Lazard Ltd (LAZ) Q2 2025 Earnings Report, Transcript and Summary

Good morning, and welcome to Lazard's Second Quarter 2025 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Treasury. Please go ahead.

Thank you, Angela. Good morning, and welcome to Lazard's earnings call for the second quarter and first half of 2025. I'm Alexandra Deignan, Head of Investor Relations and Treasury. In addition to today's audio comments, we have posted our earnings release 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, achievements or other events 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 them. 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 Peter Orszag, Lazard's Chief Executive Officer and Chairman; and Mary Betsch, Lazard's Chief Financial Officer. After our prepared remarks, Peter and Mary Ann will be joined by Evan Russo, Chief Executive Officer of Asset Management as they open the call for questions. Now I'll turn the call over to Peter.

Thank you, Ale, and good morning to everyone joining today's call. We are pleased to report strong performance and results with total firm-wide adjusted net revenue of $1.4 billion for the first half of the year. Financial Advisory achieved a record first half of the year with adjusted net revenue of $861 million. Advisory revenue this year has demonstrated the geographic and product diversity of our business. Results represent the overall strength of Lazard's team and brand, which includes record revenue in France and Germany for the first half of the year. Our performance reflects a global business that also extends well beyond our long-standing strength in strategic M&A with expanded connectivity to private capital and record revenue in our fundraising business year-to-date. Over the past 12 months, revenue associated with private capital has been over 40% of total Financial Advisory revenue, reflecting our increased emphasis on this business and hiring over time. Asset Management continued to deliver solid results with adjusted net revenue of $533 million for the first half of the year. As we have previously stated, we see this year as an inflection point for our asset management business. The second quarter reflects solid progress towards our goal of more balanced flows with positive net flows in the quarter, record gross inflows for the first half of the year and AUM increasing 10% year-to-date. This progress is a result of strong investment performance, efforts to better focus our sales and distribution on core products and strategies and more favorable market conditions for our global strategies. Our success in driving positive net inflows has been achieved while also continuing to win new mandates. And as a result, our current one but not yet funded mandates total is even higher than the elevated level at the beginning of the year. Overall, we continue to see robust client engagement across both of our businesses as corporate and investment leaders move beyond the watchful waiting mindset of the previous quarter and grow more comfortable making decisions in the current environment. I'll share more on our outlook shortly. But first, let me turn the call over to Mary Ann to provide further details on the quarter's results.

Thank you, Peter. Today, we reported second quarter firm-wide adjusted net revenue of $770 million, up 12% from the same time last year. Increase in firm-wide revenue was driven by our Financial Advisory business. Financial Advisory adjusted net revenue was a record $491 million for the second quarter, up 20% from 1 year ago. Our banking teams performed well across the firm with Lazard participating in a number of marquee transactions during the second quarter. Completed transactions include CD&R's acquisition of a controlling 50% stake in Sanofi's consumer health unit and Roquette Frères' acquisition of IFF Pharma Solutions. In addition, recently announced transactions include Ferrero’ International's agreement to acquire WK Kellogg Co. Assura's recommended combination with Primary Health Properties and L’Oréal's agreement to acquire Color Wow. In addition, corporate restructuring assignments include company roles with Solo Brands and Wilbur Ellis and creditor roles involving Franchise Group, Saks Global and Southern Water. We also engaged in several private equity assignments, including advising Accel- KKR, Hidden Harbor Partners and IDG Capital on continuation funds, advising Mainsail Partners on the closing of its Fund VII and advising on capital structure and executing debt raises for ZF Friedrichshafen, NeXtWind and iFIT Health and Fitness. Turning to Asset Management. For the second quarter, adjusted net revenue was $268 million, up 1% compared to the second quarter last year and up 2% on a sequential basis. Management fees for the second quarter increased 1% compared to the second quarter last year, with lower average AUM more than offset by higher average fees. Average AUM for the second quarter of $239 billion was 3% lower than the second quarter of 2024 and up 3% on a sequential basis. As of June 30, we reported AUM of $248 billion, 2% higher than June 2024 and 9% higher than March 2025. During the quarter, we had market appreciation of $11.9 billion for an exchange appreciation of $8.4 billion and net inflows of $700 million. We see ongoing client engagement across our investment platforms particularly with our global international emerging markets and quantitative strategies. Illustrative examples of new mandates include $1 billion from a U.S. public pension into Global Equity Advantage $650 million win from a Nordic client for Japanese equities, $600 million from a Korean institution into emerging markets equities and $500 million into international quality growth from a large U.S. retirement provider. Now turning to expenses. For the second quarter of 2025, our adjusted compensation expense was $504 million resulting in a ratio of 65.5% compared to 66% for the second quarter 1 year ago. Our adjusted non-compensation expense for the second quarter was $157 million equating to a ratio of 20.4% compared to 21.7% for the second quarter last year. While remaining focused on expense management, we continue to invest in the business to support our long-term growth including successful recruiting efforts to expand our team of Financial Advisory managing directors and the build-out of our ETF business and asset management. Shifting to taxes. Our adjusted effective tax rate for the second quarter was 36.5% compared to 14% for the second quarter of 2024. We currently expect our full year 2025 effective tax rate to be in the mid-20% range. Turning to capital allocation, in the second quarter of 2025, we returned $60 million to shareholders including a quarterly dividend of $47 million. In addition, yesterday, we declared a quarterly dividend of $0.50 per share. Now I'll turn the call back to Peter.

