IPOs and sales to other private equity sponsors as opposed to sales to strategics. And first of all, am I correct in that perception? And then secondly, do you see that as kind of a permanent change in behavior? Or is it something that's likely or -- and likely to persist? Or is it just that this is a particularly weird set of circumstances and so...

I think look, amongst the larger deals, I think you're seeing more exits through the public markets than perhaps was the case in the past and less sales to strategics. But that shouldn't be a surprise on some of the larger deals because a lot of these deals were deals which were done in the '05, '06, '07 period, and there weren't strategic buyers for the businesses at that time. And so a reintroduction into the public markets is a natural place for them. And in fact, we've seen a lot of that activity take place in Europe, where we've been an equity advisor on many, many of those deals. With regard to the Middle Market part of the segment, I'm not sure the observation is accurate because I think you -- we see quite a bit of activity in the Middle Market sponsor area through our -- through Lazard Middle Market business. And there, it really is a mix of deals to sponsors, less to the public markets because of the size of the deal and as well as to strategics; and strategics, both in-country as well as cross-border. And that's the interesting part for us.

We'll take a follow-up question from Alex Blostein of Goldman Sachs.

Just real quick on the Asset Management business. I just wanted to make sure I got the numbers right. I think, Matthieu, you said $180 billion or so in AUM as of the end January. That, if my math is right, implies kind of flattish to even maybe modestly positive flows for the month of January. I just was wondering if you could confirm that.

[Indiscernible]

Just very quick, Alex. Yes, a slight negative. I guess we had net inflows for the month of January.

That's correct. That's right.

That now concludes the Lazard conference call. Have a great day.

Thank you.