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Lazard Ltd (NYSE:LAZ)

Q2 2014 Earnings Conference Call

July 24, 2014 8:00 a.m. ET

Executives

Judi Frost Mackey - Director of Global Communications

Ken Jacobs - Chairman & CEO

Matthieu Bucaille - CFO

Analysts

Devin Ryan - JMP Securities

Alexander Blostein - Goldman Sachs

Brennan Hawken - UBS

Ashley Serrao - Credit Suisse

Vincent Hung - Autonomous Research

Douglas Sipkin - Susquehanna

Michael Wong - Morningstar

Operator

Good morning, and welcome to Lazard's Second Quarter and Half Year 2014 Earnings Conference Call. This call is being recorded. (Operator Instructions)

At this time, I will turn the call over to Judi Frost Mackey, Lazard's Director of Global Communications. Please go ahead.

Judi Frost Mackey

Good morning, and thank you for joining our conference call to review Lazard's results for the second quarter and first half of 2014.

Hosting the call today are Ken Jacobs, Lazard's Chairman and Chief Executive Officer; and Matthieu Bucaille, Chief Financial Officer. A replay of this call will be available on our Web site beginning today after 10:00 a.m.

Today's call may contain forward-looking statements. These statements are based on our current expectations about future events that 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 SEC, 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're 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'll focus on highlights of our performance. The details on 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 Web site at lazard.com. Following their remarks, Ken and Matthieu will be happy to answer your questions.

I'll now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Ken Jacobs

Good morning. Lazard achieved another strong quarter and a solid first half. We generated record operating revenue across our businesses globally.

In Financial Advisory, we're in excellent position as the strategic M&A cycle appears to be taking shape. Companies are seeking trusted advice with global capabilities and Lazard is best equipped to help them succeed.

With unrivaled global network relationships with key decision-makers in business, government, and investing institutions, the highest concentration of senior level bankers and deep local roots around the world overlays with global industry expertise.

Year-to-date, we're advising on one-third of global announced M&A transactions valued over $10 million. We're active in numerous strategic, complex and cross-border transactions, often as sole or lead adviser.

To name just a few, AT&T's acquisition of DirecTV, one of the largest transactions announced this year, General Electric's acquisition of Alstom's Thermal, Renewables and Grid Businesses, GlaxoSmithKline's three-part transaction with Novartis and Consumer Oncology and Vaccines, and Reynolds American's three-part transaction with Lorillard, Imperial Tobacco and British American Tobacco.

Our advisory business is the most active as it has been since before the financial crisis. The U.S. market continues to be healthy, and now we're seeing a pick up in European M&A, where Lazard has the powerful franchise.

In addition, our Sovereign and Capital Advisory services remain active globally, advising governments and corporations on balance sheet matters, capital raising and privatizations. Lazard middle market has gained momentum and is successfully leveraging the firm's global platform.

In Asset Management, investors around the world increasingly look to us for solutions to complex investment needs. They're drawn to our performance, global perspective and deep insight into local markets. We achieved net inflows of 4.7 billion in the second quarter, broadly diversified across equity and fixed income strategies in all our platforms from clients globally.

AUMs surpassed the $200 billion mark and management fees reached an all time high. Our RFP pipeline remains healthy, reflecting demand from institutions and retail investors globally.

We continue to launch new strategies and invest for growth. We recently expanded our capabilities in liquid alternatives, multi-asset solutions and small cap equities. In the first half of the year, we've opened three new asset management offices in the Middle East, Europe and U.S.

Asset Management continues to have solid fundamentals with leadership in growing asset classes across equities and fixed income, strong pattern of long-term performance and platforms with significant capacity for organic growth.

For both our businesses, we don't read too much into quarterly results, because advisory revenue and markets fluctuate, but the trends are encouraging. They reflect client's 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 enhanced operating leverage. As the global macroeconomic environment recovers, we're in an excellent position for continued profitable growth.

Matthieu will now provide color on our financial results and capital management.

Matthieu Bucaille

Thank you, Ken. Operating revenue increased 12% for the second quarter and 20% for the first six months of 2014, compared to the 2013 periods. Adjusted net income increased 43% and 72% respectively, reflecting the substantial operating leverage in our business model. Revenue growth reflected strengths across our businesses.

