Lazard, Inc. LAZ

Lazard is making tangible progress on its Lazard 2030 plan, focusing on relevance, revenue, and returns. Financial Advisory achieved its strongest announced lead table position since 2014, while Asset Management delivered its best first half net inflows in nearly 20 years and reached its highest AUM level ever. The firm emphasizes 'contextual alpha' by combining business analysis with geopolitical and regulatory insights, and is expanding its platform to connect capital distribution and technology.

The strategic repositioning of the Financial Advisory business, involving a turnover of over 40% of advisory Managing Directors, is showing encouraging results. Forward indicators, such as conflict clearances up almost 40% year-over-year (dollar-weighted) and over 100% for deals above $5 billion (fee-weighted), suggest increasing momentum. The weighted backlog is building more rapidly than last year, and the weighted pipeline for 2027 is more than double the level of 2026 at the same time last year. Management expects to exit this transitional 'J-curve' period, with new MDs' productivity becoming a significant tailwind for future growth.

Asset Management reported adjusted net revenue of $331 million for Q2 and $640 million for H1 FY26, with management fees up 23% YoY. Net inflows reached $7.4 billion in H1, the strongest in nearly two decades, contributing to a record AUM of $285 billion. Growth is broad-based, with strong demand for the Quant platform (Lazard Advantage AUM doubled to $50 billion), emerging markets, Japanese equity, international equities, fixed income, and private markets. Strategic hires, including a Chief Investment Officer, Chief Operating Officer, Head of Global Product, and Head of Corporate Development, are enhancing investment processes and product strategy.

The acquisition of Campbell Lutyens is on track, with integration planning underway. This acquisition will establish a third core business, Lazard CL, focused on global private capital advisory, complementing Lazard's public markets strength. The firm expects the acquisition to be accretive to earnings in 2027 and thereafter, with an anticipated revenue contribution of $500 million in 2027, excluding synergies. The combination is expected to enhance connectivity between M&A, restructuring, and fundraising businesses, particularly in secondaries and continuation funds.

Lazard is committed to being an AI-enabled independent financial firm, adopting AI and other technologies to serve clients and enhance productivity. The firm employs a multi-model AI strategy, with various models (including Claude) within its firewall, to avoid single-source vulnerability and drive cultural change in work processes. While current AI spend is modest, the firm sees significant opportunities for improved client service and internal efficiency, with a focus on deploying AI to leverage the data asset from the combined Lazard CL business.

Lazard returned $103 million to shareholders in Q2, including $49 million in dividends and $59 million in share repurchases, restarting buybacks after a pause for the Campbell Lutyens transaction. The firm has a remaining repurchase authorization of over $250 million. The adjusted compensation ratio was 69.9% for Q2, influenced by the accounting impact of the MD repositioning. Management anticipates a significant decline in the compensation ratio in 2027 and 2028 due to fading one-time^📎 buyout effects, operating leverage from increased MD productivity, and direct efficiency initiatives.

The M&A market continues to be driven by strategic transactions, with large deals disproportionately active, while private equity M&A remains subdued. This divergence is attributed to a valuation disconnect caused by higher interest rates, which reduced the net present value of cash flows, leading to hesitation from private equity firms to sell. However, increasing pressure from LPs for distributions and the persistence of higher interest rates are expected to drive a pickup in sponsor activity in the second half of 2026 and into 2027, particularly in continuation funds and secondary activity.