LAZ (2025 - Q3)

Good morning, and welcome to Lazard's Third Quarter and First 9 Months 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. Alexandr

Good morning, and welcome to Lazard's earnings call for the third quarter and first 9 months 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. Please note that unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe that these non-GAAP financial measures 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 Orxzag, Lazard's Chief Executive Officer and Chairman; and Mary Ann Betsch, Lazard's Chief Financial Officer. I'll now turn the call over to Peter.

Thank you, Ale, and thank you to everyone for joining today's call. We are pleased to report another quarter of strong results, reflecting an ongoing focus on our clients and continued momentum behind our long-term growth strategy. For the first 9 months of the year, total firm-wide revenue was $2.1 billion, including record financial advisory revenue of $1.3 billion. Financial Advisory was active during the third quarter with strength in M&A across health care, industrials and consumer and retail in restructuring and liability management and in primary and secondary fundraising. Our recruiting efforts have resulted in 20 new MDs joining Lazard so far this year with world-class talent attracted to our premier brand and our vision for the future. Overall, financial advisory performance has demonstrated how our commercial and collegial approach is producing results by capturing new business opportunities. Looking ahead, we see an increasingly constructive environment for advisory activity, which I will discuss later. In Asset Management, it is now clear that 2025 is an inflection point for the business. For the first 9 months of the year, revenue totaled $827 million. And in the third quarter, revenue was up 8% year-over-year. Improved investment performance, our increased focus on key products and strategies and more favorable market conditions have resulted in record gross inflows for the third quarter and for the first 9 months of the year. Year-to-date, we have achieved net positive flows of $1.6 billion with total AUM up 17%. We look forward to welcoming Chris Hogbin as our CEO of Lazard Asset Management in December, helping to further accelerate our progress and evolve this business for future growth. Let me now turn the call over to Mary Ann to provide further details on the quarter's results, and then I'll share more on our outlook and the successful execution of our long-term growth strategy, Lazard 2030.