In Financial Advisory, operating revenue increased 7% for the second quarter and 29% for the first half compared to the 2013 periods. The increases were driven by M&A and other advisory, particularly in Europe.

In Asset Management, record quarterly operating revenue was driven by an 18% year-over-year increase in management fees in line with average AUM. On a sequential basis, management fees grew 8% also in line with average AUM.

At quarter end, our AUM was $205 billion, 25% higher than one year ago and 8% increase of $15.1 billion from March 31, 2014. The $15.1 billion increase included $10.4 billion of market appreciation, and $4.7 billion of net inflows.

Turning to expenses; in the second quarter we continued to accrue compensation at a 58.8% adjusted compensation ratio, down from a 60% accrual ratio in the same period of last year that's consistent with the full year 2013 ratio. Our adjusted non-compensation ratio for the second quarter was 19.5% compared to 20.5% of the second quarter of 2013. Non-compensation expense increased 6% in the second quarter, as operating revenue grew 12%.

For the first six months, non-compensation expenses increased 5% as operating revenue grew 20%. The increases in non-compensation expense primarily reflect greater levels of business activity and investments in our businesses.

Our tax rate was 21% from the second quarter similar to the first quarter, and broadly in line with our expected rate for the year. However, our tax rate varies with changes in the mix, profitability and geography of our revenue. Looking ahead to the next year, assuming increased profitability and all else being the same we'd expect our tax rate to be in the mid to high 20s.

Finally, regarding capital management, year-to-date as of June 30, we have returned $349 million to shareholders, primarily through dividends and share repurchases. We have more that offset the potential dilution from the 2013 year end equity grant.

We remain focused on our 2014 financial target as we continue to invest in our business and maintain discipline on expenses.

Ken will now conclude our remarks.

Ken Jacobs

Thank you, Matthieu. I'll summarize the highlights; strong quarterly and first half growth across our businesses, a substantial increase in strategic complex advisory assignments with signs of an M&A recovery in Europe.

Net inflows and Asset Management broadly diversified by strategy, platform and clients. Solid earnings growth reflecting the increased productivity and operating leverage, high quality earnings, significant cash generation and continued return of capital to shareholders. Both our businesses have substantial capacity for increased activity in organic growth. We remain focused on serving clients well as we build long-term value for shareholders.

Let's open the call to questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) And we'll hear first from Devin Ryan, JMP Securities.

Devin Ryan - JMP Securities

Hi, good morning. Thanks for taking my questions.

Ken Jacobs

Hi, Devin.

Devin Ryan - JMP Securities

With respect to business right now, obviously revenues are trending well above the 2012 levels and we'll see where the year ends up, but the target as they sit today, I know the 25% operating margin target is based on 2012 like revenues. So, now that we're here halfway through the year, the outlook is improving, revenues are at higher level, can we think about or is it reasonable to think there could be upside to that operating margin? Target is based on all the dynamics of where you have leverage points. Just any update there would be helpful, because I know that now we're in a different type of environment than we were a couple of years ago.

Ken Jacobs

Okay. Devin, look, as we've said for some time, our focus for 2014 is achieving our 25% margin target. We continue to be highly focused on that. Obviously to the extent that our business improves and there is additional revenues. We have the choice of continuing to invest in our business or adding to margin. And if we're in that fortunate position as we get closer to year end, we'll give people more thoughts on that.

Devin Ryan - JMP Securities

Okay, fair enough. And then maybe with respect to that investment; are you guys adding MDs right now? And what areas are you adding and where would you like to add as you're thinking about the next few quarters and into next year?

Ken Jacobs

I think as we pointed out last year, we were [carrying] (ph) a little bit about our investment this year towards -- a little bit more of our investment this year towards the Asset Management side of the business. And I think you can see from some of the recent announcements that we've been quite active there. We've added a media team in the Middle East. We've added a team in Singapore, and just recent in the last couple of days we've made a few additional announcements about some capabilities that we brought in on the Asset Management side. We continue to selectively hire on the advisory side, but we have a wonderful built out, fully built out platform on the advisory side, so we remain selective.

Devin Ryan - JMP Securities

Okay, great. And then just lastly with respect to the M&A backdrop, I appreciate the commentary around Europe and your leverage to a recovery there. Is there any way to put any contacts around where you think we are in the U.S. in terms of what inning we are in, in the recovery versus maybe where Europe is and their recovery, just to have some perspective of Europe versus the U.S. just from your view?

