Lazard Ltd

NYSE:LAZ

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to Lazard's Full-Year and Fourth Quarter 2021 Earnings Conference Call. This call is being recorded. Currently, all participants are in listen-only mode. Following the remarks, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions] At this time, I would like to turn the conference over to Alexandra Deignan, Lazard's Head of Investor Relations and Corporate Sustainability. Please go ahead.

[Alexandra Deignan]

Good morning and welcome to Lazard earnings call for the full year and fourth quarter of 2021. I'm Alexandra Deignan, the company's Head of Investor Relations and Corporate Sustainability. In addition to today's audio comments, we have posted our earnings release and an investor presentation, which you can access 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 or achievements 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 SCC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or [Indiscernible] the duty to update these forward-looking statements. Based expression also includes certain non-GAAP financial measures that we believe 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. In our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer, and Evan Russo, Chief Financial Officer. And then we'll start with the discussion of an overview of our financial results, and then Ken will provide his perspective on the outlook for our business. After that, we will open the call to questions. Now I'll turn the call over to Evan.

[Evan Russo, Chief Financial Officer]

Good morning. Today we reported record results for the fourth quarter and full-year of 2021 and achievement reflecting strong performance across our businesses. Full-year operating revenue was a record $3.1 billion up 24% year-over-year. This included record quarterly revenue in the fourth quarter of $968 million up 14% from the prior year. We generated record earnings reflecting the operating leverage in our business model. For the year, adjusted net income increased 40% to $5.04 per share. In the fourth quarter, adjusted net income increased 16% year-over-year to $1.92 per share. These results underscore the strength and range of the Lazard franchise.

Our global platform incorporates diverse revenue streams of significant scale, innovative client solutions, and growth opportunities in which we continue to invest. In Financial Advisory, record annual revenue of $1.8 billion was 27% higher than the prior year. This included a record fourth quarter of $608 million, which was 20% higher than the prior fourth quarter. Our advisory results reflected strong M&A completions in the Americas and in Europe, as well as increased private market and capital raising assignments. Our revenue from transactions involving financial sponsors nearly doubled in 2021 as we continued to enhance our coverage of the private equity marketplace.

Our private capital advisory business had its strongest year ever advising financial sponsors globally on fundraising and on innovative secondary market solutions. Our capital markets advisory business remained highly active, advising clients on financing, capital structure, and stakeholder strategy. And our Restructuring and Sovereign Advisory franchises continued to advise corporations and governments on select assignments around the world. Entering 2022, our Financial Advisory business continues with strong momentum and activity levels remain elevated across the globe. Our Asset Management business also generated record operating revenue for the fourth quarter and full-year 2021. Annual revenue of $1.3 billion increased 20% over the prior year. Management fees for 2021 increased 15% over the prior year, and incentive fees more than doubled reaching a record $120 million. Incentive fees were driven by strong performance in a number of our small cap equities, fixed income, and alternative strategies. Average Assets Under Management in the fourth quarter achieved a record high of $274 billion, 11% higher than a year ago.

Our AUM ended the year at $274 billion, up 6% on an annual basis and marginally higher on a sequential basis from the third quarter. The sequential change was driven by market appreciation of $9.9 billion, partially offset by foreign exchange depreciation of $2.0 billion and net outflows of $6.7 billion. The quarter's net outflows were primarily from our equities platform, partly offset by net inflows in alternatives and global fixed income strategies. Gross inflows in the quarter continued to reflect demand across our platforms. Over the course of 2021, we had approximately $1 billion of net inflows into newer strategies, such as our digital health and our global convertible investment-grade portfolios.

On a macro level, we saw some de -risking at year-end as investors re-balanced their strategic asset allocations amid rising inflation and the potential for higher interest rates. On a preliminary basis, as of January 31st, AUM decreased to approximately $259 billion, driven primarily by market depreciation of $9.2 billion, foreign exchange depreciation of $1.4 billion, and net outflows of $4 billion. The year is off to evolve a start in the equity market, with major industries down 5% to 10% across the board. While volatility may remain elevated, we are encouraged by early signs of market rotation from speculative growth to quality and value, a shift that would favor our style of fundamental research-driven active management. This trend has already had a positive impact on performance across a number of our strategies. Following our strong results in 2021, we continue to invest for growth across our businesses.

In Financial Advisory, we have increased our pace of external hiring with more than 20 new managing directors and senior advisers joining us in 2021. In November we also formed a strategic alliance with Independence Point Advisors. A new, women-owned investment bank with an impressive team of seasoned professionals. We expect our partnership with IPA to be a strong complement to our advisory business. This month, Financial Advisory expects to name 21 new managing directors in its annual promotion process. More than half began their careers here as interns, analysts, or associates. Our ability to develop talent organically remains a powerful competitive strength.

In Asset Management we continue to build the business through investment in people, technology and distribution, as well as the development of new products and the scaling up of existing platforms. In 2021, we introduced five new strategies for clients across our traditional and alternative platforms, including funds focused on sustainability, energy transition, and inflation protection. Asset Management expects to name nine new managing directors in its annual promotion process and has been bolstering resources on its investment teams, sustainability research and global marketing, and distribution network.

