18 November 2014 : Worlds apart, but working together at last

By Nick Kostov

Do not try to tell anyone at La- zard that it is really three sepa- rate firms – in London, Paris and New York. Such suggestions touch a nerve. Attempts to put them to the chief executive Ken Jacobs, who is based in New York, and Mat- thieu Pigasse and William Ruck- er, heads of the Paris and London arms, all met with swift interrup- tions. Not one of them allowed the sentence to be finished. Jacobs said: “It’s not New York, London and Paris any more. Lazard’s distinction is be- ing important locally with elite decision-makers while excelling Matthieu Pigasse (left) and William globally.” Rucker Just at the moment, however, there is one arena in which the its best positions for 16, 17 and In the 20th century, the three was the obvious one – in 2000, bank might not be unhappy to be 12 years respectively. “Houses of Lazard” gained a the three “houses” were formally spoken of in terms of its British, While executives are quick name for anything but fraternity, united into Lazard LLC. Evolu- European and American incarna- to emphasise that today Lazard not only refusing to communi- tion continued when the bank tions – the advisory league tables is united, that was not always cate with each other but compet- went public in 2005. for the UK, Europe and the US. true of a bank that began as a ing, trying to poach each other’s This year, Lazard has elbowed its clothing and textile shop set up clients. Talking points way higher in all three than it has in New Orleans in 1848 by three Such a riven institution could These formal steps were ac- been for some time. French emigrant brothers. La- hardly have achieved this year’s companied over the past decade It is second in the UK, third in zard Frères quickly diversified performance in the league tables, or more by deliberate changes Europe and seventh in the US by into banking, opening offices in however. Clearly something in the culture of the bank. A deal value to November 10, ac- New York and Paris in the 1850s changed at Lazard Frères. younger generation is gradually cording to Dealogic. Those are and London in 1870. The first step towards unity being brought forward into posi-

Beyond M&A: Lazard branches out with alternative advisory units

Lazard has been investing in businesses outside Egypt, described by one banker as “a kind of invested in its advisory businesses on capital, its core focus on large-cap M&A throughout the Marshall Plan”. debt and equity capital markets. In the US, the past decade. In Africa, the bank has diversified from debt bank is also growing its mid-market business and Besides the firm’s asset management arm, restructuring for highly indebted countries to has made a number of hires this year. other advisory businesses are adding stability to advising on raising sovereign debt. Lazard advised Nomura analyst Steven Chubak said: “Even the bottom line. Gabon on its $1.5 billion bond offering and is during 2011 and 2012 when we were seeing Lazard’s sovereign advisory business, currently involved in a similar offering for Ethiopia, a steep decline in European M&A, Lazard’s important for the firm since the 1970s, has been with roadshows in both New York and London. performance was actually much more resilient an outstanding performer in recent years. It is Today, the bank employs about 30 bankers in than the broader industry and in my opinion based in Europe and led by Matthieu Pigasse, its sovereign advisory team, up from around 20 it was really a function of them being active chief executive of Lazard France. three years ago, according to a person familiar participants in the sovereign advisory and capital It was hired by Egypt and the United Arab with the bank. advisory space.” Emirates to build an economy recovery plan for During the past decade Lazard has also Nick Kostov