Ken Jacobs

Sure. In our view, this cycle probably kicked in, in the U.S. sometime last summer/last fall. In Europe, probably six to nine months later, probably beginning of this year it's begin to pick up in Europe at least for us. And again, it's a function really of the three things that from our experience drive an M&A cycle, it's financing, evaluation, and sentiment or confidence. The first two evaluation in financing have pretty much been in place since the crisis in the U.S. In Europe financings have improved over the last couple of years and evaluations remain pretty reasonable.

What's improved in the U.S. earlier than in Europe was the confidence in the macroeconomic environment, and the improvements in the macroeconomic environments. We always felt it wasn't until the macroeconomic environment was stable and people believed it was improving that you would really have a shift in sentiment that probably happened sometime last summer and into the early fall in the U.S. I think the stability in -- today we are probably seeing more stability in the macro environments in Europe than we've seen since the crisis, and that's contributing to the improvement in sentiment in Europe right now. That's why we are feeling a little bit better about the European M&A environment than we did a year ago.

Devin Ryan - JMP Securities

Okay, great. I'll leave it there. Congrats on the strong quarter.

Ken Jacobs

Thank you.

Operator

And next we'll hear from Alexander Blostein with Goldman Sachs.

Alexander Blostein - Goldman Sachs

Great. Good morning, everyone. Ken, I wanted to spend a minute on the competitive dynamics and the M&A space today. It looks like you guys have picked up considerable market share in the U.S. relative to where you were in the prior cycle. Part of that maybe just because from the issues with the banks, part of that maybe from longer term talents for the independent advisors. But curious to hear how you think the competitive dynamic will evolve in Europe and whether or not we could see similar type of market share gains for you guys especially looking at the fact that it still seems like European banks are still in a little bit more pressure?

Ken Jacobs

Look, it's still early in this cycle in Europe, so it's kind of hard to know how this is going to play out. But what I think distinguishes us at the moment and hopefully for some time and is probably the mode around our Financial Advisory business is this mix of concentration of senior expertise which matches the best of the large firms, and distinguishes us from virtually all of our independent competitors.

Second is a global franchise that has strong local roots wherever we compete which is really critical to being successful in the advisory business. Then a range of capabilities across industry groups and also different areas of the advisory practice, so not only M&A but capital structure, balance sheet, shareholder relations and all of this being able to be applied on a coordinated basis is really I think what allows us to do a better job covering some of the larger companies and to really participate in some of these very complex transactions in the leadership role. I think it's that combination, the senior expertise, the global/local that is these deep roots locally and a global franchise with this breadth of capabilities across industry, that's the most in our business right now.

Alexander Blostein - Goldman Sachs

Got it. Thanks. And then shifting gears to the Asset Management business. So you alluded to there are a few pipeline, it's still fairly healthy. I was wondering if you could spend a minute discussing which products are getting most traction in the pipeline. And then as a follow-up to that I was hoping you could give us an update on where we stand with Global Thematic and the outflows there, so are we seeing kind of the tail end of that.

Ken Jacobs

Sure. Let me just touch on Global Thematic quickly. The outflows for the second quarter were down a bit from the first quarter. And the performance in the business at least on a short-term basis improved a bit. It's still challenging on a three to five year basis, and we expect -- we are cautious about the business for the latter part of this year still.

Turning to the rest of the products, look, we've been very fortunate. We have strong performance across a range of products, virtually all of our products right now. We've got a breadth of products that really are in demand right now for the clients that we cover and that we work closely with. And that's everything from for our emerging markets platform both on the equity and the debt side, our international products that perform quite well, and some of our local products are really kicking in. So we are pretty happy with mix of performance and the breadth of the products right now. And I think we are seeing that in the demand for RFPs.

Alexander Blostein - Goldman Sachs

Got it. Thanks. And then just last one on capital management. It seems like you guys have been a little bit more opportunistic recently with respect to buying back your own stock. Clearly, the cash flow generation has gone stronger with the environment, maybe, some updated thoughts on the use of excess cash.

Ken Jacobs

Sure. Look, we are going to do what we've done in the past which is we produce a lot of cash from this business. It's an excess of net income, and we've been pretty consistent about returning that in one form or another to shareholders over the course of the year.