We continue to see substantial opportunities to recruit talented investment teams, adding strategies that are complementary to our existing platforms. We are also enhancing our thought leadership in areas where we can provide data-driven insights for our clients. In November we launched the Lazard Climate Center, which we expect will add value to both our Advisory and Asset Management businesses. Turning to expenses. Our compensation ratio for 2021 on an adjusted basis was 58.5% compared to 59.5% in 2020. On an awarded basis, the ratio was 58.8% compared to 59.8% in 2020. Adjusted non-compensation expense for the year rose 9%, which reflected a partial return to normalized level of travel and business development costs and investments in technology and recruiting across our businesses.

For the full year 2021, our non-compensation ratio was 15%. Our effective tax rate for 2021 was 23.9% compared to 20.2% a year ago. For 2022, we expect an annual effective tax rate in the mid 20% range. Regarding capital allocation, our business continues to generate significant free cash flow, which supports our goal of returning excess capital to our shareholders. We have been consistent in returning capital through our quarterly common dividend. And yesterday, we declared a quarterly dividend of $0.47 per share. We continued our share repurchase program in 2021 more than offsetting dilution from year-end equity grants. We repurchased a total of 9.1 million shares during the year, which included 2.7 million shares in the fourth quarter. As a result, our fourth quarter diluted weighted average share count declined by 2.5 million shares from the prior year to 113.3 million shares.

We expect to continue our share repurchase program utilizing our cash flow from operations. Yesterday, our Board of Directors authorized additional share repurchases of up to $300 million, bringing our total outstanding share repurchase authorization to $431 million. Lazard's financial position remained strong with ample liquidity and balance sheet flexibility. As of December 31st, our cash and cash equivalents were approximately $1.5 billion. Ken will now provide perspective on our outlook.

[Kenneth Jacobs, Chairman & CEO]

Thank you, Evan. The global macroeconomic environment continues to have solid fundamentals despite growing risks that are contributing to market volatility. These include inflationary pressures, U.S. Fed policy transition, new geopolitical tensions, and uncertainty about the direction of COVID-19. Still, U.S. economic growth remains vigorous and the strong recovery appears likely to continue this year. In Europe, GDP and earnings are expected to reach above-average growth. The M&A environment continues to be robust, and we are starting the year with an unprecedented level of advisory activity. The forces driving transactions globally remain in place. Technology-driven disruption continues to be a catalyst for M&A across industries. The energy transition is rapidly becoming a top strategic focus across sectors.

A massive amount of private capital is being put to work alongside strategic capital with a potential to continue driving M&A activity. And financing remains widely available at low rates. We are well-positioned in this environment with the most sophisticated strategic advisory capabilities coupled with deeply established presence in local markets, reinforced with expertise from global sector and specialty teams. In Asset Management, we continue to see demand across our platforms, including growing interest in our sustainable and customized solutions. Investors need for income and return continues to drive demand for risk assets, including equities, and corporate, and emerging market debt as well as alternative investments.

Markets are discounting high valuations of speculative stocks with early signs of rotation from growth to quality and value. In addition, institutional investors continue to seek sources of differentiated alpha, including ESG, dramatic, and alternative strategies, areas that play to our strengths in deep fundamental research. We see substantial opportunities for growth across our businesses and we continue to invest in our people, capabilities, and technology infrastructure to enhance our competitive edge. Lazard's record results in 2021 underscored the strength of our diversified business model, our global platform, and our deep culture of client service. In closing, I want to thank all our Lazard colleagues, once again for their extraordinary commitment and productivity during the pandemic.

Thanks to their efforts, we're serving our clients with creativity, outstanding advice, and solutions and we are building value for all our stakeholders. The past few years improving without a doubt that our people are the source of Lazard enduring strength and resilience. Now let's open the call to questions.

[Operator]

Thank you. [Operators Instructions] And we can now take our first question from Steven Chubak of Wolfe Research. Please go ahead.

[Steven Chubak, Wolfe Research]

Hi. Good morning.

[Kenneth Jacobs, Chairman & CEO]

Hi, Steven.

[Steven Chubak, Wolfe Research]

Ken, I figured it might be helpful, just giving you -- you always provide some context around like nuances that you're seeing or hearing in terms of just like CEO confidence levels, valuation, financing, how that's impacting willingness on the part of some corporates to transact, and I was hoping you could just provide some context around what you're seeing across the different geographies across those three different variables.

[Kenneth Jacobs, Chairman & CEO]

Great. Happy to do that. So let's start just on geographies. We continue to see a lot of activity in the United States. What was particularly gratifying was the pickup in activity last year in Europe. And we saw strength across the Financial Advisory platform in both Europe and the U.S on the Strategic Advisory side. Both businesses were up about the same amount and that was great. Europe had a record year for us, really the best year we've had -- and it's the best year ever, but certainly the best year since the crisis. So that was really gratifying. In terms of the market as a whole, I generally point to three factors: financing, valuation, CEO confident or Board and CEO Confidence, and then we look at some of the catalysts driving the market. On financing, clearly we're seeing a change in rate environment, but rates are still historically low. My guess is, as a result of that, we'll see some compression in PEs.

