Good morning, and welcome to the Lazard's Third Quarter 2014 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I'll 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 third quarter and first 9 months of 2014. Hosting the call today are Kenneth 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 by 10 a.m. Eastern 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 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 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.

Thank you. Good morning. Lazard achieved strong results in the third quarter and first 9 months of 2014 with record operating revenue in both periods. We had solid performance across both our businesses. In Financial Advisory, we are in excellent position as the M&A cycle develops. The characteristics of this cycle played to Lazard's strengths: strategic transactions, cross-border activity, complex regulatory or political hurdles. These types of transactions require a firm with depth and breadth of expertise, global scale and senior level relationships at the local level, traits that define Lazard. Our M&A advisory activity is growing across regions and sectors. We have gained market share globally and in each major region, notably in Europe. Worldwide, we are advising on 9 of the 20 largest M&A transactions announced this year, pending or completed. 6 of the 9 are cross-border. In the third quarter, new transactions included Walgreens' acquisition of Alliance Boots; Burger King's combination with Tim Hortons; 21st Century Fox's sale of satellite television holdings to BSkyB; and Siemens' acquisition of Dresser-Rand. Our Sovereign and Capital Advisory services remain active globally, advising governments and corporations on balance sheet matters, capital raising and privatizations. In Asset Management, institutional investors around the world continue to turn to Lazard for solutions to their complex investment needs. We achieved our fifth consecutive quarter of net inflows with $2.6 billion in the third quarter. Net inflows were diverse across platforms with particular strengths in emerging market debt, emerging market equity and multiregional strategies. Our RFP pipeline remains healthy, reflecting demand from institutional investors globally. We continue to expand our investment offerings with recent mutual fund launches in fixed income, multiregional and global strategies. Asset Management continues to have solid fundamentals with leadership in growing asset classes across equities and fixed income, a strong pattern of long-term performance and platforms with significant capacity for organic growth. As we've said before, we don't read too much into any one quarter's results, because advisory fees and markets fluctuate. However, this is our fourth consecutive quarter of record operating revenue, which demonstrates the strength of our business. Our performance reflects clients' growing demand for trusted advice and investment solutions with global expertise, the unique breadth and depth of the Lazard franchise, the investments we've made in our businesses and the work we've done to drive efficiencies and enhance operating leverage. Matthieu will now provide color on our financial results and capital management.

Thank you, Ken. Operating revenue increased 19% for the third quarter and 20% for the first 9 months of 2014 compared to the 2013 period. Adjusted net income increased 44% and 61%, respectively, reflecting the substantial operating leverage in our business model. Revenue growth reflected strengths across our businesses. Financial Advisory operating revenue increased 24% for the third quarter and 27% for the first 9 months of 2014 compared to the 2013 period. The increases were primarily driven by M&A and other Advisory, which was up 37% and 38%, respectively, and achieved a record level for the first 9 months of 2014. Asset Management operating revenue increased 16% for the third quarter and 14% for the first 9 months of 2014 compared to the 2013 period. Management fees reached an all-time high in the third quarter, up 15% compared to the 2013 period. On a sequential basis, management fees grew 2%. At quarter end, our AUM was $198 billion, 12% higher than 1 year ago. Sequentially, from June 30, 2014, AUM decreased 3% or approximately $6.9 billion, primarily due to the impact of foreign exchange adjustments of $8.3 billion and market depreciation of $1.2 billion. This was offset by $2.6 billion of net inflows. As of October 21, AUM was $195 billion, down $2.6 billion from September 30. The decline was driven by market depreciation of $4.4 billion, partially offset by positive foreign exchange adjustments of $1.4 billion and by net inflows of $0.4 billion. Turning to expenses. In the third quarter, we continued to accrue compensation at a 58.8% adjusted compensation ratio, down from a 60% accrual ratio in the third quarter of 2013. A full year 2014 ratio could be lower, depending on actual full year performance and the compensation environment at the end of the year, among other factors. Our adjusted non-compensation ratio for the third quarter was 18.8%, compared to 19.7% for the third quarter of 2013. For the first 9 months, the adjusted non-compensation ratio was 19.1% compared to 21.3% for the same period in 2013. The increase in our 9 months' non-compensation expenses primarily reflects higher level of business activity and investments in our businesses. Our tax rate for the third quarter of 2014 was 21%, in line with the first 2 quarters of this year. Finally, regarding capital management. Year-to-date, as of September 30, we have returned $387 million to shareholders, primarily through dividends and share repurchases. As we reported last quarter, we have more than offset the potential dilution from our 2013 year-end equity grants. We continue to seek opportunities to return capital to shareholders and to manage our debt. We remain focused on our 2014 financial targets, as we continue to invest in our businesses and maintain discipline on expenses. Ken will now conclude our remarks.