The Publisher’s Sale Of This Reprint Does Not Constitute Or Imply Any Endorsement Or Sponsorship Of Any Product, Service, Company Or Organization. Custom Reprints 800.843.0008 www.djreprints.com © Financial News 2014 DO NOT EDIT OR ALTER REPRINT•••/ REPRODUCTIONS NOT PERMITTED 49269 numerous thought pieces on in- dustry dynamics and how they are evolving. These are circulat- ed and discussed internally at the bank’s offices around the world before a house view is adopted and subsequently distributed among the bank’s clients. William Rucker, the chief ex- ecutive of the bank’s London business, said: “The key thing is to have people who are plugged in and understand what is going on. That’s what you get when you get 20 partners in London, you get people who have views.” There are still risks with the Lazard approach. Ken Jacobs Wide gap (left) and Ashish Bhutani With a model that is so depend- ent on a few very experienced advisers, there are some who tions of responsibility. A newly For much of its history, Lazard Securities, said Jacobs had up- worry that the gap between the aggressive, dynamic approach built up a formidable reputation graded talent at the firm in re- previous generation and the next to marketing has done much to in the world’s boardrooms by cent years. Ryan said: “I think remains too wide. dispel Lazard’s image as a slight- offering the advice of the firm’s he’s really been focused on the The potential departure of ly sleepy, old-school shop that “Great Men” – hiring the best ad- most productive individuals and Weiss – he has been nominated recruits people in their late 40s visers to work on mergers and ac- not subsidising people who are undersecretary for domestic fi- who want to finish their careers quisitions and offer their insight not producing.” nance to the US Treasury – is a in advisory. And, crucially, the on the next trend that would af- The number of financial advis- blow. brothers Lazard have recovered fect the market. ers at managing director level is In the UK M&A, meanwhile, their fraternal spirit – internal about 140, about the same as at Lazard is said to be too depend- communication may not yet be Transition the end of 2007, Ryan said. The ent on Rucker, in his 50s, and perfect, but Lazard is no longer More recently, however, a difference, he said, was that the Nicholas Shott, who is in his 60s. the bank that does not talk to transition has taken place behind quality now is “better than it’s One head of M&A in Europe at itself. the scenes. Much of the older ever been”. a competitor of Lazard said of Jacobs said: “The strength of generation, many of whom were That is not to say Lazard is the bank: “The business they do, Lazard is that, over the last dec- nearing retirement age, left after awash with outsiders brought in they do out of key advisers that ade or so, we have put the next the crisis. Some partners who re- to boost market share, and nor they have – and they need to re- generation in positions of leader- tired in recent years had actually does it mean the advisory shop cruit more.” ship. They have grown up at the retired three of four years ear- is full of fresh-faced bankers em- Rucker rejects this point: “The firm and work well together.” lier but stayed to help transfer barking on their first deal. MD team in London is an excel- The changes seem to be pay- accounts. Of the 20 banking managing lent blend of outstanding, expe- ing off. In the third quarter, La- directors that the bank employs rienced names such as Charlie zard’s revenues from traditional Better together in London, for example,Better 12 have together Foreman and Spiro Youakim, M&A and other advisory work Lazard has ridden a wave of cross-border M&A. been there for moreLazard than has ridden a 10wave of and rising stars such as Richard League table position in the UK, US and Europe cross-border M&A. League table were 37% higher than in the same years, and 16 for moreposition than in the UK, five US and EuropeShaw.” quarter last year. 1 years. 1 Still, with businesses around This year to November 10, European European Lazard’s traditional M&A prac- Lazard has set records. At 4%, New spirit 5 US tice getting stronger and a tal- 5 US its share of global M&A fees was Still, the injection of a little ented generation at the top – La- its highest since 2009. M&A fees fresh blood here and10 there has zard is looking to the future with totalled $681 million globally, ac- 10 helped energise longer-serving confidence. cording to Dealogic, a post-crisis staff members, and close15 the gap Jacobs said: “One of the things high. 15 between Lazard’s generationUK that Lazard benefits from is hav-

Steven Chubak, an analyst at of grey-haired “wise 20men”, and Dealogic Source: UK ing a model that has been time- Nomura, said: “They’ve really those who will lead the‘08 company‘09 ’10 ’11 ’12 ’13tested.’14 We’ve been in this busi- managed to buck the trend this 20 Source: Dealogic in the future. ‘08 ‘09 ’10 ’11 ’12 ’13 ’14 ness, particularly on the financial year among the independents Pigasse, speaking of the Paris advisory side, for a long time and, in terms of how much growth office, said: “It’s a renewed team a little like the tortoise and the they’ve seen, or the growth of bankers: younger, more dy- hare, if you pace yourself then they’ve generated in financial Rucker in London and Pigasse namic, more energetic.” you’re going to do pretty well.” advisory revenues year-on-year.” in France, both long-time La- While his comments were It has advised on half of the zard executives, took over the specific to the French operation, • Beyond M&A: Lazard year’s top 10 announced deals running around the time of the they have broader resonance for branches out with alter- by value, including AT&T’s bid financial crisis. In the US, the Lazard. Pigasse added that the native advisory units to buy DirecTV, French cement likes of Jacobs, Antonio Weiss, younger generation had bought Lazard has been investing in company Lafarge’s pending $40 global head of investment bank- a new spirit and culture. businesses outside its core focus billion tie-up with Swiss rival ing, George Bilicic, head of the “By new spirit, I mean very on large-cap M&A throughout Holcim and the tobacco deal bank’s Midwest investment bank- collective, very collegial – we are the past decade. between Lorillard, Reynolds ing business and global head of acting as a team, we are not a Besides the firm’s asset man- American and British American power, energy and infrastructure collection of individuals. We also agement arm, other advisory Tobacco. and George H. “Woody” Young have a new culture, meaning a businesses are adding stability Crucial to this success in M&A III, head of the bank’s global tel- new way of doing business. For to the bottom line. has been effective cross-border ecommunications practice, took instance, we are actively market- Lazard’s sovereign advisory work – evidence that communi- charge. ing every day,” he said. business, important for the firm cation really has improved. Devin Ryan, an analyst at JMP Bankers are asked to produce since the 1970s, has been an outstanding performer in recent ing on raising sovereign debt. La- has also invested in its advisory industry and in my opinion it was years. It is based in Europe and led zard advised Gabon on its $1.5 bil- businesses on capital, debt and really a function of them being by Matthieu Pigasse, chief execu- lion bond offering and is currently equity capital markets. In the US, active participants in the sover- tive of Lazard France. involved in a similar offering for the bank is also growing its mid- It was hired by Egypt and the Ethiopia, with roadshows in both market business and has made a eign advisory and capital advisory United Arab Emirates to build an New York and London. number of hires this year. space.” economy recovery plan for Egypt, Today, the bank employs about Nomura analyst Steven Chubak described by one banker as “a kind 30 bankers in its sovereign adviso- said: “Even during 2011 and 2012 Sarah Krouse contributed to this of Marshall Plan”. ry team, up from around 20 three when we were seeing a steep de- article, which first appeared in the In Africa, the bank has diversi- years ago, according to a person cline in European M&A, Lazard’s fied from debt restructuring for familiar with the bank. performance was actually much print edition of Financial News highly indebted countries to advis- During the past decade Lazard more resilient than the broader dated November 17, 2014