Probably a lot just coming from the fact that stocks price stay the same and earnings go up and so you get a compression in peace. I think that's likely to happen, we've already seen some of that in the market today. On the valuation side, again, if you don't see big changes in valuation then the market probably is okay, where you see big changes in valuation, it takes a little time for buyers and sellers to reset, but so far it's okay on that. Then, in terms of CEO board confidence, look, the key issue that is in people's minds is probably around inflation and also geopolitical risks. On the inflation side of things, I think so far most companies have had a lot of success in pushing through price increases, and you've seen that in most people -- in most company's earnings.

And so consequently, I don't think there's that much concern around that from an M&A perspective. I think from an operating perspective, supply chain inflation is going to continue to be top of mind for a lot of people until we see some better numbers or some settling on that. But I think from an M&A perspective, I don't think it's disruptive at this moment. Geopolitics, I mean, look, that's anyone's guess and anything that creates a discontinuity in financing markets or creates sort of an uncertainty about the environment, it will have an impact for a period of time on M&A. That's just the way our business works. But for moment, things are pretty constructive here and in Europe, and as I said, we're seeing an unprecedented level of activity in our business. As far as catalysts are concerned, we continue to believe that this whole enabling technology is driving a lot of acquisition activity that's across every sector.

The energy transition is increasingly an important factor in strategic decisions, and that's only going to become more so, we believe, in the future. And then this enormous flow of money into alternatives, I think people are very focused on private equity, but I think the area that is really transformative at the moment, just around infrastructure, and we -- and you can just see that in some of our announcements in the fourth quarter. I think that's going to continue into the future. So those are kind the factors. I think it's a pretty constructive environment for M&A. I think one headwind is in the United States, on antitrust. I think the really bigger deals are going to be challenged. That's something that people have spoken about.

I don't think any reason to expect that to ease until you actually see some companies challenging -- some of these -- challenging some of the government moves in court. But I think for the moment, the place that's been the sweet spot for us and for everyone has been in $1 billion to $10 billion to $20 billion deals that are not really big consolidating deals with lots of overlap and lots of challenges on antitrust. So that's the environment I think.

[Steven Chubak, Wolfe Research]

Thanks for all that perspective, Ken. And just for my follow-up, I wanted to dig into the flow outlook a little bit, just recognizing this past year was certainly challenging in terms of flow trends. It sounds like some of those pressures have persisted to start to the year in 2022. At the same time, you guys do typically have or I should say, you have a stronger value band, particularly in EM and you noted that that style is certainly starting to come back into favor. I was hoping you can give some perspective on what you guys are seeing in the RFP backlog, whether there's any indication that -- not necessarily that you're going to see positive flows, but this is the second derivative on flows is starting to improve. And how should we be thinking about all of that in the context of the fee rate trajectory which has also come under pressure in recent years?

[Kenneth Jacobs, Chairman & CEO]

Sure. So let's start. Look, this was a tough fourth-quarter on net flows and tough start to the year on net flows. When you have -- I think in this environment, if you've got under-performing strategies, under-performing markets, that's a tough combination, and I think in some respects that's what we've been dealing with some of these flows right now. I think generally speaking, the macro -- the shift in macro-environment, if it persists, I think will be favorable to our product mix. Basically a move away from speculative growth to quality and value is something that probably plays to our strengths. We have to see that continue and really take hold. I think also the relative valuations of the European markets and markets outside the United States relative to the U.S also creates some opportunity.

And if we see a shift of investor focus into those markets, that plays to our strengths as well. In terms of fees, a lot of that depends on the product mix. Obviously, we had a lot of pain around one particular product over the last couple of years, were actually performance has improved pretty dramatically over the course of the last year or so, so hopefully that abate some. But it's a pressured environment on fees, which I think everybody is feeling. What we're optimistic about is a lot of the new product that we've introduced. We have a lot of new -- I think it was five strategies we introduced this year, and so we're becoming -- there's a lot to look forward to. But at the same time, this is not -- this hasn't been an easy fourth quarter, first quarter for us -- or first month so far.

[Steven Chubak, Wolfe Research]

Thanks for the color, Ken, and I'll hop back in the queue.

[Kenneth Jacobs, Chairman & CEO]

Great. Thank you, Steven.

[Operator]

We can now take our next question from Manan Gosalia of Morgan Stanley. Please go ahead.

[Manan Gosalia, Morgan Stanley]

Hi. Good morning.

[Kenneth Jacobs, Chairman & CEO]

Morning.