Thank you, Mary Ann. With regard to the M&A outlook, progress will not be linear, but as long as outstanding tariff issues are resolved in line with current expectations over the coming weeks we see a significantly improving environment for Financial Advisory activity. Dialogue with corporate strategics continues to broaden, corporate balance sheets are strong and clients are adapting to shifting trade policies. Financing markets are also generally constructive despite the risks surrounding heightened unpredictability. technology and generative AI, the energy transition, the biotech revolution and shifts in global supply chains remain underlying tailwinds that further support client activity. Looking ahead, we anticipate that private equity will play an increasingly active role in M&A. Lazard is well positioned to benefit, reflecting our ongoing investments in our private capital coverage efforts. Client engagement remains robust across our global offices with notable activity in fundraising and liability management, supported by our ability to deliver innovative solutions across both public and private markets. Finally, our talent pipeline continues to grow with senior bakers attracted to our strong culture, global presence and the momentum behind our long-term growth strategy. We've hired 14 Financial Advisory managing directors so far in 2025 and we remain on track this year to achieve or even exceed our 2030 objective of expanding our team of financial advisories by 10 to 15 net per year. Recent talent additions in our consumer and retail, health care and power and energy -- power energy and infrastructure groups are already supporting our performance and resulting in new client business. Overall, an improving environment along with our expanded connectivity to private capital, our continued progress in hiring and Lazard's unique ability to pair business advice with geopolitical insights all support ongoing business momentum in our Advisory business. Turning to Asset Management. Our increased focus and accountability within sales and distribution, enhancements to our investment platform and the addition of new talent over the past couple of years are delivering results with record gross inflows in the first half of the year. We anticipate our business to benefit further if investor preference continues to evolve outside of the United States given our extensive offerings in global, international and emerging market strategies. As I mentioned earlier, even with robust gross inflows year-to-date successful sales efforts continued to replenish our won but not yet funded mandates. During the second quarter, we also successfully launched our first active ETF product set in the U.S., which includes our Japanese equity, equity megatrends, next-gen technologies and international dynamic equity ETFs with additional ETFs planned for launch later this year. Progress over time towards our long-term goal is supported by our ability to deliver Lazard's premier strategies in new modalities that meet client demand. Beyond product development, we are focused on generating alpha by leveraging leading market and research insights. To advance this effort, last month, we announced that Eric Van Nostrand has joined Lazard Asset Management as Global Head of Markets and Chief Economist. Across the firm, our focus on helping clients navigate a complex economic and geopolitical landscape has resulted in another strong quarter and first half of the year. We continue to execute against our Lazard 2030 plan with our geographic and product diversification and firm-wide momentum positioning us well for a more constructive business environment. Now we will open the call to questions.

