管理層發言
Good morning, and welcome to Lazard's Second Quarter 2026 Earnings Conference Call. This call is being recorded. At this time, I will turn the call over to William Murdock, Lazard's Head Strategy and Investor Relations. Please go ahead.
Thanks, Helen. Good morning, and welcome to Lazard's earnings call for the second quarter and first half of 2026. I'm William Murdock, Head of Strategy and Investor Relations. In addition to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website here 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 achievements or other events to differ materially from those expressed or implied by the forward-looking statements, including but not limited to those factors set in the company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update them. Please also note that unless we state otherwise, all financial measures we discuss today are non-GAAP adjusted financial measures. We believe these non-GAAP financial measures are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measure is provided in our earnings release and our investor presentation. Hosting our call today are Peter Orszag, Lazard's Chief Executive Officer and Chairman; and Tracy Farr, our Chief Financial Officer. After our prepared remarks, Chris Hogbin, Chief Executive Officer of Asset Management, will join as we open for questions. I'll now turn the call over to Peter.
Thank you, William, and thank you to everyone for joining our call today. Firm-wide adjusted net revenue was $786 million for the second quarter and $1.5 billion for the first half of the year. Before Tracy takes you through the numbers, it has now been almost three years since we issued our Lazard 2030 plan, and so it seems appropriate to discuss where we are in our efforts to transform our firm for long-term profitable growth. When we laid out our vision for Lazard 2030, we said we would measure success through relevance, revenue and returns. We're seeing tangible progress across all three. In the first half of this year, Financial Advisory achieved its strongest announced lead table position since 2014. Asset Management delivered its best first half net inflows in nearly 20 years and reached its highest reported AUM level ever. That progress is driven by the role we play for clients. Increasingly, board members, CEOs and asset owners are turning to Lazard for their most consequential decisions and investments. We believe this expanding client activity is due to our ability to deliver what we call contextual alpha by combining business analysis with broader insight into geopolitics and the regulatory environment. Clients also value that we can connect capital, distribution and technology across a broader platform. With our acquisition of Campbell Lutyens, we will establish a third business that will be the leader in global private capital advisory, providing us with a full array of capabilities in private markets to complement our strength in public markets. At the same time, we are rapidly adopting AI and other technologies to serve clients more effectively and enhance productivity as part of our commitment to being the leading AI-enabled independent financial firm on Wall Street. In short, our work to advance Lazard's legacy is well underway. Tracy will now discuss our financial results along with the near-term effects of the investments we've made that I'm going to come back to provide more details on the progress we have made that is reinforcing our confidence in increased growth, productivity and profitability over time.
Thank you, Peter. Financial Advisory adjusted net revenue was $445 million for the second quarter and $801 million for the first half of 2026. Financial Advisory revenue during the quarter was driven primarily by M&A completions in North America. Across Europe and the Middle East, our business continued to perform well despite ongoing geopolitical uncertainty, with our advisory team in London performing particularly well during the quarter. Globally, restructuring and liability management delivered strong results, achieving its best first half performance in almost a decade. And our Private Capital Advisory business also saw increased client demand, particularly in primary fundraising, highlighting the opportunity ahead with our launch of Lazard CL later this year, demonstrating increased client engagement and activity across the business. Completed transactions include SunOpta on its $1.1 billion sale to Refresco and Network Connex's sale to Olympus Partners. Recently announced transactions include Altice France's proposed sale of SFR for up to EUR 21 billion, and NextEra's landmark deal with its combination with Dominion Energy, creating an enterprise value of approximately $420 billion. Liability management and restructuring assignments include public national distributing company Searles Valley Minerals and Trinseo. In Private Capital Advisory, recent assignments included advising Corsair Capital and G Square on continuation funds and advising Regal Healthcare on the raise of Fund IV. We're encouraged by the growth opportunities across financial advisory overall, with continued strength in our forward indicators and client engagement supporting a stronger second half of the year. Peter will speak more about this in a moment. Turning to Asset Management. Adjusted net revenue was $331 million for the second quarter and $640 million for the first half of the year. Our revenues included management fees of $310 million for the second quarter, 23% higher than the second quarter of 2025 