Thank you, Matthieu. A word on outlook. The U.S. economy continues to be resilient. Boards and CEOs are generally more confident than they have been since the crisis. Europe's recovery continues to be uneven. Some volatility has returned to the capital markets, but the underpinnings of a gradual U.S.-led global economic recovery remain in place. We are cautiously optimistic about the environment for both of our businesses, and we believe Lazard is in an excellent competitive position worldwide. To summarize this quarter's highlights: Strong quarterly first 9 month and LTM growth across our businesses; strong M&A activity in the U.S., Europe and cross-border; strong growth in net inflows in Asset Management; solid earnings growth, reflecting increased productivity and operating leverage; high-quality earnings and significant cash generation. Both our businesses have substantial capacity for increased activity and organic growth, and we remain focused on serving clients well as we build long-term value for shareholders. Let's open up the call to questions.

[Operator Instructions] And we'll take our first question from Devin Ryan, JMP Securities.

Maybe just coming back, Ken, to your remarks around the geographic outlook. And you're trying to get a little bit more perspective or color around the trends that you're seeing in the U.S. and if there's any divergence relative to Europe? And I guess, just more broadly, how are you guys feeling about the potential for Europe right now? Has anything really changed recently just in conversations, just given some of the recent growth concerns?

Sure. Just in relation to our own performance, we've had a very good first 9 months in both Europe and U.S. And I'd say in Europe, in particular, I think we've outperformed the market, both in terms of announcements, and I believe, completions. And our market share position in both geographies is quite strong right now. As I've said before, the M&A cycle is a function of confidence or sentiment, valuation and financing. Financing remains at all-time low levels and availability remains high. Evaluations, probably a little less stretched today than they perhaps were a few weeks back, but still relative to growth prospects, okay. Importantly, sentiment, there we've seen a general recovery since the crisis, both in Europe and the U.S. But needless to say, periods of volatility have impacts on sentiment and the real question is, this recent volatility over the last couple of weeks or so, whether or not, that persists and for how long? We've seen some improvements in the last week or so, which is a good sign, but markets are not made in days. They're made in periods of time. And so we're keeping an eye on it.

Okay. That's helpful color. And then with respect to production. SM -- your Managing Director average revenues are around $8 million. And so we're still a little ways away from the 2007 peak of around 9.5 or a little bit above that. But you're operating at what I would still say is again, a pretty good level. I mean, I'm assuming some of that could be attributed to the targeted headcount reductions that have occurred, but I'm just trying to get some perspective around the potential upside that you think in production and capacity of your bankers. And then if you can tie that into how you see the incremental margins? Is there a lot of incremental margin room for improvement just based on your better production?

Sure. I mean, #1, you're right. We've seen an increase in productivity over the course of the last year or so, which is a function of, I think, just overall improved performance. Second, I don't think I would look at the 2007 productivity levels as the cap for the business. In part, because 2007 was kind of a 9-month year. If you remember, things got pretty rocky in the fall of 2007. So I think we still have room above that number. And then the other factors, I just think we have probably the deepest and best group of partners that we've had ever at Lazard right now. And so therefore, I think there's still room for some significant productivity growth in our business. And then with regard to margins and such, obviously, increased productivity leads to better margins over time. We remain highly focused on our 25% margin for this year. And it helps that we're getting productivity gains.