[Operator Instructions] We'll take our first question from Devin Ryan with Citizens JMP.

I want to come back to some of the commentary just on the advisory outlook and good to hear about the growth in mandates from the beginning of the year. Just want to get maybe a little bit just more texture around the trajectory of recovery that you're seeing in the business? And just whether we're back to maybe the same level of enthusiasm is where the year started. It seems like we maybe lost a month or 2 of the actual year. But are we kind of back on track here? Or is there still some lingering uncertainty on topics like tariffs are still weighing on sentiment in pockets. And so you would characterize as maybe not quite as robust as you were hoping coming into the year.

Three comments. The first is before we get to the M&A market, which is what I think you're fundamentally asking about, I just want to emphasize again the efforts that we have been making to diversify our business model on the advisory side. And so we're now at a business mix that's roughly 60% M&A and 40% non-M&A. And I think that will continue to evolve over time. As we continue to build out additional products and services that we can offer to clients beyond our long-standing excellence in strategic M&A. So that's the first point. Second point is, I don't -- I never thought that what I'll call the Davos consensus at the beginning of the year was realistic. It was probably a bit too frothy even at the moment. So that's just an aside on the expectations at the beginning of the year. But then third, what I would say is now I do think we're in an increasingly constructive environment. Let me just unpack why we see it that way. All along, there are very strong underlying kind of tectonic plate type drivers of M&A activity especially innovation and technology, increasing returns to scale in many businesses and then some of the other teams that I mentioned earlier. So those persist as big, strong tailwinds. We have gone through a period where there have been various different headwinds that have at least mitigated some of that. Partly it had to do with tariff uncertainty at the beginning of April. And as I mentioned -- as long -- I think that uncertainty has come in we do need to see that get finalized and get commemorated in deals with important trading partners as opposed to still a little bit of uncertainty about exactly how it will settle. We could talk more about that. But I think that's more likely than not to land in a place that is consistent with what the market is currently expecting. So that the most pronounced part of that headwind could be put to the side. Second question involves the regulatory environment. Again, I think at the beginning of the year, the consensus was probably a little too wildly optimistic that there would be no regulatory reviews and anything goes that was never going to be the case. I think we always had a pretty realistic view that the antitrust environment, for example, would be more accommodating but not infinitely more accommodating than previously, and I think that is how it's playing out. We did, for example, see a significant acceleration in the average time to close on M&A deals in the second quarter as one example of a leading indicator on potential changes in that regulatory environment that we believe will be ongoing. And then third is the financing situation, financing markets. Those have generally been improving. The IPO market is still not fully open, but the rest of the financing markets, I think we've seen material improvements over the past, let's call it, several months. And so you put all of that together and then combine it with the fact that a lot of Boards and C-suites want to respond to those underlying drivers that I mentioned at the beginning by doing something and inorganic activity is often a very attractive thing to do. And so we're just seeing -- what I can report is we're seeing an acceleration in dialogue. And the willingness of Boards and C-suites to kind of say, the world maybe a bit more uncertain than it was at some time in the past, but we've got to look through that and act anyway. So the final comment; I'll say is obviously, we have a very strong presence both here in the United States and in Europe. This quarter, in the first half of the year, we saw a bit more of an uptick in European activity that may get balanced as we go through the year by an expansion in U.S. activity most of the comments I was just referring, I think, tilt a bit towards the U.S. M&A market.

Excellent color. Appreciate it. And maybe just to switch gears to the Asset Management business and touch on the net inflows which we're going to see, it sounds like a combination of both product and distribution, and you've made some good moves on establishing the right products. But on distribution, specifically, can you just talk a little bit more functionally, some of the things you've put in place to accelerate distribution momentum, what's working there? What changes have been made? And then just interconnected question, just how that unfunded mandate backlog has trended just after the really nice June there, if there's any order of magnitude you can give there on how that's backfilling?