Thank you, Peter. Today, we've reported record third quarter firm-wide revenue of $725 million, up 12% from the same time last year, driven by activity across both our businesses. Financial Advisory revenue totaled $422 million, up 14% from 1 year ago. Lazard participated in several marquee transactions during the third quarter, reflecting collaboration across banking teams and the strength of our global franchise. Completed transactions include Mallinckrodt Pharmaceuticals $6.7 billion combination with Endo Pharmaceuticals, Ferrero's $3.1 billion acquisition of W.K. Kellogg, Altice France's landmark agreement with creditors and Sixth Street on its investment together with a consortium led by William Chisholm to acquire a majority controlling interest in the Boston Celtics in a deal valued at $6.1 billion. Recently announced transactions include Keurig Dr. Pepper's $23 billion acquisition of JDE Peet's and planned subsequent separation into 2 independent companies and Caithness Energy on multiple transactions, including the $3.8 billion sale of assets to Talen Energy. In addition, corporate restructuring assignments include company roles with Anthology, CityFibre and Saks Global. We also engaged in several private equity assignments, including advising Norvestor on a continuation fund, advising on the closing of Nexus Capital Management Fund IV and Pacific Avenues Fund II and advising on capital structure and capital raises for Morrisons and Tennant Holdings. Turning to Asset Management. For the third quarter, revenue was $294 million, up 8% compared to the third quarter last year and up 10% on a sequential basis. Management fees for the third quarter increased 6% compared to the third quarter last year and increased 8% sequentially. Incentive fees were $9 million in the third quarter compared to $3 million in the third quarter last year. Average AUM for the third quarter of $257 billion was 5% higher than the third quarter of 2024 and up 8% on a sequential basis. As of September 30, we reported AUM of $265 billion, 7% higher than both September 2024 and June 2025. During the quarter, we had market appreciation of $12 billion and net inflows of $4.6 billion, partially offset by foreign exchange depreciation of $400 million. We see ongoing client engagement and demand across our investment platforms, particularly with our quantitative and emerging market strategies. Illustrative examples of this include $3 billion from a Korean institution into Global Equity Advantage, $1 billion from a U.S. public fund into international Equity Advantage and $1 billion from a U.S. financial intermediary client into emerging markets equity. In addition, we received over $1 billion from a Netherlands-based client for a custom U.S. equity mandate and approximately $900 million from a U.S. institutional investor into international quality growth. Now turning to expenses. For the third quarter of 2025, our compensation expense was $475 million, resulting in a ratio of 65.5% compared to 66% for the third quarter 1 year ago. Our noncompensation expense for the third quarter was $149 million, equating to a ratio of 20.5% compared to 21.4% for the third quarter last year. We are maintaining a disciplined approach to our expenses, while investing to support long-term growth. This includes substantially expanding our team of financial advisory managing directors and opening new offices in the Middle East and Northern Europe this year. It also includes the build-out of our ETF business in asset management with 6 strategies launched in 2025 and more to come. Shifting to taxes. Our effective tax rate for the third quarter was 21.4% compared to 32.5% for the third quarter of 2024. As an update to our tax guidance, we currently expect our full year 2025 effective tax rate to be around 20%. Turning to capital allocation. In the third 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. Firm-wide client engagement remains strong. While the U.S. government shutdown may temporarily affect the timing of deal approvals among other potential effects, we see an increasingly improving environment for financial advisory activity. In any moment of turbulence, there is also a substantial opportunity for our clients as they navigate shifting geopolitical and macroeconomic landscapes as well as advances in AI. Demand for M&A continues to increase, while restructuring and liability management activity also remains strong as businesses reposition to address evolving market conditions. Our expanded connectivity to private capital positions us well as private equity comes back on to the playing field and demand remains robust for secondary and continuation funds. This is occurring across all our major geographies, including the United States and Europe as well as now the Middle East, further underscoring the diversification of our business. We are also making steady progress toward our long-term growth goals. We remain on track this year to achieve or exceed our 2030 objective of expanding our team of financial advisory MDs by 10 to 15 net per year with significant hiring already this year. On productivity, we achieved average revenue per MD of $8.6 million during 2024, 1 year ahead of schedule. And since then, average revenue per MD has increased to almost $9 million. We remain confident in our ability to continue raising productivity, including beyond our 2028 goal of average revenue per MD of $10 million through our focus on mandate selection, our disciplined fee structure, the quality of our managing directors and our ongoing emphasis on a commercial and collegial culture. Turning to asset management. We have made significant strides in sharpening our focus on the areas of the market, where active management is most likely to add value to clients, leading to improved flows this year. Active management plays a particularly valuable role for clients, where information is imperfect and where technology can be applied to generate excess returns. This includes quantitatively driven strategies, emerging markets and customized solutions that are not readily available in the broader market. These strategies have delivered significant outperformance this year and represent especially promising future growth opportunities. At the same time, and as we have emphasized before, our sub-advised funds associated with U.S. multi-manager mandates have different dynamics from the rest of our asset management business. These funds have disproportionately contributed to outflows over the past few years, which we have more than offset in 2025 due to our focus on the areas of the business that represent growth opportunities. With 97% of our asset management revenue already outside of this sub-advised category, our prospects going forward are strong as our efforts to strategically reposition the business take hold. Looking forward, we believe that we can also expand our range of offerings to reach new clients, including through active ETFs. In the third quarter, we launched 2 new active ETFs, the Lazard U.S. Systematic Small Cap and listed infrastructure ETFs, bringing our total to 6 in the United States. Our ETF platform is off to a solid start as we bring our leading strategies to more investors with further global expansion in the coming months. In addition, we are excited to welcome Chris Hogbin as CEO of Lazard Asset Management later this year. His collaborative leadership style and experience in building and growing a global asset management business will help us to meet clients' evolving needs and accelerate progress toward our long-term strategy. Across Lazard, we are focused on key differentiators that support our ability to deliver for our clients and shareholders. Lazard has long been recognized for our unique combination of insight into business and geopolitical trends. Building on the success of our world-class geopolitical advisory group, we are honored that Erik Kurilla, retired Four-star U.S. Army General and former Commander of U.S. Central Command, has joined Lazard as a senior adviser. His expertise is particularly valuable given client interest and ongoing developments in the Middle East and our expansion in that area of the world. Clients turn to Lazard for the most sophisticated advice and investment solutions, and we succeed with the unrivaled collective intellectual capital of our firm. With AI, we have the capability to meaningfully scale this capital, while reinforcing the importance of client relationships. Helping to further advance our efforts, we are pleased that Dmitry Shevelenko, Chief Business Officer of Perplexity, has joined Lazard's Board of Directors. She is already contributing to our efforts to become the leading AI-enabled independent financial services firm. Finally, as I've recently completed 2 years as CEO, I wanted to take a moment to reflect on our progress to date and the road ahead. In pursuit of our long-term growth strategy, we set forth several objectives in Financial Advisory to boost revenue by increasing average productivity per MD and by expanding our team of managing directors and in asset management to achieve a more balanced flow picture this year by strengthening our research platform and by focusing our distribution efforts on key products and strategies. We are successfully executing against our plan in achieving these objectives as demonstrated again this quarter. We continue to evaluate our overall success across 3 dimensions: relevance, revenue and returns. Our goals remain consistent to double firm-wide revenue from 2023 to 2030 and deliver an average annual shareholder return of at least 10% to 15% per year over that same period. While early results are quite promising, what I am most proud of is the degree of cultural change across the firm. Building on our long-standing commitment to excellence, we have meaningfully raised our ambitions and our collaborative approach. We have also transformed our Managing Director group in Financial Advisory through hiring and promotions and with heightened expectations for commercial outcomes and collegial behavior. At Lazard, we are playing to win and playing to win together. We are only at the start of realizing the sustained advantage that our reenergized culture creates, and we are confident that our success in creating very strong organizational health will increasingly pay off in results as we move forward. This early success and momentum are the result of our colleagues' dedication to our clients and commitment to realizing this vision for our future. And to them, I extend my appreciation and respect. Now we'll open the call to questions.