and up 5% on a sequential basis. During the quarter, we had market appreciation of $27 billion, foreign exchange depreciation of $1 billion, outflows of $1.6 billion and a $1 billion increase attributable to acquiring a controlling interest in Elaia Partners. We delivered net inflows of $7.4 billion in the first half of the year. As of June 30, we reported AUM of $285 billion, 15% higher than June 2025 and up 10% compared to the prior quarter. Average AUM for the quarter was $279 billion, 17% higher than the second quarter of 2025. Client engagement remains strong and new mandates in the quarter reflect ongoing demand for our Quant platform, emerging markets, Japanese equity, international equities, fixed income and private markets. Our Quantitative Equity business, the Lazard Advantage platform, has more than doubled to $50 billion in assets under management in the past year. The Lazard Advantage platform provides fundamental insights with a systematic approach that has delivered strong performance and is resonating with clients. We continue to develop our asset management platform. During the second quarter, we filed initial registration statements for three additional active ETFs within our first fixed income ETF. This February, and less than a year after launch, our U.S. ETF platform surpassed $1 billion in AUM, which had already doubled to $2 billion in July. Our asset management leadership is also advancing our broader Lazard 2030 objectives. We're embedding AI across research, portfolio construction and client servicing. We have recently hired senior roles, including a head of global product to help us focus on our investment product set and a head of corporate development to help us pursue targeted growth opportunities going forward. As we look ahead, firm-wide total revenue in the second half of the year is usually stronger than the first half, driven by financial advisory. This year, our current projections suggest that pattern will be somewhat more pronounced. Turning to firm-wide expenses. Our adjusted non-compensation expense was $172 million for the second quarter, resulting in a non-compensation ratio of 21.8%. Our adjusted compensation expense was $550 million for the second quarter, resulting in a compensation ratio of 69.9%. Given several factors that could reduce our compensation ratio this year that are still evolving, we continue to accrue compensation in the second quarter at the same level we did in the first. Factors that could reduce compensation on a constant deferral rate include the closing of the Campbell Lutyens transaction, which we anticipate will reduce our adjusted compensation ratio over time, compensation accruals below last year's level, and whether our advisory pipeline continues to build at the current pace or leading indicators suggest. We have more to say about our full year compensation ratio when we report third quarter results. Turning to taxes. Our adjusted effective tax rate for the second quarter was 69.7%. This was a primary driver of the earnings reduction this quarter — anomalous and associated with the catch-up adjustment with the Vitesco equity. It is not indicative of the full year effective tax rate, which we still expect to be in the high 20s percent range on a GAAP basis. Regarding capital allocation in the second quarter of 2026, we returned $103 million to shareholders including a quarterly dividend of $49 million and share repurchases of $59 million. After pausing last quarter due to the Campbell Lutyens transaction, we are pleased to restart our share buybacks with a current repurchase authorization of just over $250 million. We expect to continue buybacks throughout the year, balancing investment and growth with further offsetting share issuances from compensation over time. In addition, yesterday, we declared a quarterly dividend of $0.50 per share. Now let me turn the call back to Peter.
Thank you, Tracy. Let me now provide details on our progress, which reinforce our comments that the Lazard 2030 strategy will increasingly translate into revenue and returns as our growth investments pay off. In Asset Management, over the past few years, we have sharpened our strategy, enhanced our investment platform and distribution efforts and transformed our leadership. The result is a renewed focus on the products and strategies where we believe active management delivers advantage and where we can capture client demand. With this progress, asset management revenue is up 23% from one year ago. Even with our strong net inflows in the first half of the year, ongoing client demand has supported our one but not yet funded pipeline which continues to replenish and is higher than it was at year-end 2025. Looking ahead, we remain on track to deliver positive net flows for the year, and we remain confident in the sustained momentum of the business in the second half of the year and beyond. In Financial Advisory, the repositioning of our business by upgrading our managing directors has been guided by the core conviction that raising the bar on talent and productivity would unlock shareholder value over time. Transformation at this scale is unusual. And since we are now emerging from the period during which we made the strategic choice to turn over 40% of our advisory managing directors, we want to provide more context on our progress. While we do not necessarily intend to provide this level of detail on an ongoing basis, we are doing so now to help investors understand where we are in this transition and what we are seeing as we move