Sure. So on the second question, what I said was that it is higher than the elevated level at the beginning of the year. We have not -- we're not going to get into the habit of providing a regular numerical update, but we did provide that number at the beginning of the year. So you can take that number, and I just said it was higher than that. And that's a really encouraging thing to see because it suggests that the progress that we're making on flows is not eating into the feedstock, if you will of future flows. But instead, it suggests changes that we're seeing in terms of how we're operating and what our clients are looking for that should be more sustainable. With regard to what we've been doing, I'd say 2 things. One is, there were changes in the sales and distribution teams, both in the United States and globally, that were made over the past couple of years. Sometimes it takes people time to kind of get up the ramp in terms of effectiveness and getting used to a new platform. And I think we're seeing that occur. And then, b, I mentioned more clarity and accountability. There was an exercise towards the end of last year and at the beginning of this year to set goals for the teams in terms of as a very specific product and strategy level against very specific clients, what the sales and distribution goals would look like, and we've been attentive to making sure that we're hitting those goals, and it's paying off. And so that's what I meant by more clarity and accountability. And the final thing I'd say is, we talked earlier in the year about some of the very strong investment performance that we have accomplished and the excellent investment teams that we have. And what we are seeing is within those flows is a shift towards net inflows in many of the areas where we've seen excellent investment performance. So emerging market equity, global equity, quantitative equity, Japanese equity as being some of the examples. And -- so it's not just that there's net inflows, but those net inflows are occurring towards many of the investment products and strategies where we've seen excellent performance, is the first point. And the second point is most of that -- what's occurred to date is not, in fact, the vast bulk of what has occurred to date is not really reflected this ongoing investor sentiment shift away from U.S. equity in particular. So if that were to continue, and I think there are probably reasons that it's likely to continue. That will be a further boost to the Asset Management business.

We will take our next question from Ryan Kenny with Morgan Stanley.

Just want to square the comments on significantly improving advisory outlook. There's been some upbeat commentary and the comp ratio is flat sequentially at 65.5%. So any thoughts around timing to hit your goal comp ratio of 60% or below and with deal conditions quickly improving, can you get there sooner rather than later?

Sure. So a couple of comments. First, I said significantly improving, but I also said it won't be linear. We are very cautious about the quarter-to-quarter fluctuations, which always happen in this business because many of the transactions are lumpy and things can move in and out, et cetera. So we are -- we held our comp ratio flat this quarter because we think that's best and most conservative thing to do. Where the comp ratio actually lands will depend not only on market -- on the market and our performance against that market but also on the hiring front, I mentioned that we will be at or potentially above the 2030 average target that we have of 10 to 15 net MDs per year. The reason we're doing that, obviously, is because we think that there will be additional revenue and productivity that comes from those hires in those investments over time. We're really excited about the quality of people that we're attracting. So that will obviously also influence the comp ratio. And then with regard to the -- when we can get back to the 60%, that is our goal, it's going to depend on our -- on market conditions, along with our performance. I'm not going to give you a specific timetable for that other than to say it remains our goal, and I think it's pretty clear where we want to land. The parts that we can control involve, making sure, for example, that we are raising productivity, which affects the comp ratio because it's where a lot of the operating leverage on the Financial Advisory side comes from given the roughly fixed costs associated with the non-MDs as you raise MD productivity that has a significant benefit in terms of the non-MD comp pool at least relative to the revenue, making sure that we're hiring the right people, and we're very pleased about that. And then making sure that we are being very conscious of the trade-offs in terms of compensation versus returns to our shareholders. So more to come on all of that, but it's still early in the year, and we're going to have to see how it all plays out. We are seeing an increasingly constructive environment, but seeing it and experiencing it are 2 different things.

And on the non-MD piece, how do you think about associate headcount? Are you rightsized to handle the volume coming your way? Or do you see yourself doing more hiring there?

