LAZ Q1 2025: $10B Unfunded Backlog to Fund in 12–15M; Tariff Risk
- Robust Pipeline of Unfunded Mandates: The executives repeatedly emphasized that their backlog of "one but not yet funded mandates" continues to grow, demonstrating strong client demand and a healthy pipeline that could convert to revenue in upcoming quarters.
- Diversified Business Model: Lazard's diversified approach across asset management, financial advisory, and restructuring, along with its strong presence in Europe and cross-border capabilities, positions it to adapt effectively in uncertain market and geopolitical environments.
- Resilient Fee Rate Performance: The discussion highlighted an improved fee rate mix driven by higher-fee mandates and a positive business mix, which supports margin stability even amid volatility, suggesting potential for enhanced profitability.
- Tariff Uncertainty: Increased uncertainty around the tariff regime—particularly over a 90‑day window—may delay deal activity and lead to unpredictable revenue timing, as companies adjust supply chains and postpone transactions.
- Disrupted Sponsor M&A Dynamics: Macro headwinds such as volatile market conditions, challenges in leveraged loan and high‑yield financing, and shifting private equity hold periods could slow down sponsor M&A activity and create wider bid‑ask spreads, negatively impacting deal flow.
- Mandate Backlog Conversion Uncertainty: Although the one‑but‑not‑yet funded mandate backlog is growing, the uncertain market environment makes the timing and conversion of these mandates to realized revenue less predictable, which could impair near‑term financial performance.
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Fee Rate Guidance
Q: What full-year fee rate guidance?
A: Management explained that the Q1 fee rate was higher due to a mix of high-fee mandates, and they expect to average around the 2024 level as a base for 2025, though quarter-to-quarter fluctuations remain possible. -
Asset Mandate Funding
Q: Is the $10bn mandate funded yet?
A: Management clarified that the $10bn mandate represents an unfunded backlog across various strategies, with funding expected to materialize over the next 12–15 months as new wins balance outflow risks. -
M&A Pipeline Health
Q: Are M&A deals dropping out?
A: Peter noted that while it's normal for some deals to be pushed out, there is no elevated dropout rate; overall, the M&A backlog is expanding, pending resolution of tariff uncertainties in the next 90-day period. -
Sponsor M&A & Secondaries
Q: How are sponsor M&A and secondaries faring?
A: Management observed that although countervailing forces are at play—like market volatility and financing challenges—sponsor M&A remains robust and the secondaries market continues to grow, regardless of short-term fluctuations. -
Restructuring Trends
Q: How are restructuring trends shifting?
A: They explained that, with private capital playing a dominant role, there is an increased emphasis on liability management over formal Chapter 11 filings, a trend expected to persist as market conditions evolve. -
Compensation Ratio Outlook
Q: What might lower the comp ratio?
A: Management indicated that while the current comp ratio stands at 65.5%, achieving a 60% target depends on favorable M&A activity and revenue improvements, factors largely outside their immediate control. -
Compensation Floor
Q: Is there a floor on comp dollars?
A: They mentioned that fixed compensation elements like salaries and amortization set a floor, with these components growing in the mid-single digits year-over-year irrespective of deal timing. -
Q2 Outlook
Q: How will Q2 compare to Q1?
A: Management refrained from giving definitive guidance for Q2, emphasizing that even under normal conditions uncertainty remains, and current market volatility makes it difficult to project sequential improvements. -
Restructuring Mandate Timing
Q: When will restructuring mandates hit P&L?
A: Peter noted that mandates in liability management can convert into revenue faster than M&A deals, with many expected to start contributing to the P&L as early as 2025, likely in Q2–Q3. -
Europe vs. U.S. Activity
Q: How do European and U.S. deals compare?
A: Management highlighted that European activity is growing strongly, benefiting from long-standing local relationships, while cross-border interests now also include relocating production to lower tariff regions. -
Credit Availability
Q: Is private credit more accessible now?
A: Peter explained that as leveraged loan and high-yield markets face challenges, private credit is becoming a more attractive financing alternative, with Lazard actively deploying innovative solutions, though broader market clarity remains key.
Research analysts covering Lazard.