through it. To that end, a number of our forward indicators are increasingly encouraging. Conflict clearances are up almost 40% year-over-year on a dollar-weighted basis and up over 100% for deals above $5 billion. Our weighted backlog for this year is building more rapidly than last year. Our weighted pipeline for 2027, while at an early stage as is typical for July, is already more than twice the level it was for 2026 at this same time last year. Achieving our best position since 2014 in announced lead tables is also a net positive for future revenue. We also see evidence of our strategy in client activity and market position. We have invested in talent in our healthcare and power, energy and infrastructure groups over the past few years as some examples, areas where we already have strength and see room to grow. This quarter, we were involved in eight announced biopharma transactions over $1 billion, while our role as lead financial adviser to NextEra on the largest energy transaction in history demonstrates the expanding global leadership of our PEI group. Taken together, these indicators reinforce our belief that the repositioning of our advisory business is proceeding as we planned. They also increase our confidence in our Managing Director by Managing Director analysis, which shows we are now exiting the transitional period in which the hard decisions required to upgrade our talent created a headwind and moving toward a phase in which the investments we have already made shift to a meaningful tailwind for future growth. While progress in this business is not linear and we may experience a slight dip in productivity this year given the large number of new MDs we added last year, our MD-by-MD analysis also shows we remain fully on track to meet our next target of $10 million per MD by 2028. Moving forward, the ramping of our new hires and promotes is increasingly less burdened by the elevated level of separations we made the decision to undertake. This allows their expanding productivity to translate more powerfully into net revenue growth, delivering the longer-term structural improvement aligned with our Lazard 2030 vision and goals. Two other points are worth emphasizing. First, we are very pleased with the quality of talent we have at the firm, including those we have been able to attract to Lazard and its growth from within. Even after only two years on our platform, the average annual productivity of our newly hired MDs has already exceeded the productivity of the MDs we parted with during our strategic repositioning. Our tenured MDs set the standard for global excellence and it is encouraging to see the commercial and collegial integration taking place across the firm. Second, we are committed to bringing the compensation ratio down over time, not only through the operating leverage associated with higher productivity, but also through efficiency initiatives that more directly reduce expenses including through our expanded use of technology. Stepping back, there are broader longer-term dynamics supporting our financial advisory outlook. Companies continue to pursue scale and rapid technological change amid a constructive regulatory environment. Boards and C-suites increasingly treat geopolitical uncertainty as a feature of the landscape rather than a reason to wait and an ongoing focus on corporate portfolio composition continues to drive both divestiture activity and M&A. While M&A activity has been robust and concentrated in strategic transactions, private equity M&A has remained subdued. Our forward indicators would be even more encouraging beyond their current levels if private equity M&A were to become more active. Together, market conditions, client activity and strong evidence internally on our progress further validate the trajectory that we see. Integration planning is well underway for the Campbell Lutyens acquisition. As our teams have spent more time together we have even greater conviction in the strategic logic and cultural fit behind the combination. We also are even more impressed by the quality of talent Campbell Lutyens brings to complement our world-class TCA bankers. In addition to the revenue opportunity with Lazard CL alone, we expect the broader connectivity between our M&A, restructuring and fundraising businesses to compound over time. Without including revenue or expense synergies, as we said in the announcement, we expect this acquisition to be accretive to earnings in 2027 and thereafter with clear potential for further upside. In sum, we are confident in our path toward our Lazard 2030 objectives, and I would like to thank our colleagues for their hard work and commitment to our clients. For a close, I'd also like to welcome Kathy Elsesser to our Board of Directors. She is a retired Goldman Sachs partner with more than three decades of investment banking experience. Kathy has a broad perspective across both public and private markets. We're excited to have her join us as we build on our momentum in financial advisory, asset management and firm-wide. And now, we'll open the call to questions.
分析師問答
We'll take our first question from Gabe Angelini with Bank of America.
Like you said, there's been a divergence year-to-date in strategic versus sponsor M&A activity. Maybe if you can give us a mark-to-market on why we're seeing that divergence? What in your conversations with sponsors and strategics is causing that? And then also, can you talk about the outlook for sponsor activity in the second half of this year and first half of next year?