[Manan Gosalia, Morgan Stanley]

I know it's a little early to ask about the comp ratio and pre -tax margin in 2022, as you went through earlier, there's a lot of puts and takes in the M&A environment. Maybe just a big picture question on how we should think about it because you were able to drive down your comp ratio in 2021, just given the strong revenue environment but at the same time, you were investing in the business for the long run. There's been a fair amount of hires as we went through 2021 and it looks like that's going to continue. So how should we think about the comp ratio in '22 under different revenue environments? And maybe as we go through this cycle, is the normal range for the comp ratio still in the mid to high 50s or given the investments you are making, could it edge up as the revenue environment normalizes?

[Evan Russo, Chief Financial Officer]

Let me start with that. I think as you pointed out, it's early. I mean, it's early in 2022 to be talking about comp ratio at this point in time but I think you hit most of the puts and takes there. We're starting in a good place and as you say, a lot of that is driven by revenue. And so as Ken mentioned earlier on this call, we're starting from a good position, we have good momentum in the businesses. And I think that puts us in a good state to kind of start the year off to think about it. That said, we are continuing to focus on bringing in an expanding the level of talent and expanding our external hires. You've seen us do a lot of that over the last 12 months and I'd expect us to continue that in the coming year as well.

We think this is a very interesting environment for Lazard to be taking on and expanding our senior levels of talent and we want to be able to make those investments for the future. So look, we generally start the year assuming we're going to start at around the previous year's levels, and then we adjust as we see the dynamics of the business, and then as the investments continue to develop. Long-term through the cycle, as you've seen with revenue growth, we tend to grow compensation at a slower rate than we grow our revenue growth. That's generally an upward trending revenue growth environment, that's always held for us and I think we would see that through the cycle. We are in a heavier investment period right now, which is why we've said we're probably going to trend towards the higher end of our historical ranges and look that assumes natural revenue growth continues over the coming years. If we get big movements up or down our revenue obviously we'll have to take a look at that and see where that leaves us.

[Manan Gosalia, Morgan Stanley]

Got it. And maybe just a follow-up on your comments on sponsor activity in both U.S. and Europe. I know you've seen a near doubling of activity. Is there more white space in the U.S that you can tackle as you move through 2022? And how do you see sponsor activity tracking in Europe just given that we're already seeing some rate hikes in the UK and we could get multiple rate hikes here in the U.S. that might impact some cross-border activity?

[Evan Russo, Chief Financial Officer]

Okay. On the sponsor side, I think again, the key thing on the sponsor side is a mix of valuation. Again, going back to what I said before, if you see earnings increasing, even though stock prices seem -- you see some PE compression that wouldn't be a surprise. If you see valuations fall off, that becomes a little bit more tricky just in terms of setting buyer's and seller's expectations. But so far, I think it's a pretty stable environment there. The key though for sponsors is continuity and financing. As long as there's financing available and markets were open, rates while they're going up are still at historically low levels, particularly real rates. And so consequently, this is still a pretty attractive environment to put money to work. And we really haven't seen any real slowdown in the sponsor activity in Europe. There's still a lot of white space left for us in the United States on the sponsor side, and we continue where we see the opportunity to invest and build there.

[Manan Gosalia, Morgan Stanley]

Great. Thank you.

[Operator]

And we can now take our next question from Richard Ramsden of Goldman Sachs. Please go ahead.

[Richard Ramsden, Goldman Sachs]

Good morning, guys. I was hoping you could --

[Kenneth Jacobs, Chairman & CEO]

Hi, Richard.

[Richard Ramsden, Goldman Sachs]

-- update us. Hey, good morning. I was hoping you could just update us on how you see the environment for restructuring evolving over this year. Do you think it can recover from the depressed levels that we saw in 2021? Or do we actually have to see default rates increase before the revenue picture in that business changes in a meaningful way? Thanks a lot.

[Kenneth Jacobs, Chairman & CEO]

So clearly, 20 -- the end of 2021, there was a real drop-off in -- through 2021, there was a real drop-off in restructuring activity, which at least on the advisory side for us, we weigh more than offset with um, the Financial -- with the strategic advisory business, which is really good. I think going into 2022, we're starting to see some signs of pickup in restructuring. I think it's a little early to call it a shift in market. It could be just anomaly of a few deals, but it does feel a little bit more -- it's more busy right now than it has been in the last several months or so. So it's early. I think this is a question which I'd be in a better position to answer at the end of the first quarter.

[Richard Ramsden, Goldman Sachs]

Then as a follow up. Can I think you were pretty early in identifying ESG as a driver for activity? Is it predominantly energy transition that it's impacting or is it broader than that? And is it an opportunity predominantly in M&A, or restructuring, or both? Thanks a lot.

[Kenneth Jacobs, Chairman & CEO]

Great question. It's multifaceted. First, we have I think one of the best if not the best, shareholder advisory capability around ESG. So conversations with companies around the shifts in their shareholder base and the impact that has on ultimately attracting investors and evaluation is a particular strength for us and continues to be something that we're building. The second is, I think companies themselves are actually across a range of industries, increasingly sensitive to the kinds of investments they have to make to be able to be competitive in a world where we're essentially heading to a zero-carbon world over time. And so that's happening. And you can see this in activity across a range of sectors. And then third, the amount of investment that's taking place in big capital projects in energy transition that is funded by infrastructure, I think it's going to be a really meaningful contributor to our business going forward. And that's just an area where I think we're going to see a lot more activity in the future.