[Operator Instructions] We'll take our first question from Alex Bond with KBW.

Peter, maybe just to start on the hiring environment. It seems like the backdrop and your competition for senior talent appears to be relatively high at the moment. And you've noted that you expect to be at or near the high end of your targeted net MD addition range for the year. Can you just walk us through how you're thinking about balancing bringing on strong talent, who can add to the revenue base while also considering how that impacts the ultimate level of comp leverage moving forward? And then also curious how talent retention fits into this narrative, just given your peers also remain active on the hiring front as well.

Sure. So we've had a lot of success bringing people on to the platform. I think there's a sense of a reenergized Lazard and a lot of excitement about our momentum in key areas like industrials, health care, the Nordics, Middle East, FIG, private equity coverage among many others. And the quality of the people that we're attracting, if you look not only at their personal trajectory, but also where they're coming from is very high. So we're excited about that. With regard to the opposite direction, we've had very, very few regrettable departures and I'd say the state of our Managing Director pool is very strong. We just completed an internal survey as 1 example, and the MD engagement scores on the financial advisory side are extremely high, which, again, I think speaks to the organizational health point that I made. With regard to comp leverage, the reason that we're out hiring these people is because we believe that they'll not only lead to growth over time, but also to helping to continue to raise our productivity per MD. And that then speaks to the comp leverage point because I want to reemphasize something I've made -- point I've made many times before. A substantial amount of comp leverage comes from raising productivity per MD. And the reason for that, in turn, is that the non-MD expense associated with a more productive partner is not that different from the non-MD expense compensation associated with a less productive MD partner. So as you raise productivity per MD, you get a substantial amount of operating leverage because the non-MD compensation declines as a share of revenue and you get the operating leverage there. So we're bringing on to the platform people that we believe are going to be super productive moving forward. We've added a significant amount of diligence to our hiring process, that increases our confidence about that. And if you look at the early results of some of the people that we've been hiring over the past couple of years, that seems to be paying off. So comp leverage over time because the folks we're bringing on are going to help contribute to raising productivity. That is one of the factors that gives me confidence to say that as we move past 2028, we're going to continue raising our productivity per MD aspirations. And I think, for example, something in the range of $12.5 million by 2030 is imminently achievable.