I think we are in a good place with regard to our non-MD ranks. We actually have had an increase in the so-called TA, the total associate equivalent ratio to each MD over the past year or 2. So we've got capacity to meet, I don't want to overstate the case because our people obviously work hard, but we do have capacity to meet an increasingly constructive environment.

We'll take our next question from Alex Bond with KBW.

So just wanted to start on the M&A backdrop in Europe as it relates to the U.S. And I'm just curious if you could provide a little bit more color as to your feeling relating to sentiment in terms of the difference between what we're seeing in Europe and the U.S. currently. It looks like EU announcements at the industry level didn't rebound to the same degree in May, June as they did in the U.S. So just curious as to what you're hearing in the market currently.

Sure. Well, first, let me just start by saying one of the benefits of the increasingly diversified business model we have is that we can kind of skate or surf to where the opportunities are in the first half of the year. That was a bit disproportionate in Europe. I think that's great that we have a long-established and preeminent practice there. Most of the European activity that we're seeing is not -- I may have misinterpreted your question, but it's not Europe, U.S. activity, it's Europe, Europe or Europe somewhere in the rest of the world. There's also significant non-M&A activity out of Europe that is relevant also. I would note before I turn to other dimensions of this, that we're also doing a significant amount of hiring in Europe. So we just added a senior financial sponsors coverage person in the U.K. We have -- we are expanding to a new office in Northern Europe. We have made other hires in London to do insurance coverage and so on. We're going to continue -- we have a fantastic new debt advisory team in Germany that adds to the strength of our German team. So a lot of diversified but very highly talented people being added to our platform in Europe. With regard to where things settled for the rest of the year, which is, I think, the other part of your question. The U.S. activity is coming back to what I said in terms of increasingly constructive environment, I do think that in the back half of this year, that's where you're going to probably see a disproportionate pickup relative to at least our experience year-to-date based on the dialogue that we're engaged with and where we're seeing new activity. But we also expect continued high levels of activity out of Europe. I mean just overnight, we had the successful defense of Banco BPM against the takeover attempt from UniCredit where we were advising Banco BPM, there's ongoing activity in Europe in addition to the U.S.

Great. No, that's helpful color. And then maybe as a follow-up, just to quickly go back to the hiring pipeline. You've announced a strong number of senior hires here year-to-date and you touched on this briefly earlier, but curious as to if you've seen any shift in the market there as we've seen activity rebound over the last couple of months? And I guess, just broadly on your outlook for hiring through year-end here?

I don't know which way you were expecting the shift to occur. But I would just say that we are doing -- we have been doing extremely well in our lateral recruiting efforts. I'm very pleased with the effort that Ray McGuire, our President has been spearheading in this arena. We've been -- the quality of the people that we're attracting is very high. And we are winning bake-offs where bankers considering X or Y us against a competitor. We're pleased with our win rate there without -- while paying competitively, but not overpaying for the talent that we're attracting. And I think that's because of a couple of structural features around Lazard that are attractive, not only the brand and our reputation for excellent content, but the vibrating energy that a lot of people can feel about our renewed ambition towards our Lazard 2030 goals, the strong culture that we have. I talk about a commercial and collegial culture, that's absolutely key to its attracting top talent. And the fact that we've got not only stability in our leadership and a clear strategy, but also a significant footprint that's been well established and long-standing in both North America and Europe, which is very important in many, many sectors. So we're very pleased with how we're doing in competitive labor market.

We'll take our next question from James Mitchell with Seaport Global Securities.

Maybe Peter, you just getting back to the flow picture in Asset Management, record gross flows, great to eke out some net inflows, but still obviously implying some pretty high gross outflows. You talked a little bit about not seeing the benefits of the shift in the environment. What is holding people back? Why is there still relatively high attrition if the environment for non-U.S. equities is getting better and likely to continue to do so. It just seems like at least attrition should slow.