[Richard Ramsden, Goldman Sachs]

Okay. Thank you very much.

[Operator]

We can now take our next question from Brennan Hawken of UBS. Please go ahead.

[Brennan Hawken, UBS]

Good morning. Thank you for taking my question. I wanted to follow up on some of Steven's questions around Asset Management. It seemed like some of your comments were a little bit more on the come. And so I wanted to confirm that that's the case, that's more outlook based and not anything that you're actually seeing tangibly within the activities of the client base so far. I guess that's the case given January's tough flow picture, but just wanted to confirm. And then can you size emerging markets? This is something that's been within the Asset Management business. It's been larger for you all, but I also understand it's been shrinking as other businesses grow, and it's a source of outflow. So what's the size of the EM business in Asset Management for you, and how do you expect that's going to perform if we continue to see the dollar strengthen with policy rates moving up?

[Kenneth Jacobs, Chairman & CEO]

Let me take a couple of parts of the question, then give -- have Evan touch on the EM franchise. So I would say that as far as outlook is concerned, a lot -- we're -- what's happening in the market is potentially quite attractive for our franchise. That is just given a shift away from speculative growth towards value, towards quality, something that plays to our strength. And as I said before, to the extent that you start to see flows into Europe and back into the Emerging Markets, that also is a great benefit to us. I think what I can say is there a lot more discussions right now in areas that there have been no discussions around that. And that's gratifying, but a lot of it is, as you said, that's in the future as opposed to in January. In terms of the M franchise, the good news is that the performance in the core product has really improved over the course of the last year and is significantly outperforming any of its benchmarks, and that's really I think stabilize the business right now. Evan.

[Evan Russo, Chief Financial Officer]

Yes. So as you've mentioned, Brennan, the emerging markets part of our platform has been becoming a smaller portion of the overall size of the AUM base over the last several years. At one point, I think -- I don't have the numbers in front of me, but I think we were north of 25% of our AUM was in the Emerging Markets, two platforms between equity and debt. Today, that's roughly around 16% of our AUM. So it's becoming a smaller portion of our total business. Still represents a significant size of our assets and can grow very, very quickly and hopefully it does. As Ken mentioned, we have positive performance and as investor sentiment turns, you can continue to see very quick moves back into that asset class because we still believe that most institutional investors are under index to that asset class and that part of their portfolio.

That said, when they decide to move, that will be a positive for us. But as of now it's becoming a smaller part of our business. And I think that's -- you will start to see as Ken said with the positive performance, we hope to see to have a smaller impact on the flow picture and also the impact on its basis points on average to the firm over the coming year.

[Brennan Hawken, UBS]

Okay. Thanks for all that color, appreciate it. And then when we're thinking about our MD headcount, I apologize if I missed this, but where was MD headcount at year-end. I know you flagged that you expect that -- you said you expect net -- to add net nine MD s through the promotion process. But where do we stand at year-end? Did you hit your 10% to 15% net add target for the year? And I believe that was a annual pace you wanted to keep up for a few years. So how are you thinking about that goal into 2022 given the environment and the recruiting picture? Thanks.

[Evan Russo, Chief Financial Officer]

I don't know where the nine number came from. We announced that we're having 21 promotes. We expect 21 promotes in our Financial Advisory business, including those 21 promotes, we're going to be approximately 200 MDs in our Financial Advisory business as of the end of January, when we start to count those promotes into our number, at the year-end was obviously around about 180, a little less than a 179 with the MD count at the end of the year. A little bit less than our target of ten to 15 per year. Some of the hires that we made over the course of the last few months haven't really gotten into the account just yet and including the higher level of promotions we've got going on there. I think we still feel good about that outlook, which is 10 to 15 net MD growth per year. And that's a longer-term trend. It's not like a one-year thing. It's just how we think we can grow the business over the next several years.

[Brennan Hawken, UBS]

Was there some turnover around year-end? Because I think you guys were 182 in the third quarter. So it did -- was there a little bit of turn there that caused some of the dip?

[Evan Russo, Chief Financial Officer]

Yes. We have some people leaving the firm. We had some retirements throughout the year that just take place at different parts of the year, even if we knew about them earlier in the year. So I think some of them hit in late Q3 and early Q4 more towards year end. So we had a couple of folks that executed on their retirement strategies towards the end of the year. So that prime makes up the difference between the 183 number and the 170 [Indiscernible]. So it's a fluid number, it constantly changes and moves around.

But look, net growth for us again, we're targeting 10 to 15 over the several years. And you can see we're just doing a lot of hires and frankly very excited about the level of the internal promotes that we made this year. It's probably one of our largest classes we've ever promoted and really high-quality younger people onto the platform, which I think sets us up really well as we think out the next three or four years, we just have a much larger base of our younger MDs, really starting to hit their stride over the next couple of years.