Great. That's helpful. And maybe just switching gears for my next question, but maybe if you can just speak to the recent success you've had driving that inflows in the Asset Management unit. And to the extent these recent inflows are being driven by new client wins. I mean it sounds like the geographic distribution here, there's a pretty good mix. And then also curious as to your confidence level in achieving net neutral flows for the year now that we're a decent way into the fourth quarter.

Sure. So on the first part of the question, the flows are -- again, it's a bit of -- we've got to be clear about it on a gross basis, significant inflows into the part that I'm going to talk about and then ongoing outflows from the sub-advised accounts that I mentioned in the script, with regard to where the inflows are coming from, they are disproportionately in areas of the business that we're very excited about the kind of go forward on, our quantitative and systematic strategies, emerging market equities, customized solutions, global listed infrastructure and other examples like that. And also among European investors, our sustainable products are areas of interest. With regard to the geographic mix there is also increasingly play towards diversification outside of the United States. And so the vast majority, 80% to 95% of our current one, but not funded mandates are for products and strategies outside the U.S. and among clients that are also geographically outside of the United States. So to your point, yes, the global footprint that we have, both on the product side and on the distribution side is beneficial. With regard to the year as a whole, I had put forward the flat flows or net zero flows as a stretch goal. I think many of the people on this call may have been skeptical that, that was even remotely possible. And again, therefore, I think the year-to-date results are particularly striking, given that there was -- there had been so much skepticism. As we approach the end of the year, obviously, we are increasingly looking to actually hit that bogey. We'll have to see. But I think, again, I'll just go back to year-to-date, things look very good, and we continue to win new mandates, including 2 that I got notified about this morning. So we will see that everything looks very positive in terms of the overall flow picture right now, especially in those products and strategies that I was highlighting. And that is the second point I want to make, which is what's happening here is that even while the net number is positive, we're also seeing a significant transformation of the business towards those areas that we think are the most promising on a sustainable basis over time. Highlight again quant areas of equities, where there are more information in perfections and therefore active management is more likely to have some sort of edge emerging market equities is a great example of that. And then customized solutions, where it's just harder to put together the portfolio that clients are looking for on their own. So overall net positive, but also we're losing -- or we're seeing outflows in the large sub-advised accounts, and we're seeing disproportionate inflows into those new areas of the business. So under the surface, there's also a shift towards those products and strategies where we have a high degree of confidence that the theory of the case for active management makes a lot of sense.

Our next question will come from Jim Mitchell with Seaport Global Securities.

Maybe just a follow-up on some of those -- that discussion there first on the Asset Management business. You talked about record gross inflows. Are you seeing any change in the trends in gross outflows, I guess, not just within the sub-advisory group, but just more broadly because I think if you look at the trends that you guys disclosed, your gross outflows have still been relatively high. You're seeing any improvement there?

Yes. Gross outflows are lower than they were last year. And again, they're disproportionately accounted for by the sub-advised accounts. So if you were to do a net flow picture outside of subadvised accounts, the trajectory looks even more promising, and I think that may be an important way to consider things given that 97% of our revenue is outside of that category. So that might be a paradigm that's worth continuing to highlight on a going-forward basis.

Okay. And then -- and just maybe when you think about Asset Management and the turnaround there, you have a lot of momentum, obviously, assuming the markets hold up, especially heading into next year, it seems like you have more operating leverage and comp leverage in that business. So does that lower the bar on the Advisory side to carry the weight to get to that 60%? So just how are you thinking more positively about getting to that 60% in the intermediate term? Just any thoughts on getting to that goal?