Sure. I think the core challenge really involves valuations. The rise in interest rates that we saw from the exceptionally low period of rates that had existed for a while caused the net present value of cash flows to decline. That disconnect in valuations, I think, has led to some hesitation to sell portfolio companies that are held by private equity firms, especially if they're marked at a different level or the return is not what the sponsors had hoped to achieve. And so I think that's what's causing the delay. Now there is a counter pressure, which is that LPs would like to get some cash. And so there is building pressure as this period of higher interest rates persists, and we can talk about the inflationary outlook and the rate environment, but I think that's likely to continue for some period of time. So there is a bit of, what are we waiting for, that's starting to emerge and also this demand for LPs for distribution. On the latter point, I would note that one of the accelerants in the continuation funds and secondary activity is exactly that. And so we are well positioned not only with our existing PCA business, but with the Campbell Lutyens transaction and the new Lazard CL leg of Lazard to meet client demand for secondaries, which we see as quite robust. But it's the interplay between this valuation effect and the demand for cash that I think is at the heart of the question of when private equity M&A will really pick up again. Beyond that, what I would say for the second half and into 2027 is if you listen to both private and public conversations, the heads of the large alternative asset managers, which are the biggest players in private equity, are suggesting that this is about the shift. So we will await those words converting into action, but that's kind of how I would characterize this dynamic right now.
Great. That's helpful. And maybe just one for Chris. Obviously, you started in the asset management business in December, and I think there have been a number of changes that you've made since joining the business. Can you walk us through some of the most important changes and maybe some KPIs that really can track to watch the progress that you're making there?
Thank you for that question. A number of changes we've made to strengthen the business: the first was to appoint a Chief Investment Officer for the first time in the business because really the core of what we do is deliver investment outcomes for clients. So having somebody whose full-time job is to focus on bringing the strength and breadth of our investment platform to bear for clients is important. He is, as you might imagine, working very closely with the portfolio managers to re-underwrite and help them improve their processes and make sure that we have the right level of data resources, technology, et cetera across the teams. So I think you really need to look at how our investment performance tracks. At the moment, we stand with 68% of AUM that we manage on behalf of clients outperforming their stated benchmarks over five years. The second big change I made was to appoint a new Chief Operating Officer, Rose Berman, who is to help us really run the business more effectively and efficiently to make sure that we're focusing our resources on the areas that can drive the business forward. She's also overseen a lot of our efforts to adopt and drive AI across the business, and she made an important hire as head of AI for the asset management business. So that's been a big part of what we've been focused on. As we roll into next week, we have two senior executives joining our team. One is Head of Product, one is Head of Corporate Development for the Asset Management business, both very long-tenured industry leaders who will help us think through what the product roadmap should look like going forward — where we want to prioritize and where we want to deemphasize. We'll come back with more detail on that. Obviously, one of the things that people should track is what's happening to our flows because ultimately that will reflect how clients think we are performing for them. The good news there is, for the first half of the year, we saw $7.5 billion of net inflows. As Peter said in his remarks, that's the strongest level of net inflows we've seen for almost two decades in the first half, with a good breadth of different investment strategies, regions and clients contributing to that.
Our next question will come from Brennan Hawken with BMO.
You've spoken to a stronger second half in advisory. Peter, I believe you referenced that you expect it to be somewhat more pronounced than typical. Could you add further color to that? What kind of magnitude would be reasonable when you look at your pipelines and think about what is expected to close? And which businesses do you expect to drive greater-than-normal seasonality in the back half?
I think that was Tracy, so I'm going to let him characterize things. But on the different lines of business, I'll give a little color. Our M&A vs non-M&A balance is staying roughly 60-40, so that has not really evolved. We are seeing a bit more shift towards North America in the overall mix of our revenue. That's not too surprising because, coming back to this J-curve and the ramping of our managing directors, you look at the number of tenured managing directors — that's MDs on our platform for more than three years — we're going to be more than tripling that number between the base of '23 to '25 and 2028. Those people are already on the platform and they're just ramping. And so that's a large number of increasingly productive MDs that are showing up in revenue. Those are disproportionately people that we've added in healthcare, industrials, technology and then also in some other areas where we made hires that will be coming online. We're excited about that and more broadly in private capital. Those are some of the areas where we're seeing increased activity. You're also seeing that show up in the lead tables. I mentioned the statistic about the increased activity that we're seeing in healthcare with those people that we're bringing on ramping nicely. Tracy, I'll let you characterize your comments.
Brennan, if you look historically, primarily on the financial advisory side of the business, the second half is usually stronger than the first half. My comment was simply to say that given the first half being lighter on revenue than we had maybe expected at the end of last year — which we talked about at length — the growth in some of those factors Peter just mentioned, such as strong performance in some of these ramping MDs and tenured MDs, means that the first-half versus second-half trend might be more pronounced this year. I think the only thing I would add is that pace of pipeline build into the second half has been at a higher pace than in years past, and it's part of the reason that we think there's some potential for improvement in the second half. That said, we have slightly lower visibility to exactly how much that will cover; we'll have more to say in Q3.