[Brennan Hawken, UBS]

Thanks for all that color, Evan.

[Operator]

And we can now take our next question from Michael Brown of KBW. Please go ahead.

[Kenneth Jacobs, Chairman & CEO]

Hi, Michael.

[Michael Brown, Keefe Bruyette & Woods Inc]

Hey, good morning, guys. So just to follow up on the flow question. So obviously, the flows have accelerated in recent month. The outflow is there. And it does sound like your outlook commentary is cautious, optimistic there. To think about the Asset Management business in recent years, you've made some strides in diversifying the AUM mix there, but what I wanted to ask is how are you thinking about inorganic growth here to maybe accelerate that trend and add AUM to areas that are seeing better flow trends overall, such as in the alternative asset class?

[Kenneth Jacobs, Chairman & CEO]

Two points on that. One is, I think you've seen a steady flow of, what I'd say, lift-ins, taking on teams for no goodwill that come onto our platform and we provide an ability for those businesses to develop and grow. That's been something we've done basically one a quarter more or less for the last I'd say almost two years or so at this point. And I think we have a very deep pipeline of opportunities going forward. That's a great opportunity to add really good teams. And very importantly additional capabilities to Lazard that can be leveraged across our platform.

And then needless to say, the Asset Management world is in ferment and there's a lot of activity and a lot of things going on and we're -- we always -- we're looking at a lot of different things. I mean, we'll be very disciplined about it, but where we have -- where we see an opportunity for something that could add to our franchise, we'll look very carefully at.

[Michael Brown, Keefe Bruyette & Woods Inc]

Okay. Thanks, Ken. And then just on capital return, you mentioned the increase and the share buyback authorization there. In 2021, you guys, I guess, have overachieved on your target there. You offset even more -- more than offset the dilution and the share count was able to come down. When you think about 2022, is that potentially the right way to think about it here? Or is it still that just target offsetting dilution and that if there's an opportunity to be more optimistic, you'll do so, but too hard to say at this point?

[Evan Russo, Chief Financial Officer]

I think you're correct. We bought back $9 million shares last year, which more than offset our year-end compensation shares that we were issued. We continue to buy through the year when we had the opportunity and wanted to put some of our excess cash to work, Mike, as we normally do through the year. We take a look at our cash positions and decide if we have excess shares -- excess cash, where we put that to work. And we've been really tilting towards share repurchases when we don't have a need for the capital in our business. But from time-to-time, there's capital that we need in the business for continuing to grow. Some of the areas of our business that need a little bit of capital such as putting more money to work in our seat portfolio, and other things that we want to invest into create opportunities on new funds in the future that was probably a bigger area that we started to spend some time and money and towards the end of last year will probably be a little bit more into this year as well.

So yeah, it's a little bit of opportunistic. We're going to, our target is to buy back at least the amount we need for year-end. Year-end compensation, dilution. Then as we've done over the past several years, just continue to put the excess to work in share repurchases when it becomes available. I would expect us to continue to make progress on the share count over the coming years.

[Michael Brown, Keefe Bruyette & Woods Inc]

Great. Thanks, Evan. Thanks for taking my questions.

[Kenneth Jacobs, Chairman & CEO]

Great.

[Operator]

We can now take our next question from Devin Ryan of JMP Securities. Please, go ahead.

[Kenneth Jacobs, Chairman & CEO]

Hey, Devin.

[Devin Ryan, JMP Securities]

Hey. Good morning. How are you guys?

[Kenneth Jacobs, Chairman & CEO]

Good.

[Devin Ryan, JMP Securities]

First question, just want to come back to some of the comments on investments in the people. And first off, good to see the deferrals not changed much despite the really strong revenue so you should set up well for next year. But as we think about just the investments into recruiting and some of the success you guys have seen over the past couple of years, it looks like you have more your bankers ramping on the platform than you've had in a while in terms of people that have been on the platform for less than two years. And so what I'm trying to think about is the productivity potential. You had a very strong productivity per Managing Director this year.

As we look forward, do you have a number of new promotes, and so that maybe pulls it down a bit on the flip side, you have a lot of bankers that are probably not at their full potential that you added over the past few years here. So just trying to think about some of the puts and takes there and where productivity can go here -- from here.

[Evan Russo, Chief Financial Officer]

Yeah, Devin, I think you hit it right. And I think we touched on it a little earlier that ultimately with the higher level of promotes that we've got coming into the system this year, we certainly brought on a lot more senior talent in the last 12 months or so than we have in the previous years before that. So there are a lot of what I'd call newer senior people here at the firm that are not really at their full potential. As you know it takes, sometimes, 18 months. It could take up to 36 months depending on the space for people to truly hit their stride in terms of revenue generation. Here at the firm depending on where they are establishing themselves, either within existing markets or trying to build out new markets for us.

Sometimes it could take a little bit longer, but yes, we will certainly have a lot more opportunity within the MD base that we have today to continue to see that ramp over the coming year. And our hope is, as Ken mentioned, we are putting a lot of these people in areas of white space and areas of bigger opportunity. We're starting to focus on places where we see the puck going in some [Indiscernible] and to think about where the bigger areas of opportunity are in our business. Hopefully over time we're going to generate even excess up above that.