I am quite confident that we will see operating leverage kick in further in 2026 and so that we'll make progress on reducing the comp ratio. I don't want to attach a particular timetable because that's obviously dependent on a variety of factors. So let me just unpack some of the things that will lead to operating leverage over time. 1 is that ongoing improvement in productivity per MD that I mentioned. Part of that also is the mechanic -- almost mechanical or arithmetic kind of effects of what's been happening with our big step-up in hiring because when we hire people, there's a temporary ramp that kind of artificially depresses productivity per MD or raises the comp ratio either way you want to look at it because they're getting used to the platform and what have you, as they mature that affect flip sign or kind of attenuates. And so there's almost a mechanical uplift in productivity that we expect to be occurring as we move through time, even at a higher hiring rate because these are all sort of transition effects as we've moved to a much more aggressive hiring stance over the past couple of years. On the Asset side of the business, there will be operating leverage that comes from these inflows, but also from a lot of care and attention that we're paying to what I would call scale for strategy. So if you wanted to highlight the big -- obviously, there are many things that go into operating leverage, but to simplify it on the Advisory side of the business, a lot of operating leverage comes from revenue per MD. And on the Asset side of the business, a lot of operating leverage comes from scale per strategy, not overall scale, but scale for strategy. So, those are the types of metrics that we're looking at to produce operating leverage. Obviously, lots of other things go into it in terms of the ability for us to find further efficiencies in many of our processes because of artificial intelligence and other factors, but those are 2 big drivers on each side of the business.

Our next question will come from Brennan Hawken with BMO Capital Markets.

First, Peter, I'll definitely caught to it. I was one of the doubters in you guys getting and turning around the flows as quickly as you did. So no question there, just tip of the cap.

Thank you for that, much appreciated.

You're welcome. I'm impressed with how well it's gone. And you still have leadership inbound. So actually, I'll turn it into a question. I know we've got new leadership coming in December. When do you think it's realistic for the analyst and investor community to hear Chris' plans for the business? I know he's not started yet, but I also, I'm sure about executive of that caliber I doubt he didn't start hatching plans, when going through the whole hiring process and interviewing process. So how long do you think it will be before we'll get an idea or at least a framework of what he's thinking?

I think it will be relatively fast. We do want him to find his way around the hallways and what have you. But to your point, he's a very experienced leader in the space, so comes into this with that advantage. And I think has a very good sense of our business and the opportunities for it. So to be specific, let's say, January, maybe or at least January or February, when we want to get past our fourth quarter results, but sometime in that time frame, it's not going to be 6 months.

Right. Okay. We'll call it at some point in the first quarter.

Okay, that's great. We're happy to set up the appropriate kinds of discussions.

Perfect. Okay. And then thinking about Advisory, right? So you've done a lot of changes. You've spoken to bringing up the productivity number and the productivity numbers that improved really quite well under the new strategic direction. And so all that's really encouraging. I'm guessing this might have changed how we think about the mix within Advisory. So can you give us maybe like a high-level sense of the major buckets within Advisory. And if you want to talk about it on like an LTM basis or like how it's been trending recently versus maybe historical levels, like how does it break down in between like M&A, PCA, like there is a Private Capital Advisory business, your Restructuring business, the major buckets that you would break it into. How does that break down versus the history? And has that changed a lot?

Yes. And we -- I'd note a couple differences relative to history, while we're doing this. 1 is M&A versus non-M&A. Over the past year or so, it's been kind of 60-40 M&A, non-M&A, in this quarter. And I think this is a precursor of things to come. The mix is actually closer to 50-50, not quite M&A, non-M&A, as we've seen increasing growth in some of the other Advisory Services. And the second piece of this is the mix between public company and private capital, where we are also trending towards a much more balanced mix than was the case historically for Lazard. This quarter was a little bit off from that. We had a little bit more tilt towards public companies, but that's just because quarters bounce around a bit. So bottom line is, I think you should expect a significant amount of growth, not only in the M&A part of our business, but as we built out our Fundraising business, Restructuring and Liability management, those are trending more towards approaching half of the business. And I think that's a reasonable medium-term objective, while maintaining our strength in the core M&A product across the globe.

Our next question will come from Brendan O'Brien with Wolfe Research.

I guess just following up on one of your remarks you just made, Peter, on the Restructuring business. Concerns on the credit outlook you've been building in recent weeks following comments made by one of the big banks on 2 of the recent defaults, however at the same time, the Fed as well as other central banks have begun to lower rates, which should help to alleviate the stresses put on corporate balance sheets. So it would be great to get your perspective around whether your Restructuring business is seeing any signs of building stress at this juncture? And how you're thinking about the outlook for the business given these puts and takes?

