LAZ

Lazard 2030 Transformation Progress

• Three years into the Lazard 2030 strategic plan, the firm reports tangible progress across all core metrics of relevance, revenue, and returns.
• The acquisition of Campbell Lutyens is on track to create a third global private capital advisory segment (Lazard CL), complementing existing public market strengths and expected to be accretive to earnings in 2027 and beyond. Integration planning is well underway, with strong alignment on culture and complementary talent.

Financial Advisory Transformation

• The firm has intentionally turned over 40% of advisory managing directors (MDs) to upgrade talent. The transitional J-curve headwind from this turnover is fading, and the business is entering a phase where talent investments will become a material growth tailwind starting in 2027.
• Forward indicators are strongly positive: dollar-weighted conflict clearances are up 40% YoY, and up over 100% for deals above $5 billion; 2027 weighted pipeline is already twice the level of 2026's pipeline at the same point last year; the segment achieved its strongest announced league table position since 2014 in the first half of 2026.
• Newly hired MDs have already exceeded the average annual productivity of the separated MDs after only two years on the platform. The firm remains on track to hit its target of $10 million per MD productivity by 2028, with 10-15 net new MDs added per year.
• Strategic investments in high-growth verticals (healthcare, power/energy/infrastructure, industrial technology, defense tech, private capital) are driving results: the segment advised on 8 announced biopharma deals over $1 billion in Q2, and served as lead advisor on the $420 billion Nextera/Dominion Energy combination, the largest energy deal in history.

Asset Management Growth

• Asset management revenue is up 23% YoY, driven by strong net inflows across a diversified product and geographic base. The quantitative Lazard Advantage platform has doubled in size to $50 billion in AUM over the past year. The U.S. ETF platform reached $2 billion AUM in July 2026, just 10 months after launch, with three additional active ETFs (including the first fixed income ETF) filed in Q2.
• New senior leadership hires have been made: a CIO, COO, head of AI, head of global product, and head of corporate development to strengthen platform operations, drive AI adoption, and pursue targeted growth opportunities. 68% of segment AUM is outperforming its benchmark over a 5-year horizon.

AI Adoption

• The firm is committed to becoming the leading AI-enabled independent financial firm on Wall Street, with AI embedded across both financial advisory and asset management (research, portfolio construction, client service). The firm pursues a multi-model strategy (avoiding single-provider lock-in) to leverage advancing AI tools, with current AI spending still modest and immaterial to overall expenses.

• Firm-wide management expects second half 2026 revenue to be meaningfully stronger than the first half, with a more pronounced seasonality than the historical average, driven by Financial Advisory performance.
• Full-year GAAP effective tax rate is still expected to be in the high 20% range.
• Non-compensation expense is still projected to grow mid-to-high single digits year-over-year, with modest additional noise from Campbell Lutyens acquisition-related costs.
• The compensation ratio is expected to decline over time, with improvement in the second half of 2026 indexed directly to Financial Advisory revenue performance; the one-time accounting impact from gross MD turnover will fade over time, leading to a significant comp ratio decline in 2027 and 2028 as productivity improves and operating leverage kicks in.
• Share repurchases have restarted after a pause for the Campbell Lutyens acquisition, and will continue through 2026, balancing growth investments with offsetting equity issuance from compensation.

Firm-wide adjusted net revenue was $786 million for Q2 2026 and $1.5 billion for the first half of 2026. 1. Financial Advisory: Adjusted net revenue was $445 million in Q2 2026 (56.6% of total firm revenue), and $801 million for the first half of 2026. Q2 revenue was driven primarily by M&A completions in North America, with strong performance from Europe/Middle East (especially London) and solid results from restructuring/liability management, and growing demand for private capital advisory. 2. Asset Management: Adjusted net revenue was $331 million in Q2 2026 (42.1% of total firm revenue), and $640 million for the first half of 2026. Q2 management fees totaled $310 million. As of Q2 end, AUM hit $285 billion, up 15% year-over-year and 10% quarter-over-quarter; average AUM for the quarter was $279 billion, up 17% YoY. The segment recorded $7.4 billion in net inflows for the first half of 2026. Firm-wide adjusted compensation expense was $550 million in Q2 2026, for a compensation ratio of 69.9%. The Q2 adjusted effective tax rate was 69.7%, an anomalous one-time catch-up adjustment from equity award vesting, not reflective of full-year results.

• Private equity M&A activity remains subdued due to valuation disconnects from the period of rising interest rates, which has held back overall M&A volumes; a faster-than-expected recovery in private equity activity would further improve forward indicators, but a sustained slowdown would constrain growth.
• Geopolitical uncertainty in Europe and the Middle East creates ongoing operating uncertainty for the European business, even though performance has remained strong to date.
• Productivity may see a slight near-term dip in 2026 due to the ramp-up of new MDs hired over the past year, even as the long-term productivity outlook remains on track.
• Second half 2026 compensation ratio improvement has limited visibility at this point in the year, tied as it is to realized Financial Advisory closing volumes.

Q: Why is there a current divergence between strong strategic M&A and weak private equity sponsor M&A, and when might this shift? / A: The core issue is a valuation disconnect: higher interest rates have reduced the net present value of private equity portfolio company cash flows, leaving sponsors hesitant to sell at values lower than their marks and expected returns. Building pressure from LPs seeking distributions is driving growth in continuation funds and secondaries, where Lazard is well positioned via the upcoming Lazard CL combination. Large private equity leaders have signaled an impending shift, but Lazard management is waiting for this commentary to translate into actual deal activity.

Q: What key changes have been made to asset management since the new CEO joined, and what KPIs should investors track? / A: The most impactful changes include appointing the segment's first ever CIO to focus on investment process improvement, a new COO to drive efficiency and AI adoption, and upcoming new heads of product and corporate development to set the growth roadmap. Investors should track investment performance (68% of AUM is outperforming 5-year benchmarks) and net inflows, which hit $7.5 billion in the first half of 2026 with broad product and geographic diversity.

Q: Why have conflict clearances for deals over $5 billion accelerated so much, and is this a market or strategic effect? / A: The acceleration reflects three factors. First, the current market environment is disproportionately driven by large strategic M&A, which aligns with this activity. Second, it is the result of a deliberate management push to gain large-cap league table prominence, which has been a core 2026 strategic initiative. Third, the refreshed talent pool and Lazard's unique ability to deliver "contextual alpha" (integrating geopolitical and regulatory analysis) has increased traction with large clients and boardrooms.

Q: How should investors think about the long-term compensation ratio trajectory beyond 2026? / A: The comp ratio will decline meaningfully in 2027 and 2028 for three reasons. First, the one-time temporary bump from amortization of guaranteed compensation for the large cohort of gross new MD hires will fade over time as the accounting impact cycles out. Second, hitting the $10 million per MD productivity target by 2028 will create operating leverage across the non-MD compensation pool. Third, ongoing efficiency initiatives in corporate and support functions will reduce expense growth as revenue expands.