Asset management: ‘We got a bit lucky with how the world went’

Lazard may be known for its banking roots, but in a quiet period for one person has the skill set to tell people what to do across every asset mergers and acquisitions activity globally, the fund management unit class.” within the firm has slowly but steadily come into its own. He added: “We have the transparency of a boutique and the Asset management revenues were just under half the firm’s $1.7 survivability of a large organisation.” billion revenue during the first nine months of this year, up from 37% The business has benefited from becoming increasingly international. in the same period five years ago. And full-year revenues for the asset Today, about 45% of the firm’s assets come from outside of North management business topped $1 billion in 2013, outshining revenues America, up from less than 20% a decade ago. More than 65% of the from advisory and restructuring work for the first time. firm’s assets are invested outside North America. Ashish Bhutani, who has been chief executive of the fund One defining characteristic of the funds business, according to management unit for a decade, said: “I would love to say we did some analysts, is its network of established investment teams globally, an unbelievable things, but we had very capable investment people and expensive way of doing business. More than 40% of Lazard Asset we happened to get a bit lucky with how the world went.” Management’s staff are investment professionals, a high percentage in For one, institutional investors began to invest more internationally the industry. It outsources much of its middle and back-office functions. than regionally, a trend that played into Lazard’s line-up of products. Ryan sees further opportunity for Lazard’s emerging markets Large investors also began allocating to emerging markets. franchise if emerging markets begin to turn around after a difficult Lazard chief executive Ken Jacobs said: “The seeds we planted a period. He said Lazard’s funds business was helped by sticker money decade ago have borne a lot of fruit – being very good in areas where from institutional investors, which represent about 80% of its assets the world was headed, not where the world was.” under management. Average were $203 billion for Still, heavy emerging markets exposure is not without risks. the third quarter, up 18% from the same period a year Steven Chubak, an analyst at Nomura, noted that earlier. heavy weightings towards emerging markets mean that Devin Ryan, an analyst at JMP Securities, said: softness in the developing world could translate into “Asset management has been a great story. They’ve lower performance and fees. had really strong flows over the past handful Institutional money also puts the firm at the mercy of years against a backdrop when other asset $2.6bn of consultants, which have heavy sway both in the US managers had money going the other way.” and the UK. Lazard Asset Management received $2.6 billion Lazard AM net inflows Barry Fennell, an analyst at fund data provider in net inflows during the third quarter, attracting in Q3 2014 Lipper, said performance overall at the firm’s assets to its emerging market debt and equity strategies was “mixed” but that the international strategies as well as multi-regional strategies, the firm products gathering the most assets had the strongest said in its third-quarter earnings release. performance relative to their peers. Bhutani was recruited to Lazard by Bruce Wasserstein, Looking ahead, Bhutani sees further opportunity in both the bank’s chairman and chief executive, who died in 2009 the defined benefit and defined contribution pensions industries. and was succeeded by Jacobs. Wasserstein, known as an aggressive He would also like to see a bigger business. Like other dealmaker, had worked with Bhutani at Wasserstein Perella Group and fixed income managers, the firm sees opportunities to gather assets hired him at Lazard as head of new products and strategic planning in that investors have pulled from Pimco. 2003, moving him to fund management a year later. Jacobs said the firm could expand organically or through select lift- Analysts say there was a sense at the time that management did not outs or acquisitions over time. He also expects the balance of revenues want to meddle in a business that was performing well, even if there to tip back to higher revenues from advisory work as the M&A cycle was linkage to old leadership. continues. Bhutani took over at a time when the firm was suffering from Fennell said: “With getting a harder look, they outflows and a loss of fees after the departure of their star manager seem to be in a decent spot because if people are going to allocate to William von Mueffling. It underscored the key man risk inherent active and pay the extra fees above passive, they’re going to want to do in investing and helped to set the scene for the governance and that with an experienced manager who can offer them something that’s compensation systems that are in place today. difficult to index.” Analysts highlighted low staff turnover at the asset management Three or four years ago, analysts would focus more on the advisory business as a strength. side of the business, Chubak said, but today, asset management is Bhutani says his investing staff stay because of the transparent pay crucial to the firm’s upside potential. and expectations – fund managers know what they will be paid and how Asked if the firm should be considered an asset manager with an their performance will be evaluated. advisory business, Chubak said: “It’s surprising that people don’t While the firm has an investment council and risk staff, it does not think of it that way because [asset management is] such a meaningful have a chief investment officer. contributor.” Bhutani said: “We firmly don’t believe in CIOs. I don’t believe any Sarah Krouse