Sure. Let me make a few comments on this, just unpack it a little bit. First, we do not view the recent examples of bankruptcies that have gotten a lot of press attention as a canary in the coal mine for broader problems in Private Credit. We are advising on one of those situations now, and so I'll be careful about going into too much detail, but I think that's the broad conclusion. There are -- it's clear Private credit has grown very rapidly. It would make a lot of sense and one should expect that at some point, there will be wobbles in that market even as it remains a more permanent part of the financing environment. I just don't think that these recent cases are a symbol or a signal of that wobble at this point. So that's the first point. Second point is, there has been a quite notable change that should affect the timing of Restructuring and Liability Management or the correlation of the covariance between Restructuring and Liability Management and other Advisory Services, especially M&A. Historically, as you know, it was pretty much always the case that when Restructuring and Liability Management was booming, M&A was weaker and vice versa. What changed over the past decade or even 2 decades is a massive increase in the dispersion across firms and their performance. So if you as one example, if you take return on invested capital as a metric of firm performance and look at the 90th or 95th percentile of firms versus the 50 or 15th or the 25th, you just see this explosion that looks like when those income inequality charts, a lot of growth at the top kind of stagnant in the middle and then declines at the bottom. And that wider dispersion I think, needs to feed into thinking about the cycle because as corporate performance becomes more varied you can have the coexistence of a very strong incentive for M&A, but also a lot of Restructuring and Liability Management activity occurring. And the reason for that is pretty simple, which is, as actually research out of Stanford shows, one of the motivations for M&A is that the top-performing firms believe they can buy the lower-performing firms and improve their internal operations and productivity through better management, basically. And as the degree of dispersion goes up, that incentive gets stronger. So that's one of the vectors for M&A activity. But at the same time, as you have more firms down at the bottom that are struggling, you've got ongoing Restructuring and Liability Management. So we just think that this is a -- there's a change in the environment, where both of these things could increasingly occur or could coexist to a degree that may not have been the case historically. Finally, I'd say one area, where I probably vary from the conventional wisdom somewhat is I still think the markets are being -- just coming back to your point about rates. I think the markets are being a bit too optimistic about the probability of more than one additional rate cut from the Federal Reserve over the next couple of months, the next few months. We can talk about why that is, in my opinion. But the consequence, if I were right, of rates remaining a bit higher, at least at the short end of the curve would be probably more impactful or have more impact on the Restructuring and Liability Management world than on M&A. Rates are one input into M&A, but I think a kind of secondary tertiary one, they have a bit more effect on the Restructuring and Liability Management side of the equation.

That's a really helpful response. Peter. I mean for my follow-up, I just want to touch on Europe a bit. The expectation last quarter was that the pickup in M&A activity would be largely driven by the U.S., which the data suggests has largely played out that way. However, at the same time, it does seem like trends in Europe has been quite strong as well. So I was just hoping you could unpack what you're seeing in Europe relative to the U.S., if there's any notable divergences, and how you think those 2 fee pools will track relative to each other over the near to intermediate term?

Yes. Look, for the quarter, we saw a bit more of a tilt towards Europe in the revenue mix this quarter. These will bounce around a bit for us. One of the benefits of having a really strong franchise, both in the United States and Europe is that we can kind of surf to, wherever the activity is the hottest, if you will. With regard to Europe specifically, I think the most important thing to realize is people often conflate the macro with -- I don't want to call it the micro, but I'll call it the micro. There are lots of phenomenal European companies. And even against the backdrop of a bit more challenging macroeconomic situation, which in turn reflects political polarization in a lot of countries that we could talk about, there's a lot of interest among European companies to do something and a lot of strength in the corporate sector. And as an example, there's been a lot of attention paid to the political turmoil in France. Most CAP 40 companies only have a very small share of their activity inside of France. And so the question is, how can you still have such ongoing activity out of the French market even while there's the backdrop of political drama, and I think the short answer is that many French companies are global, and they are affected by what's happening in France, but it's not the only thing affecting their outlook. Final thing I'll say is for the M&A cycle as a whole, the next stage of this developing is the return of private equity in M&A, in particular. And so that applies to Europe also. I think the question is at what point and we think this will increasingly play out in 2026, will demand from LPs for liquidity, not be fully satisfied only by secondary/continuation funds, but require M&A by the Private Equity houses. Our sense is that, that's going to be increasingly relevant in 2026. And our expanded connectivity to those sources of Private Capital will -- the investments that we have been making in our coverage efforts will increasingly pay off therefore in 2026.