And we'll take our next question from Ashley Serrao, Goldman Sachs -- or Crédit Suisse. Ashley N. Serrao - Crédit Suisse AG, Research Division: So it looks like inflows in Asset Management actually picked up as the quarter progressed. So one, is that a fair characterization? And two, you noted that RFP pipeline is healthy, but I was hoping for any color on how institutional investors today are balancing under-allocation to EM as an asset class versus the recent volatility have you seen over the past few weeks?

Well, look. For the quarter, we had about $2.6 billion of inflows, net inflows across Asset Management. It was pretty balanced across products for us. And generally, our experience is, on the institutional side of the business, there's less volatility associated with big market moves or this recent exchange-rate move. And we continue to see strong RFP interest, as Matthieu noted in his remarks. Clearly, as I said earlier, if there's a very high period of volatility, you always have to be a little cautious in terms of your comfort. But again, things have calmed a bit in the last week or so, and we watch that pretty carefully. All in all, the institutional -- our institutional clients and -- remain relatively under-allocated in some of our core strategy, EM and international, which helps us offset any of the flow issue -- general flow issues in the market. Ashley N. Serrao - Crédit Suisse AG, Research Division: Okay. Thanks for the color there. And just sticking with Asset Management. This year, you've invested heavily in the franchise. You opened a bunch of offices and launched a few strategies, which is nice to see. As you stand here today, what opportunities are you contemplating, as we look ahead?

Well, look. On the Asset Management side, you're right, we probably upped the investment in Asset Management this year, because we've seen some opportunity for broadening some of our distribution capabilities, but in particular, also some investment strategies, particularly with regard to the Middle East. So that's been -- and that complements our overall emerging market franchise. And so that's been something that we have focused on. But we've also remained strong in investing. In the advisory side of the business, in this recent quarter, we announced 3 hires in our Lazard Middle Market franchise and a couple of others in the overall franchise. So and also, we probably invested a little bit more than we have in the past in some of the junior resources as activities picked up to make sure we have the capacity to support it at those ranks. So overall, this has been a pretty good year for investment. At the same time, we're trying to drive margins to our targets, and we're pretty confident about that.

And we'll take our next question from Alexander Blostein, Goldman Sachs.

So first question around capital management. Clearly, the franchise is growing nicely. Margins are hopefully improving this year, and you guys generate a significant amount of cash as a result of that. Can you maybe help us understand a little bit better the philosophy around things like special dividends, dividend increases, pick up on the buyback, because it does feel like you guys will have a fair amount of excess cash towards the end of the year?

Sure. I mean, just to remind everyone, we are -- we have a real focus on cash generation or cash conversion. That is earnings into cash flow. Roughly, it runs at about 110% of our GAAP and awarded net income, which at this point, are about the same. In fact, for this quarter, we're almost identical. So -- and in recent years we delivered at least that back to shareholders over the course of the year, and my guess is we're going remain focused on that. 4 ways to do that for us: repurchase, debt management, dividend and special dividend. To date, we've more than offset the dilution associated with the share grants through repurchase. Obviously, we raised dividend at the end of last year. We remain very focused on debt management as we were last year. And needless to say, if we find ourselves with a large cash balance at the end of the year, because of improved results, we -- we're going to give real consideration to special dividend or additional share repurchase and -- as we've done in the past.

Got it. That's helpful. And then a second question. Just as we approach year-end and certainly not asking you guys to provide any specific guidance, but when we're thinking about compensation, and more importantly, the composition of it is again, we approach year-end, in the last couple of years, I think deferrals were somewhere in the kind of 15% to 16% range of total revenues. Is that how we should approach this year as well in, I just kind of was hoping to maybe get broader thoughts? Should we think of that as a percentage of revenue figure, a percentage of total bonus pool figure? How does that get determined?