It has been a mix of debt pay downs, which we've done a little bit of in the past. Importantly, we've done it through dividend, we've done it through share repurchase and we've done it through special dividend at the end of the year when we have a better sense of the outcome of the year, and I think going to continue that over the course of the second half of this year, this balance between share repurchase and importantly capital return through dividend or special dividend.

Alexander Blostein - Goldman Sachs

Great. Thank you for taking my questions.

Operator

And our next question will come from Brennan Hawken with UBS.

Brennan Hawken – UBS

Good morning.

Ken Jacobs

Good morning, Brennan.

Brennan Hawken – UBS

So I'm following up on Alex's question on Asset Management. Can you guys (indiscernible) were really great, good to see this quarter. Can you give us some color on which products drove that strength?

Ken Jacobs

Pretty much across the board, we are seeing it in the emerging platform, the international platform and importantly fixed income, the emerging market debt platform. It has just been a good breadth of influence this quarter.

Brennan Hawken – UBS

Okay, great. It would be really helpful on a go-forward basis if you would consider maybe breaking out the net full number by product. It's helpful that you've got the AUM by product, but it'll be a great enhancement if you would consider breaking that out just hasn't there. How far do you think you are from scale on the fixed income side? You feel like you already are there? Or do you feel like there is a particular AUM level that you need to get to when you can start having that be a meaningful margin contributor?

Ken Jacobs

Well, I think on the emerging market debt side is already a meaningful contributor. There is obviously more we can do in fixed income side. We are selective about the areas where we apply our resources and we want to make sure it's something where we have some competitive advantage. But I think that's steps we've taken on the fixed income side recently particularly in emerging market, that have been pretty successful so far.

Brennan Hawken – UBS

Terrific. And then shifting over to the advisory side, you guys have really been doing a lot better this year than some of the M&A focused investment banks that you compete against as the growth in the sort of dollar volumes have shifted to large deals. What do you attribute that our performance? Is it based on a mature global platform as a competitive advantage or is it something else do you think?

Ken Jacobs

Well, I think covering big companies and being involved in complex transaction requires a level of expertise and coordination which we think we do a pretty good job at. Most of these big clients require global coverage that is coverage from multiple geographies. They require expertise that [span] (ph) multiple industry groups and they require expertise that spans multiple capabilities. So you are not only talking about M&A but often time you are talking about balance sheets and such. And I think what is unique to those, our platform, is to be global to have deep expertise locally which is critical in the advisory business, have a very high concentration of senior people, and to be able to do this across the industry groups and capabilities.

I think that it is -- you can compete selectively by a clients or selectively by a country or selectively by an industry with individuals, but it's kind of hard to do with across a broad range of companies across a broad range of geographies without a network like the one we have.

Brennan Hawken – UBS

Perfect. That's helpful color. And then last one from me sort of following up on Devin's question on margin. So when you think about your two separate business and the margins and how you benchmark them against competitors, how do you adjust for the fact that the comps that you are looking at how corporate expenses already embedded in their results. And then how do you think about your corporate line and maybe how to slim down some of those structures and allocations?

Ken Jacobs

I think we've done a lot on the cost side that builds in operating leverage as the business grows. So we're pretty comfortable with the target margins for the two businesses and the overall target margin for the business at large.

I point out that on the Asset Management side with or without the corporate margins I think we are operating pretty close to best-in-class margins for an institutional manager. You could probably always find examples of people that are better, but I think overall we are pretty comfortable with the margins on the Asset Management side.

If you think what the advisory side of the business has been through over the last five years in terms of what happened to the marketplace from its peaks in 2/07. I mean we are in an obvious recovery right now, but we've done an enormous amount to get our cost structure under control and we think there is a lot of operating leverage built into the business.

Now, and again I think when you start looking at us versus competitors, these models are very different. They tend to be domestic models built around one country or a couple of industry groups. And I think as they scale, their numbers start to -- their margins are probably going to change a little bit. We are pretty comfortable with the target margins for both businesses right now. I think there is always room for improvement on corporate costs and costs that are allocated to business and we are focused on that. I think we are showing the ability to get a lot of leverage out of the business as the business grows and we hope to continue to do that.

Brennan Hawken – UBS

Thanks for all the color, Ken.

Ken Jacobs

Okay.