Our next question will come from Ryan Kenny with Morgan Stanley.

Want to follow-up on the earlier comment that the U.S. government shutdown could impact some deals. Could you impact which pieces of Advisory are impacted? And how quickly after the shutdown is lifted, can these deals move forward?

Sure. Look, many deals require either some combination of SEC approval or Department of Justice and FTC approval. So anything that requires those approvals or other agencies that don't fall into the kind of essential part of the government component -- could be affected by timing. We think that any backlog that builds up from that will be cleared relatively quickly, matters of weeks, not months after the government fully reopened. And I would also note that if the government shutdown were to continue for a significant period of time, the administration always has the ability to alter its definition of what's essential and what's not. And I would imagine that if something were to start to affect the macro economy in a quite material way, for example, not clearing important transactions, they may want to reexplore that boundary. So in past government shutdowns, we haven't really seen a very substantial effect because of the kind of catch-up being quite quick, and that's what we would anticipate this time too.

And then separately on non-comp, different topic. Any color how we should think about the trajectory here? You mentioned your ambitions to be a leader in AI. Is there an upfront investments been needed to get there?

The upfront investments in AI are, I think, modest relative to the scale of other expenditures and the returns are so high that I don't think you should be focused on the upfront investments as a material mover of the non-comp component, but more broadly. Mary Ann, if you want to come in on non-comp trajectories.

Sure. So. I would just maintain the guidance from last quarter, which is we're still expecting a high single-digit increase in dollars year-over-year, high single-digit percentage year-over-year, but in the dollars, not the ratio. And that's driven by the same factors we've been talking about. So continued investments in technology, ongoing increases in business development, some FX headwinds and then asset servicing fees, which are higher as our AUM has grown. So those are the drivers of the increase there.

Our next question will come from James Yaro with Goldman Sachs.

Maybe just could you help us think a little bit in more detail on the secondary's outlook from here? We've seen a very strong CAGR in this business over the past 3 to 4 years. Is anything slowing down there perhaps this year and more recently?

No. I mean that's a pretty simple answer. No. The trends there are -- the tailwinds are very strong, and we see this continuing. I think some people have incorrectly assumed that as M&A and the IPO market reopens that the secondaries business will be negatively affected. We don't really see it that way. We see the kind of artificial priming of the pump from other exit strategies being kind of temporarily harder to do -- as only doing that priming the pump for this asset class, if you will. And I think we expect and most market participants expect that this will be a permanent part of the environment going forward. And when you look at the penetration rate of this products or this vector, among private equity funds is still relatively modest. So there's tons of room to grow, and that's what we're experiencing in real time in terms of client engagement. So we don't see any deceleration at least in our business and don't expect it, if anything, the opposite.

Okay. Great. You were very clear about where you expect inflows and outflows to come from in Asset Management. Perhaps you could just comment on the fee rates on these outflows and inflows. And I guess, just more broadly, how we should think about your fee rate in Asset Management trending going forward?

Well, as you will have seen, there was a small increase in the average fee rate in the quarter. I think that's because -- well, mechanically, because the things that are flowing in have higher fees than the things that are flowing out. And going forward, we don't anticipate any material change one way or another in the average fee rate. Obviously, the specifics will depend a little bit on exactly, where the inflows come from among those products and strategies that I was describing as being where we're experiencing the most growth. But I think a reasonable expectation is roughly flat, at least for the near term.

This concludes the Q&A portion of today's call, and it also concludes Lazard's third quarter and first 9 months 2025 earnings conference call. You may now disconnect.