I think the simplest way to look at the deferrals, at least a way we kind of track it is to think of it as a proportion of the overall compensation pool. And there, we've been running at around 20 -- about 25% or so for the last several years, slightly less than that. But that's generally the range. And we're going to -- and we -- and one of the things we said, when I took over was that it was our -- we were going to stay very focused on keeping that at a consistent level.

And we'll take our next question from Brennan Hawken, UBS.

Following up on Alex's question there on capital return. Can you help us understand why we didn't see any buybacks here this quarter? Any reason?

Well, first of all, we've been actively repurchasing shares, certainly in the earlier part of the year. It's offset the dilution, and there was some additional repurchases beyond that. I think your question probably is geared towards with this recent volatility and sudden drop in share price associated with that. That happened to occur during a blackout period for us.

Oh, okay. But even considering the volatility, its buyback seems kind of low. I mean, it was pretty much nothing. Was there any reason for that?

Look. We have always said that our first goal on the repurchase is to offset any of the dilution, and we set out to do that earlier in the year this year, and we did some additional repurchases beyond that. But we have multiple ways of getting capital back to shareholders. And again, obviously, some of it is in the form -- can be in the form of debt management dividends and special dividends. And if you look at what we've done in the recent past, I don't think the trend is that different.

Okay. Cool. On the investments. I think that might had a bit of an impact on your non-comp. So how much of the investments that you guys are making are going to become part of that run rate? And if we're thinking about you guys investing on the non-comp side as we prep up for the fourth quarter and the comp true up, should we think about some of those investments flowing through on the comp side next quarter?

Look. I guess the question is really geared towards our focus on the 25% margin. All I'd say there is we remain highly focused on that. Obviously, it's going to come from some improvement in comp and some improvement in non-comp over the course of the year. We've already seen, at least on the 9-month basis, a pretty substantial drop in non-comp expense from I think, it was around 21.3% to about 19.1%. And then this latest quarter, I think we just went below 19%. So the trends have been pretty good on non-comp, in spite of some pretty aggressive investing, particularly, on the Asset Management side over the course of the year.

Okay. And then thinking about the Asset Management business. FX was clearly a big headwind for probably, both the performance and the move in AUM. How do your clients look at that? Do they look at performance on a constant dollar basis? Or do they look at including the FX rate? Just trying to think about maybe appreciate the clients' perspective on your performance in the Asset Management business.

Okay. So first, generally, Asset Management, institutional asset management invests on an unhedged basis. So they don't really pay you for taking out any of the foreign exchange volatility through hedging strategies and such. They will probably do that themselves or they kind of look at it over a cycle. So that's one observation. And the second observation is, is we have clients around the world so not everybody is a dollar investor. We have significant client base in Europe and Australia and Asia. And so consequently, you really probably have to look at where the institution is to see what the impact is. So while our AUM has obviously been impacted by the move of the dollar, it's not necessarily the case that, that is going to be the impact to the institutional investor that's based in Europe or in Asia.

Sure. That's fair. And then last one. Tax rates have been kind of low or certainly lower than I had expected. And you guys, I think, have guided to picking up next year. Is there something specific coming connected to that guidance? Or is it just your expectation for how revenue -- the geographic breakdown of revenue? Like, why should we think about tax rate picking up so meaningfully next year?

Look. We've given a point of view that we expect tax rate to be in the mid- to high-20s next year. We're sticking with that. It's a function of a couple of things, probably most importantly that some of the benefits that we've gotten from some of the historical NOLs starts to roll off as we have had several periods now of pretty significant profitability. And so that will have -- that's what we expect will start impacting the tax rate next year. And then obviously, the actual tax rate next year will be a function of the mix and overall activity or revenue levels.