Operator

And now moving on to Ashley Serrao with Credit Suisse.

Ashley Serrao - Credit Suisse

Good morning. Ken, I was hoping you could comment on what you are hearing today from the sponsor community about trying to put some of these record levels (indiscernible) and also maybe exiting some of the investments.

Ken Jacobs

Sure. On the exit side, I think the sponsor is been quite effective over the course of the last 12, 18 months in terms of taking advantage of the public markets particularly in Europe, and also selectively on the sales side for some of the larger sponsors. The middle market sponsors have been quite active both buy side and sale side. That is pretty money to work as well as realizations.

I think one of the challenges for the largest sponsors is competing in some of these large strategic deals. And there I think it's a little bit harder than it probably was in the last cycle in putting money to work, but people are pretty creative, I'm sure they will find ways.

Ashley Serrao - Credit Suisse

I appreciate the color there. And then switching on to this hot topic of tax inclusion, and I was wondering whether you had a view there maybe from a legislative standpoint and also if you expect more deals to be announced in the coming future along this team.

Ken Jacobs

Look, it has been quite an active area particularly in the healthcare environment particularly with the specialty pharma and the pharma companies a little bit on the device side, which is somewhat predictable. I mean these are companies which there are benefits from IT and there are benefits from the fact that there is a large amount of cash overseas. So for this industry in particular there were a lot of benefits on inversions, particular benefits on inversions. There is a good possibility that it starts to spread to other industries. And it's a dynamic -- the more inversions and the more visibility on inversion is the more likelihood it is that we are going to get some reaction out of congress over the course of the next couple of years.

I mean we obviously have a legislative logjam in Washington right now. And it's typical to get anything done. But at some point it will break. And if this continues at the pace it's continued at or the pace quickens, I think we are likely to see a legislative response to it at some point.

Ashley Serrao - Credit Suisse

All right. Thanks for taking my questions, and congrats on the quarter.

Ken Jacobs

Thank you.

Operator

And now we will move to the next question that will come from Vincent Hung with Autonomous Research.

Vincent Hung - Autonomous Research

Hi, good morning.

Ken Jacobs

Hi, Vincent.

Vincent Hung - Autonomous Research

First question is what does your competitors commented on that backlog and they said it is the best in 2007. I don't know if you can say how good your backlog is relative to history or just comment on the outlook.

Ken Jacobs

We never comment in backlog on these calls. All I can say is the environment is probably the most buoyant. It's been since before the crisis that's encouraging our share is pretty good right now. The challenge in any environment with any environment like this for us on big deals is closings. When they happen is at this year or next year particularly ones with complicated regulatory issues. And so we are quite cautiously optimistic about the cycle right now and our business as a whole.

Vincent Hung - Autonomous Research

Okay. And just lastly, can you give us an update on the residual gross cost savings lastly?

Ken Jacobs

The residual gross cost savings, the cost savings left at this point.

Vincent Hung - Autonomous Research

Yes.

Ken Jacobs

Matthieu?

Matthieu Bucaille

Well, as we've said in previous calls, we have achieved more than two third of our cost savings in 2013 and the remainder of it will hit in 2014. As you can see it's on our non-comp expenses for the first half of the year, our revenue are growing by 20% and our non-comps are growing by 5%, 5% increasing on non-comp is due to an increase in business activity and investment in our new businesses. But it's also partially offset by some of the benefits of those cost initiatives.

Vincent Hung - Autonomous Research

Okay. Thank you very much.

Operator

Moving on to the next question, and that will come from Douglas Sipkin with Susquehanna.

Douglas Sipkin – Susquehanna

Yes, thank you. Good morning. I just wanted to drill down on a couple of financial items, I guess. First, with respect to the Asset Management business, I mean I know it's more institutional than retail. But obviously the retail has been a real nice driver in some pockets. I am just trying to think should we be thinking about the fee rates modeling them on an average basis or an ending basis, just because I know with the big flows, I'm trying to gauge if you guys have some real revenue momentum moving into the next quarter or generally speaking, is it better just to assume in average asset level to think about driving revenues going forward?

Ken Jacobs

I think the best way to think about it is the average asset level. I mean our AUM ended the quarter at about 205 billion, and obviously sensitive to market conditions, but that's a good place to start for the second half of the year.