[Devin Ryan, JMP Securities]

Okay, terrific. Then just looking at the -- call it non M&A businesses, whether it's shareholder advisory, or capital structure advisory was already made big investments in, I think, differentiated your footprint relative to some others in the industry. And so those contributions seemed to become bigger and bigger. Can you maybe just talk a little bit about how you're thinking about the opportunity in these non-M&A businesses? I know they interconnect with M&A advisory. But are those fee pools for the industry growing faster than M&A in where you feel like you are from a market share perspective and an opportunity to continue to push those higher?

[Kenneth Jacobs, Chairman & CEO]

So let me touch on that. So some of these efforts are complementary to the M&A and don't necessarily have an independent people. Some do have independent people. So it depends a lot on what we're doing. As an example, PCA is a business where we put a lot of resource behind and continue to put a lot of resource behind. That's an independent people that's grown rapidly. We've really been one of the developers of the secondary market, secondary transactions and continuation funds and our regular way fundraisings. That's been a business where it's growing great people, growing people, particularly with the growth of secondary funds and an area where we continue to see opportunity to put people. The energy transition broadly is an area of enormous opportunity at the firm right now.

We're seeing a lot of activity on the part of infrastructure funds. They're both in the things that they have historically invested in around renewables and solar -- solar/wind renewables, but we're also seeing it in greenfield opportunities like transaction where -- which is underway around green hydrogen and something that we're raising financing around. So that's pretty exciting for us, and we think there's a lot more around the energy transition that is building. Some of the other businesses they're shareholder advisory, the ESG, activism businesses. They are either independent P strings in some cases like activism. Increasingly, we see opportunities for that in some of the shareholder advisory ESG areas, particularly around IPO advisory and such. But others are just elementary to the strategic advice we get to clients, and really differentiating for us.

[Devin Ryan, JMP Securities]

Okay. Terrific. I can just close a loop on that. So as these businesses come up which are complementary to the strategic advisory and M&A advisory, how should we think about the fee per transaction over time. Have you been able to generate more fees as maybe you're adding more resources to specific deals and you can work on a transaction for many different angles, or how should we think about the trajectory from where maybe we've come from to where we are today to maybe where we still continue to go even on the specific M&A side?

[Kenneth Jacobs, Chairman & CEO]

Look, I think the key statistic for us this year was transactions per partner really went up pretty significantly, or per MD, I guess, is the way to think about it, what are pretty significantly and that's something we track very closely. And that obviously is a great addition to productivity and to returns.

[Devin Ryan, JMP Securities]

Okay. All right, great. I'll leave it there. Thank you.

[Kenneth Jacobs, Chairman & CEO]

Thank you.

[Operator]

We can now take our next question from Jim Mitchell of Seaport Global. Please go ahead.

[Jim Mitchell, Seaport Global]

Good morning. Maybe just a quick follow-up on Devin 's question. Maybe a different way. If we've --you've mentioned unprecedented activity to start the year. If you look at publicly available data on M&A, it doesn't feel like it's been any particularly super strong start. So is this a comment, on some of this non-M&A activity that has been very strong? Or is this more engagement letters, things like that? Or is it backwards-looking, looking at the pipeline? Just maybe flesh out a little bit the unprecedented activity comment and where you're seeing that strength so far this year?

[Evan Russo, Chief Financial Officer]

Look, Jim, I think the comments about unprecedented online activity, that's just what we're seeing. From our perspective around the globe, our bankers are as busy as we've seen them. They have, as Ken mentioned, just lots of transactions per MD, everyone's working on. And what we see as coming into the year, it's just one the strongest we've ever seen ourselves coming into a new year. So a little bit of it is probably just more us than it is the market itself. I don't think it was a comment on the market, it was more a comment on how we are performing and what we're seeing in the output from our bankers around the globe and this is more of a global situation than it is just a specific market or specific region. It's really broad-based. We're just seeing activity levels continue to grind higher as we got through 2021 and into the end of the year and I think that sets us up nicely for 2022.

[Jim Mitchell, Seaport Global]

Sure. Maybe, Evan, just a follow-up on non-comps and how you're thinking about that in '22. You obviously saw a pretty nice step-up in T&E and marketing. How do we think about some of those puts and takes in '22?

[Evan Russo, Chief Financial Officer]

Yes. So look, I think you have to -- when you think about non-GAAP -GAAP, you got to break it down into three buckets, right? Which essentially is 3 buckets these days. There's the fixed component of our non-compensation. Think of that as leases and other things which are just standard from year-to-year. Let's call that about maybe half of our non-compensation expense is fixed that will naturally grow with inflation. Maybe it's inflation plus a point or two, that's naturally how it's grown over the past few years. Then you get about 30 or so percent of our existing non-compensation expense is really driven by activity levels. Higher levels of AUM, more business activity, just more circulation of people, more clients, entertainment and other events that we've got going on and just other forms of activity level type non-compensation expenses that we generate through the year.