And we'll take our next question from Joel Jeffrey, Keefe, Bruyette, & Woods. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Just thinking about the Asset Management business. In the fourth quarter, you guys have historically had pretty strong incentive fees. I'm just wondering if the recent volatility kind of potentially could put those in jeopardy, and any thoughts you have around that.

Yes. I think there's risk around the incentive fees in the fourth quarter. The selloff in the market and the movement in currencies has probably taken out -- has taken out some of the upside potential and return in the hedge fund businesses, which is where most of the incentive fees are concentrated. And if we're -- if the market stays where it was last week, at those levels, then there's probably not as -- there's not much in terms of incentive fees for the fourth quarter, but it's largely a function of the markets. And needless to say, we have kind of low vol hedge funds. And so they're not going down as much. But they're also not going to capture as much of an upside movement in the market. So I think your observation about fourth quarter incentive fees is probably accurate. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then just in broad terms, thinking about the M&A markets as they stand today. Clearly, announced volumes are up. And even the number of deals appear to be up. And it seems that M&A is improving. I'm just wondering what are you guys hearing from your clients, who are still sort of sitting on the sidelines on M&A? What's their major concern at this point?

It's opportunity set, perhaps valuation occasionally and sentiment. Those are probably the 3 things that from time to time, come up. It's the thing about strategic transactions are, it's a little different than the last cycle where things happened with financial investors, which can happen very quickly and in short periods. I think with strategic transactions, they take longer to unfold. And in addition to that, they are very specific to targets. And so consequently, I just think this cycle probably takes a -- because it is strategic driven, it probably takes a little longer to unfold. It may last a little bit longer as a result of that. But it's going to be probably a little more tied to the sentiment and valuation factors that are present at the time that deals are being considered.

We'll take our next question from Steven Chubak, Nomura.

So the first question I had is on interest rates. There appears to be a growing consensus among a lot of the investors and market participants that we speak with that if and when the Fed begins to hike rates, we actually could experience more of a flattening yield curve versus a parallel shift. And just thinking about that potential scenario materializing, while this may not make for a favorable backdrop for a lot of other financial companies, some investors I've spoken with have suggested that this actually could be relatively favorable for the independents, such as yourself. As it suggests core underlying growth, but at the same time, long-term funding costs that should be held in check. And I didn't know if you could shed some light on or provide your own thoughts on this matter.

Yes. I must say, for our business, I don't really spend a heck of a lot of time thinking about what movements in interest rates are going to do directly to our business, because we don't have much of a balance sheet. And so it probably doesn't have any real direct impact on our financial results, which probably is a good thing if interest rates are going up. But that said, I think the larger question is, what does it do to deal activity and the economy as a whole? I think generally speaking, at least with regards to the United States, if we see rates going up, it's a little bit of a high-class problem, because it's probably being driven by economic activity because -- and I don't -- we just aren't seeing, across the U.S. economy much in the way of inflation. And so if you get a higher economic activity, and that's what's driving rates up, that's probably a good thing overall for our business.

Okay. And just one question on restructuring. The commentary within the release, it remains cautious, consistent with recent quarters, or at least the outlook or backdrop is subdued. But we did see a pickup in revenues in the quarter. And I didn't know if there was any change in revenue expectations for that line item in particular. I just want to gauge how...

No. Not really. I think that's really a reflection of things that went on in the marketplace many, many months ago. As these are completions, we get paid on completions and restructuring business. That's what causes the lumpiness in it. And as far as the outlook, look, the restructuring business will pick up when 1 or 2 or both factors fall into place, which I, in some ways, in many ways for the rest of our business does, and I hope doesn't happen too soon, which is you see the economies start to weaken, combined with, yes, a lack of availability of finance. But right now, we're seeing financing at all-time low rates and very available. And generally speaking, the economic outlook is at least in the United States, still pretty good. In Europe as I said before, uneven. But I don't think that's going to shift the restructuring environment anytime soon.