Got it. One more follow-up: you touched on MD headcount. We saw MD headcount decline a bit quarter-over-quarter; could you talk about what drove that? And how should we think about headcount for the rest of the year? You commented on the J-curve and improving ramp. So what are some important things we should think about on that front?
I wouldn't focus too much on quarter-to-quarter fluctuations in the MD count because that involves some idiosyncratic timing around exactly when garden leave expires and someone can join the platform and also exactly when separations occur. The key point is at the end of the first quarter, the number of our advisory managing directors was 238. We will be at least at 248, if not more, by the end of the first quarter of 2027. So we remain on track to continue adding 10 to 15 net MDs per year, and we already have visibility into achieving that objective. In terms of where we're hiring, I already gave some context: healthcare, industrials and technology. We are actively recruiting talent in Europe as well. You should expect it to be disproportionately in the United States, but we will continue adding talent elsewhere in the world.
I was hoping to understand a little more about the ramping.
We've done a very detailed analysis of the separations that we strategically made and the new people that we're bringing on. The ramping we're seeing from our new managing directors is very encouraging. That can be a bit obfuscated by the J-curve, where the separated MDs were disproportionately lower productivity and there was some immediate revenue loss associated with those separations, while the ramping of the new MDs takes time. We've seen evidence that the ramping is occurring on the schedule we expected. Even after two years on the platform, new hires are already above the productivity of the separated MDs. As we move into 2027, the effect becomes a significant tailwind when you analyze MDs granularly. Going forward, as we exit this transitional J-curve moment, you'll see the ramping of new hires increasingly translate into net revenue growth and then into earnings and compensation leverage.
Our next question will come from Mike Brown with UBS.
I wanted to start on the asset management side. The first half had $7.5 billion of net inflows, clearly a very positive start to the year and tracking to positive net flows for the year. I assume you're not expecting the second half to be a mirror image or opposite of the first half. Any comments on the puts and takes for flows in the second half? And where are you seeing the most traction?
Thanks, Mike. We are very confident in the sustained commercial momentum in the asset management business. There's real breadth to what's contributing. You're seeing that notably from our systematic equities — our Lazard Advantage platform has doubled to $50 billion over the last year — but there are many other strategies contributing: emerging markets, listed infrastructure, Japan, robotics, and some fixed income strategies as well. There's breadth from a product and geographic perspective: net inflows in Asia, Europe and the U.S. Looking forward, our one-but-not-yet-funded pipeline is at a level today that is higher than it was at the end of last year, which gives us confidence in sustained momentum. Month-to-month there can be volatility because we can split the business into retail, which has been steady, and institutional, which is lumpier with big mandates that can be won or redeemed. Given the level of commercial activity, we're confident through the remainder of the year.
Shifting to the comp leverage and operational discussion — I know it's revenue dependent. If asset management continues on its current path and financial advisory is stronger in the second half, can you get back to the 65.5% level for the comp ratio that you were at last year?
That's a good question. I'll get into a bit more detail. There are certain things we're seeing in the business that you don't have around forward momentum. Historically, our Q2 accrual has mirrored our Q1 accrual. Our Q1 accrual was lighter on revenue and had higher fixed costs. A vast majority of this Q2 accrual was due to fixed comp being significantly more than in 2025, and that ties back to the higher levels of hiring and guarantees. We maintain consistent accrual practices, so we don't get more visibility until the second half. If revenue performs, the compensation ratio can come down in the second half. I'm not going to give a specific endpoint now, but you're thinking about it correctly that it's indexed to financial advisory performance in the second half, and we'll have more visibility in Q3. I also want to highlight the significance of the repositioning and the J-curve impact: it exists on both the revenue and expense sides of the comp ratio. Revenue from our new MDs takes time to build; the revenue lost from separated MDs is more immediate. On the expense side, there's an inverted dynamic because the lateral MDs were a higher proportion of the rebuilding — over 90 MDs have been hired since 2023 — and that gross change is more significant than the 10 to 15 net MDs per year that people often focus on. The impact on the comp ratio largely comes from the accounting impact and delayed amortization related to that gross change in the MD pool that really happened between the end of 2023 and 2024. If you dig into it, the fixed costs related to guarantees and amortization from prior periods are contributing to the difference between first half of 2026 versus first half of 2025. So while comp ratio improvement is possible in the second half, please understand the accounting dynamics and the timing lags. We'll provide more detail as we move through the year.