Yes. I'd say a couple of things and maybe Evan can add a bit. Look, I'd say a few things. First, there always our gross inflows and gross outflows. So it's not surprising that there are outflows people's investment preferences shift. There's a natural churn in the marketplace. That's all to be expected. The point of highlighting the record gross inflows is we've got lots of very attractive products and strategies for which there is significant demand even before there's the added benefit, if you will, for us of ongoing of this investor preference shift. So that's one. Point 2 is with regard to the timetable, because our business is disproportionately institutional, these things can often move at a slightly slower pace because of the processes around making institutional investment decisions. There's not -- this is not a very high frequency kind of thing and so it's natural to see some lags involved. But I would highlight that one of the reasons why -- and there may have been some skepticism among this group on the call the beginning of the year when I highlighted that we did view this year as an inflection point and that we had a stretch goal of flat flows for the year. I think there was a ton of skepticism. But what we could see from our discussions with institutional clients was a shift occurring. We anticipated ongoing outflows from some of the sub- advised accounts that have been occurring, that is part of the picture. And I'd note the net inflow in the second quarter was despite a very substantial outflow from a sub-advised account. So there's a shift towards those other products and strategies that I've -- that I was talking about global quantitative Japan, et cetera. And also, a bit away from the U.S. sub-advised, but that was part of what we anticipated but we could see, based on the dialogue that we were having with clients, a shift in terms of what they were looking to us to provide. And that's exactly what has been occurring. So we are -- we set out some ambitious objectives for the sales team for the business as a whole. And I think we are making very, very solid progress towards doing that. And I appreciate some of the skepticism earlier in the year because it only motivates performance even more. And we're very pleased with the progress that we're making. And I think it's -- it is a significant step in the right direction to see the positive net flows. But it's not altogether shocking to us because we could see it earlier in the year before we shared some of those comments with you. Evan, do you want to add anything?

Yes, sure. I think you summarized it well. I think the only thing I'd add, Jim, is look, we're seeing broad-based success in our new flows. So it's really broadly defined across channels. So whether it's institutional or intermediary. It's across geography. So we're seeing tremendous success in Asia Pacific clientele, looking to put new capital to work as well as in Europe and as well as across products. So it's not just one single product as Peter pointed out earlier, so it's across global equities and international products as well, Japan, quant and even some in the emerging markets. So in terms of how the reallocation, the shifting is happening, I mean, as Peter said, institutional trends take some more time. So it's still early. We're starting to see some of the early adopters, but there are definitely more green shoots and early adopters, and we're seeing definitely more interest across that reallocation trade that we've been talking about for a little bit. That started with some of the client discussions and early adopters as we said at the end of last year leading into this year, and that trend continues. So so far, I think the momentum, clearly, we're trending better than past years and calling out sort of the record gross flows for the first half of the year shows the momentum we have in bringing new clients as well as new mandates, bringing new mandates to the product set that we have.

Okay. That's great color, and I apologize for the -- what have you done for me lately question. Maybe just a follow-up on AI. Peter, you've been, I think, more vocal than your peers on the potential for AI in your business. Can you kind of talk about what you see as the benefits and what progress you may already be seeing in terms of efficiency?