We'll take our next question from Jim Mitchell, Buckingham Research.

Just a follow-up on the operating margin target. I'm assuming that's the full year '14, correct? The 25%?

Correct.

And so when we think that through, you're operating a little bit over 22% right now. That implies a pretty big jump in 4Q. I know historically, you've had a true up, but if we think about Matthieu's commentary around what we'll see how 4Q goes to see if the comp ratio comes down. Is that implication that you're not so confident of getting that? Or just trying to be cautious, because it seems like you have to have a pretty significant comp true up in the fourth quarter to get there? And we've seen that in the past, I just want to make sure that, that's -- I'm thinking about it correctly.

I think you're thinking about it correctly.

Okay. So you -- and you feel reasonably confident barring any kind of major change in the outlook for revenues?

We're really focused on achieving our targets.

Okay. Fair enough. And then one follow-up, maybe just on you've been growing your Middle Market business is not something that we can necessarily see in the databases. How big a business is that contributing, I guess, right now? And how much upside do you see there?

We've never broken out the numbers specifically to the Middle Market business in part, because there are a lot of factors that go into broadening revenue in that business beyond just the people in the business. That is, it's the overall global network of Lazard that the business leverages is off of, and some of the industry group excellence at Lazard, they're also in the Middle Market business leverages off of. But that said, it's an important business to us. And we see our market share in that business, we believe, has increased pretty significant since the time we bought the business. Importantly, it's a sell-side driven business and so therefore, the kind of likelihood that transaction closed once we take them on is pretty high. And also, our win ratio in that business has gone way up over the period of time that we've owned it. And importantly, it still remains pretty highly fragmented marketplace. And as a result of that, we still see significant opportunity for share gains. But most importantly, of all those, is we just have great people in that business, and we just see the opportunity to continue to leverage and build the business going forward, and it complements greatly the rest of our franchise.

And we'll take our next question from Patrick O'Shaughnessy, Raymond James. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division: So I was wondering if you could talk about how big of a role inversions have played in the acceleration in M&A activity that you guys have seen over the last few quarters? And then the follow-up to that would be so with the Department of Treasury kind of pushing back on inversion-driven deals, what sort of impact would you expect on M&A activity going forward?

Sure. Let me speak first with reference to us. Inversions have represented at least over the course of the last year, less than 5% of our announced volume. And where we have had inversions transactions, I think we're pretty comfortable that the driver of those transactions are strategic and have not significantly involved the tax consequences of the transactions. So we feel pretty comfortable that the change in the landscape for inversions is going to have minimal impact on our overall business. I'm not sure how that affects others. My guess is it's probably a larger proportion for some others than it is -- than it has been for us. And then as far as activity going forward, with some exceptions, most of the inversion transactions we've seen have been focused around the healthcare industry. So that's probably the segment, and it's really been focused around some of the midsize and larger pharma companies. And I think that's the segment that probably gets impacted the most by it. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division: Got it. That's helpful. And then for my follow-up question. The big banks still seem to be doing a pretty good job on holding the line in terms of compensation. What are the implications -- assuming that you would agree with that perception, what are the implications for you guys in terms of your own compensation ratio, as well as the battle for top talent?

Well, look, I think that to the extent that big firms do that, and I think they are doing that in part because they're still pressured around return on equity, and it's difficult to be aggressive about paying out compensation when you're challenged around return on equity. That's a good thing for us because in the end, while we are -- we think of ourselves as an important player for talent. In fact, the overall trends in levels in the market are heavily influenced by what the big firms do. And I just think as I've said previously, that this cycle is going to reflect a more sober approach to compensation than some of the cycles in the past, because it's more difficult to create revenue than it has been in the past because of the constraints around balance sheet and risk at the larger banks. And therefore, the ability to create compensation is also more difficult, and that probably overall, for industry is a good thing in terms of margins and such.