Our next question will come from James Yaro with Goldman Sachs.
I want to touch a bit on AI impacts on investment banking. A lot of the AI impact on investment activity appears to be in financing markets rather than M&A. I'd love your perspective on the ways Lazard's Strategic Advisory business can benefit from AI, specifically on M&A and more broadly in strategic advisory and the secondaries business as well.
A couple of points. With regard to client activity, Lazard Capital Solutions has capabilities in matching strategic usage with sources of private capital, including insurance capital, and that is a very active vector for many AI-related investments, even beyond AI, around corporate balance sheet optimization. Secondly, especially as we move towards the Lazard CL third leg in private capital advisory, the combined businesses will have a strong data asset in terms of insight into GPs and LPs, and deploying our AI technologies on that data will provide commercially relevant and valuable insights for clients. So we're excited about deploying that data asset at scale. Third, regarding how we serve our clients, we are committed to being at the forefront of the technology revolution. The tools continue to advance rapidly. Deployment of AI within Lazard to our banking teams and to the asset management side of the business is very encouraging. There are new use cases every day. I'm excited about the ability of our adoption of this technology to help us better serve clients in new and innovative ways. We have an exceptional AI team internally and Dmitry Shevelenko, Director of Perplexity, is on our Board and helps guide us on the direction of the technology.
That's helpful. One clarification on advisory strength in the quarter — the results were stronger than some forecasts. Was there anything that changed relative to your intra-quarter commentary, whether faster closings or pull-forwards, or something else to put this quarter in context relative to your constructive second-half outlook?
There wasn't any exceptional pull-forward. It's not really a quarterly business because things can bounce around. What we're seeing is increasing momentum across the business, some of which showed up in this quarter. There's no particular M&A vs non-M&A mix shift to call out — it's an indication of strengthening as we emerge from the J-curve period in our momentum.
Our next question will come from Connell Schmitz with Morgan Stanley.
Sticking with the AI point: you've added a new piece to your AI progression timeline with the rollout of Claude, but you have not spoken much about it. Does this mark any shift in your AI strategy from a provider standpoint? Broadly, given increased tech investment, how should we think about the trajectory of non-comp expenses for the remainder of the year? Has there been progress on reducing corporate overhead expenses that you've discussed previously?
I'll take the first part and Tracy can take the second. Throughout our AI journey we've been committed to not locking into a single model and avoiding sole-source vulnerability. We've been explicit in having a variety of models inside our firewall that can be used by our teams. The rollout of Claude is consistent with that philosophy. Claude is not the only model — we have multiple models — and the important thing is driving cultural change in how work is undertaken and being able to swap out the underlying model as needed. Our AI spend and token cost is still quite modest and not material from a non-comp expense perspective, but we see huge opportunity and are focused on cultural adoption.
We track AI spend closely. Regarding cost efficiency, we're simplifying corporate and support function processes and structure broadly. In asset management, we've been streamlining the research platform, with portfolio managers and analysts working more efficiently and closer coordination across equity businesses. In asset management recently there have been some headcount reductions, some of which were business-as-usual movements reflecting efficiency. In Financial Advisory, we're aiming for smaller deal teams and a lower total associate-equivalent-to-MD ratio. For corporate and back-office, we've launched an in-depth review and are working on structural changes that deliver durable reductions in the growth rate of corporate spend relative to revenue. It's a long-term project and we will have more detail toward the end of the year. On AI spend, adoption is promising and cultural adoption is the key metric we're watching. Over time you might see a shift between comp expense and non-comp expense as workflows evolve, but that's not a near-term material factor.
One quick follow-up on buybacks and M&A: given you restarted buybacks, is it fair to conclude that inorganic growth within the wealth space is unlikely in the near term as you look to increase wealth distribution from here? How is that strategy going?
I wouldn't characterize it that way. We were pleased to restart buybacks after pausing for the Campbell Lutyens transaction. We expect buybacks to continue but at a modest level versus historical levels. That doesn't preclude strategic or inorganic investments. We're actively looking at lots of options and will pursue the right ones.
The question is whether restarting buybacks signals a decision against inorganic activity — a fair conclusion is that current buybacks do not preclude pursuing inorganic options. We're actively exploring opportunities.