Douglas Sipkin – Susquehanna

Okay. That's helpful. And then, shifting to compensation, I know you guys have been pretty vocal about the philosophy of accruing sort of at a set rate, and I just want to make sure was that a set rate through the first half of the year or for the first three quarters of the year with potential true-up in the fourth quarter, I'm just trying to gauge where you guys now start to adjust the comp into Q3, now you have more visibility or is it more of a Q4 event?

Ken Jacobs

Well, so far we've been consistent -- we're trying to be consistent with what we've done last year which is to keep the same rate through the year, and until we have better visibility on the overall year, make adjustment at that particular point, because this is a business where obviously there is a lot of volatility quarter-by-quarter. So that would be our goal for this year.

Douglas Sipkin – Susquehanna

Okay, great. And then, just a question around the Advisory segment, obviously M&A incredibly strong, any other notable subset into that you could call, obviously restructuring remains pretty depressed. How are you guys feeling about Sovereign Advisory or middle market? I mean are there any signs of a pick up in either one of those?

Ken Jacobs

Yes. Okay, that's a good question. Look, the overall strategic business is obviously pretty strong right now for us and others. The middle market business has had a nice pick up this year. Interestingly, when people start looking to all the statistics of the market, they commence on the fact that deal volumes haven't gone up that much, and it's really been improving in the bigger part of the market. But that's not a surprise, because the bigger part of the market, the $5 billion-$10 billion transactions had fallen off the most in the downturn post the crisis, and so the recovery there is not surprising. It's the deepest.

The middle market business didn't fall off as much. The number of transactions didn't fall off as much, and so we're not seeing the same pick up there as a result. But it's been a good business for us. And this year has been a strong year so far in the middle market.

We continue to go from strength-to-strength on the Sovereign Advisory business, the mix of business shifted a bit. It's moved away from Europe and back into the developing markets, which is where traditionally it's been very strong for us. The capital raising business is particularly on private funded advisory group. It seems to be pretty good right now.

And as you said, the restructuring business is soft at the moment, and we expect that to continue as long as the macroeconomic cycle is strong as it is at the moment.

Douglas Sipkin – Susquehanna

Great. Thank you very much, and nice job, really nice quarter.

Ken Jacobs

Thank you.

Matthieu Bucaille

Thank you, Doug.

Operator

And now moving on to Michael Wong, Morningstar Research.

Michael Wong - Morningstar

Good morning.

Ken Jacobs

Good morning.

Matthieu Bucaille

Good morning.

Michael Wong - Morningstar

Overall, year-to-date, how is the M&A environment and your business in general have been better or worst than you were expecting at the beginning of the year?

Ken Jacobs

It's a good question. I think when we ended last year, we were a little bit more optimistic about how this year was going to unfold in part, because of the improvement in the macroeconomic environments in the United States, and also some of the stability we were seeing in Europe. So, I think we were cautiously optimistic that we see some improvements in the M&A cycle this year. But M&A cycles are funny, they never happen gradually. They tend to happen a little bit more violently up or violently down, and so this year I think we've seen a slew of larger transactions, which is usually associated with -- that kind of jump is what is associated with the beginning of a cycle. So, I think we're cautiously optimistic and probably it's been a little better than we'd have guessed.

Michael Wong - Morningstar

Okay. And just going back to your Sovereign Advisory business for a bit, maybe along the lines of relative contribution versus restructuring type activities versus privatization and how you see Sovereign Advisory playing out in a further improved economic environment, along the lines of more troubled Sovereign Advisory versus privatization type activity?

Ken Jacobs

Well, our Sovereign Advisory business is primarily dealing with troubled balance sheets of countries and governments and such, and less to do with privatizations. That is more in our Capital Advisory business.

So, I think what you've seen is somewhat of a shift from Europe where you had obviously quite a bit of issues over the course of the last five years and now a bit more stability to the developing markets, which have suffered a bit from the tightening a bit of the monetary policies by the U.S. earlier this year, and some of the slowdown in some of those economies. And that's really what's driving our business there right now. And we expect to see continued activity for a while.

Michael Wong - Morningstar

Okay. Thank you.

Ken Jacobs

Thank you, Michael.

Operator

And this does conclude our question-and-answer session, and also concludes today's Lazard conference call.

Ken Jacobs

Thank you.

Matthieu Bucaille

Thank you.

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