Yes. Look, I think the next couple of years are going to be transformational for both of our businesses, the technology. This is -- as I look back, I'll be approaching 2 years in the seat in October. As I look back to the -- how things are gone, which is generally very, very well and very pleased with the progress. One of the surprises has been that we anticipated AI would be advancing, but it's advanced even more rapidly than I had anticipated, that both with regard to the tools that we have sitting inside of our firewall that we are using to improve what we can do for clients and also improve the experience for our people. But it's also, I think all of us in our own lives outside of Lazard business, you can just see the remarkable advances that are occurring in many of these tools that are commercially available. With regard to what we're doing, I think there's sort of basically 4 different parts to the way that we're thinking about AI. One is that we want to be at the absolute forefront of the technology, so to be at the cutting edge of what's available to our bankers, to our investment professionals on the asset side. So that's kind of Tier 1. And we've spoken about some of the tools that we have available to our bankers. We're going to continue to explore ways of it's -- the boundary is ever expanding in terms of what's possible. The second is, which I think is really important is the cultural shift. So actually, just welcomed our new analyst, and I talked about being the anti-QWERTY generation by which I mean if you look at your keyboard, it's QWERTY in terms of the letters. The reason they're aligned that way is because early typewriters did not have a QWERTY keyboard, people were typing too quickly. And so the QWERTY board was literally designed to slow people down to the keys would not get stuck and we still have the QWERTY keyboard because of the overwhelming power of inertia. And so our incoming analysts and associates are motivated to be bilingual in the kind of old way of doing things and then the new way of doing things so that we break the QWERTY chain of just continuing to do things the same way even if it's inefficient, even if it doesn't make any sense, it obviously doesn't make any sense anymore to worry about keys, the keys getting stuck, except, I guess if you spill something on your keyboard. The third thing is whether the degree to which we can digitize the knowledge and information that exists inside the walls of Lazard. There's amazing insight that's walking around in people's brains. The more that we can digitize that, the more that the tools will have something to work with. And then the final thing, which is perhaps surprising or ironic or doesn't quite fit the mold as we firmly believe that as the technology improves, the importance of human relationships of deep client connectivity will only expand not decline. So that involves more convening, more detailed discussions with clients that those trusted relationships are even more important in an AI-enabled world than ever. So lots of different activities going on here. And I am personally very excited about the opportunity to -- again, I think this will be transformational for both of our businesses and we're very, very much focused on it.

We'll take our next question from James Yaro with Goldman Sachs.

So you mentioned, Peter, that private equity will comprise an increasing portion of M&A. But recently, strategic M&A has outperformed sponsor M&A again this year. Could you just help us think through when the frequently and much hype sponsor recovery will take off?

Sure. Before I do that, let me just again note that we now are -- as I mentioned, I think, in the prepared remarks over 40% of our advisory revenue is coming from private capital. So even while the M&A piece of that world has been a little subdued, we have so many other touch points with private capital from fundraising to restructuring and liability management to our Lazard Capital Solutions team and so on our fundraising business, obviously, that we are seeing a significant increase in revenue associated with private capital, even while the M&A channel part of that has been a bit subdued. So that's point one. Point 2 is the reason that we think there will be a pickup in M&A activity from this sector is that it's just been several years now in which LPs have had relatively low cash distributions low than expected -- lower than they expected. So the pressure continues to mount. In the meanwhile, that pressure has helped to create an acceleration of our secondaries business within our PCA fundraising business. But nonetheless, it is still a significantly rising kind of pressure environment. And the reason that there hasn't been more cash distributions from the M&A channel is because of some of those headwinds that I mentioned before but those are generally resolving, maybe not quite yet fully with regard to the IPO market, but the regulatory environment I think is clarifying the tariff environment is, we hope, clarifying and we expect that it will. So many of the things that have been kind of impeding M&A activity from private equity are resolving themselves. And then you layer on top of that -- excuse me, something is stuck my throat -- you layer on top of that the pressure from LPs and that's why we think that the environment will shift.

Okay. Excellent. That's very, very clear. Just 2 quick Asset Management questions here. Firstly, to clarify a previous point you made, are you now committing to net 0 flows? And I guess, how should we think about this over an annual basis or some other period? Secondly, could you just speak to the impact of recent inflows on the Asset Management fee rate and the mix shift away from sub- advised mandates should we expect the fee rate to potentially tick down from this quarter's level? And just how to think about the cadence? I know there's a lot there.

Sure. First, I don't know exactly what you mean by committing to. But we had said that flat flows was a stretch goal at the beginning of the year. I think it's still within reach as a stretch goal for the year as a whole. We will see how it plays out. But at the very least, the flow picture is significantly improved relative to 2024 despite some of the skepticism when we initially put out that stretch goal. So I will just reinforce that we're focused less on -- well, we're focused on doing the things under the surface that lead to good outcomes and you're seeing some of that play through in the results year-to-date and in the second quarter. With regard to the fee rate -- actually, the fee rate increased very slightly quarter-over-quarter and increased a bit more year-over-year. The sub-advised accounts, as I mentioned earlier in the year are a significant share of AUM, a notable share of AUM. They're pretty small share under 5% of our asset revenue in total because they are large and therefore, there's a natural negative relationship between the size of the mandate and the fee rate that from a single client, for example, that one obtains. So they're relatively low fee rate assets, which is why they're a much larger share of AUM than they are of revenue. So mechanically, just from that alone, if you had a neutral overall flow and there was flow out of the sub-advised and flow into other products, you should expect probably at least stability and maybe even an increase in the average fee rate as a result.