And the third bucket, which has been important for us, is really what I call the strategic bucket. It's areas where we're investing in non-compensation for something that's not particularly to a specific quarter, but really us thinking out over the coming year or two. Think about that as sort of technology investments that we're making that really aren't tied to the business activity level, but it's really things that we're strategically thinking about how to position our firm not only for this year, but for the coming years ahead. In addition, you saw this year recruiting expenses were higher, not surprisingly, given the amount of discussion we've had here about some of the senior level recruiting we've taken on, that recruiting expense flows through non-comp.

Again, that's not a current year type of variable type expense. It's a long-term strategic expense that runs through the non-comp line. So those are the three components. I expect that we'll see the same sort of structure as we get into next year. With regard to one variable, as you mentioned, which is travel and entertainment, which we continue to see through 2021, we saw it continue to grow into the end of the year. So Q4 for us was one of -- was our highest, certainly of the last two years, the highest quarter of travel and entertainment. It probably reached for us approximately 50% of where we were on pre -COVID levels, which may be a surprise to some folks.

But we had a lot of travel and entertainment going on outside the U.S. during that period of time, certainly with a lot of T&E expenses that came through in Q4. So we started to see a little bit of that return to normal. I don't expect that to grow back to the pre -COVID levels on a per person basis. We still believe that the efficiencies that we learned and we earned frankly, through the pandemic are going to stay with us in both sides of our business after we come out into a more normalized environment, just because the bar is now higher. The bar is higher for travel, the bar is higher for the time and the efficiency that all of our professionals have learned.

So I still think we're going to max out. I think our current view is still at 70% to 75% of pre -COVID levels on a per person basis for T&E. But we're starting to see a little bit of ramp. It's not anywhere near it was pre -COVID yet, but it's still starting to go up. So that's probably the wildcard for 2020 hopefully with continued level of business activity. And as we get more into a normalized environment, and hopefully everybody feels that for important events we're still getting out there on the road seeing clients and getting that client demand where we'll continue to see that grow, probably at a faster rate than we saw last year.

[Jim Mitchell, Seaport Global]

Okay, thanks, Evan.

[Operator]

We now take our next question from Jeff Harte with Piper Sandler. Please, go ahead.

[Kenneth Jacobs, Chairman & CEO]

Hey, Jeff.

[Jeff Harte, Piper Sandler]

Good morning, guys. Nice quarter. A couple for me. When we're looking at asset management, incentive fees have been really strong over the last couple of years. Should we think of that as being driven by a mix shift towards more incentive fee friendly strategies? Or is there maybe something else going on like a shift from kind of standard fee agreements toward incentive fee, more heavy agreements, kind of an existing strategies.

[Evan Russo, Chief Financial Officer]

I would say mostly has to do with performance in strategies where incentive fees exist mostly. And I'd say a little bit of shift in fee agreements, but I think the predominant part of this is just really strong performance in the strategies where we have some really nice incentive fees available.

[Jeff Harte, Piper Sandler]

Thank you. And when we think about Europe, the momentum continues, which is good. How are you thinking about Europe from a long-term to kind of medium-term potentialized here? I'm ultimately asking, do you think Europe can regain its pretty global financial crisis share of global M&A activity levels?

[Evan Russo, Chief Financial Officer]

I'm not sure it goes back to where it was in 206 to 207, that is pretty close to the U.S. levels. But we're above now our best years pre -crisis, which is great. It's taken a while, but we got there well above it now. And I think there's still a lot of room for growth in Europe. Both in terms of recovery of market and also for us. I think the two things that stand out in Europe are number one, the level of financial sponsor activity is high, but there is still room for even more. I think we're very well-positioned to capitalize on that. We had a great year in the [Indiscernible] across Europe last year.

And then second is I think that the investments around energy transition are probably even more advanced -- are more advanced in Europe than they are in the U.S. And I think we're very well-positioned around that as well. If you look at the deal sheet that we have, you can see that in the renewable space and the energy -- then in some -- many of the energy technologies, we have a really great position. And then the other area where we've done very well in Europe is in infrastructure, particularly in the telecom space. Building out fiber and that's another strong place for us in the U.S. right now.

[Jeff Harte, Piper Sandler]

Given a record quarter, I've got to ask, were there any meaningful revenues pulled forward into 4Q from closings in for 1Q?

[Evan Russo, Chief Financial Officer]

Nothing material at this stage. Jeff, as you know, in every quarter now, you probably have a couple of transactions that closed right after the quarter end that you pulled into the previous quarter. But you have a couple that fell into to the previous quarter and some that fall into this quarter. So it's regular way at this point. There's nothing significant to call out.

[Jeff Harte, Piper Sandler]

Okay. Thank you.

[Evan Russo, Chief Financial Officer]

Great.

[Operator]

This now concludes Lazard Earnings Conference Call.

[Kenneth Jacobs, Chairman & CEO]

Thank you.