Our next question will come from Steven Chubak with Wolfe Research.
Appreciate the detail unpacking underlying momentum and the MD J-curve. Looking beyond 2026, could you speak to expectations for the compensation trajectory if you extrapolate based on the current ramp in productivity from new hires, while staying the course on adding talent aligned with the 2030 targets?
Great question. We see the comp ratio coming down as we continue the Lazard 2030 plan and make these investments. There are three things to highlight for 2027 and 2028: first, over time the comp ratio comes down as one-time effects of buyouts fade. Second, as productivity per MD rises — we're confident we're on track to hit $10 million per MD by 2028 — we get operating leverage because the non-MD comp-to-revenue ratio goes down. Third, we see opportunities for efficiencies in how we go to market and in corporate functions. The combination suggests a significant decline in the comp ratio across 2027 and 2028.
To add on timing: much of the compensation expense driving the current comp story already happened during the elevated gross hiring levels. Given our deferrals and vesting schedules, a lot of that comp expense amortizes over three years. With revenue growth and ramping MDs exceeding productivity of separated MDs, you'll see a revenue tailwind that's evident in 2027 and then a more normalized comp base by 2028 as the accounting amortization unwinds. So expect a downward trend in the comp ratio across 2027 and 2028.
That's really helpful. A follow-up: any update on momentum in the non-M&A businesses, whether private capital advisory or restructuring, and how you see trends across geographies?
On geographies, there's been a bit of a shift toward North America, partly market-driven and partly due to our MD mix, which is purposefully growing in North America. Regarding non-M&A businesses, our advisory split is roughly 60% M&A and 40% non-M&A. The non-M&A piece will expand as we integrate Campbell Lutyens. We continue to expect strong fundraising activity from Lazard CL and have previously said Lazard CL alone could produce certain revenue contributions in 2027. Underlying trends this year in PPA and liability management are tracking as expected and healthy.
Our next question will come from Devin Ryan with Citizens Bank.
Peter, you mentioned conflict clearances are up over 100% for deals over $5 billion; that's a material acceleration from the 50% you mentioned last quarter. Can you talk about the recent acceleration and whether that's a result of the diverging backdrop between strategics and sponsors, or a concerted effort under your leadership to concentrate on larger deals and increase market share there?
A couple of points. First, we'll follow up to ensure you're comparing the same metrics — the up 40% overall dollar-weighted conflict clearances and the 100% for deals above $5 billion are fee-weighted estimates; you may be referencing a count-based metric from last quarter. Broadly, we're seeing a significant uplift in our large-cap activity, reflecting three things: market conditions (strategic activity and large deals), a leadership and management initiative to emphasize lead-table and large-cap prominence, and the operating model we've adopted with increased relationship building and hiring. We're in more boardrooms and C-suites, and we're pleased with the traction. Our ability to deliver contextual alpha that incorporates geopolitical insight is part of what's giving us competitive traction.
Our last question will come from Alex Bond with KBW.
Follow-up on deals in the $1 billion to $5 billion range: you've cited strength in $5 billion-plus deals year-to-date, but have you seen any pickup in activity in the sub-$5 billion range? Part of this is tied to depressed sponsor activity, but is there anything else that might get that cohort more active? Also, on non-comp expense, does your prior guide of mid- to high single-digit year-over-year growth still hold? Any commentary on upward pressures like travel expense from higher energy prices and AI-related tech costs would be helpful.
Much of the sub-$5 billion activity is tied to the private equity dynamic we discussed. If private equity were to become more active, you'd see significant pickup across smaller deal sizes coexisting with large strategic deals. The forward indicators are encouraging despite private equity M&A not yet fully reawakening; if it does, the indicators would be even stronger.
On non-comp, that prior guide still holds; it might be up a point or two but generally remains in the mid- to high-single-digit increase. There may be a little more noise this year because of the Campbell Lutyens transaction and related advisory items — we'll try to carve that out. AI spend will increase but is not material today; adoption is driving high ROI. On travel, client-convening activity is on the rise, and we see travel as a revenue driver. Higher T&E will be offset by some savings in other areas of non-comp, and we see that as a purposeful tradeoff to support client relationships.
This now concludes Lazard's Second Quarter 2026 Earnings Conference Call. We appreciate your time and participation. You may disconnect at this time.