Very clear. Just a quick last one on the non-comp, good non-comp discipline in the quarter. Could you just speak to the non-comp growth trajectory from here?

Yes, I'll take that one, James. So I had previously said that I expected mid-single-digit increase in non-comp on a dollar basis for the year. Since then, we've seen some upward pressure, a couple of points from FX rates, and then we've also seen business development trending up as well as continued investments in technology. So now I'd say probably expect more like high single digit for the year.

We'll take our last question from Brendan O'Brien with Wolfe Research.

I guess to start, the commentary on the mix of the advisory line was helpful and insightful. So thank you for providing that. But I just wanted to get a sense as to how that mix compares today relative to last year. And within those non-M&A businesses, how is the contribution from those different line items evolved?

So I would say relative to last year, we have a slightly higher non-M&A share. The mix is, again, roughly 60-40. There's a couple percentage point move not a -- but a couple of percentage point move relative to last year in that mix with the non-M&A piece picking up a bit and the M&A piece being a slightly smaller share of the total. Within the non-M&A piece, we've seen a significant increase in restructuring and liability management, especially liability management, which is almost the entirety of it at this point. We also, as I mentioned, we had a record first half in our PCA business, which is our fundraising business disproportionately in the secondary piece of that, the secondary piece of that will be roughly 60% or, let's call it, 2/3 of the overall business, roughly speaking, in that category. We also are seeing significant growth in our Capital Solutions Group which is great to see. So -- and I can keep going, there's a whole bunch of different pieces to this. But backing up, we have been building out more products and strategy -- more products and services for our clients to diversify the business. So at this point, we are increasingly well diversified geographically and we are well diversified across the products that we're offering to our clients. And that's just an advisory. Obviously, we also have the diversification that comes from having the asset business also.

That's helpful color. And just drilling down on the restructuring part of the business, in your comments around the M&A outlook, you indicated that conditions are improving, corporate balance sheets are strong. But obviously, at the same time, it sounds like your liability management practice continues to see strong momentum. So just trying to square those 2 like the push-pull between those 2 businesses and how you expect restructuring and liability management activity to traject throughout the rest of this year and into next?

Yes. Look, what I'd say is even within a generally constructive environment, there always are companies that find themselves in trouble or sectors that find themselves more challenged. So it's not surprising that especially as we move towards more liability management, and that is -- I mean, that's the vast bulk of the activity at this point. That these things can kind of co-exist. A couple of other noteworthy features. We've seen -- one thing that we've done in this business, not only did we have a leadership transition a couple of years ago, but we increasingly diversified this business not only into liability management and away from just pure restructuring but also to have a balance between creditors and debtors. I would say I'm going to maybe get this not exactly right. But if you go back 5 or 10 years, the business was probably 90% or more debtor based. And today, it's more like 60-40 debtor creditor in that range. So I've been mentioning 60-40 a lot. There are lots of different ways in which we're diversifying the business. Almost all of the times that I mentioned 60-40 so that would be kind of M&A, non-M&A, public company, private company, not exactly what sort of U.S., Europe, now debtor creditor, as I mentioned, all of those have potential to move more towards 50-50 with lots of growth even in the 60% component. So when I say move towards 50-50, that means a larger share of a larger pie, which is why we're really excited over the next few years to see lots of opportunity ahead for growth. And that's why we're out in the marketplace attracting new talent and high-quality talent because we see so much opportunity.

This now concludes Lazard's Second Quarter 2025 Earnings Conference Call.