Good morning, and welcome to Lazard's first quarter 2022 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. If anyone should require assistance during the call, please press the star key followed by the zero on your touchtone phone. At this time, I would like to turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Corporate Sustainability. Please go ahead.
Good morning, and welcome to Lazard's earnings call for the first quarter of 2022. I'm Alexandra Deignan, the company's Head of Investor Relations and Corporate Sustainability. In addition to today's audio comments, we've posted our earnings release in 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 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 these forward-looking.
Today's discussion 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. Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer, and Evan Russo, Chief Financial Officer. Evan will start the discussion with an overview of our financial results, then Ken will provide his perspective on the outlook for our business. After that, we will open the call to questions. I will now turn the call over to Evan.
Good morning. Today, we reported an 8% increase in operating revenue for the first quarter and strong performance by both our businesses. In Financial Advisory, first quarter revenue of $388 million increased 22% from last year's period, reflecting continued momentum, particularly across Europe and North America. Despite heightened geopolitical risks and concerns about inflation and supply chain challenges, our engagement with clients has remained robust and activity remains at historically high levels. Regarding restructuring, we are seeing a continuation of lower levels of deal activity, but we are experiencing an increased level of dialogue with clients. In Asset Management, operating revenue of $312 million decreased 5% from last year's period, reflecting lower average AUM for the quarter.
As of March 31st, we reported AUM at $253 billion, 5% lower than last year's period and 8% lower on a sequential basis from December 31st. The decrease was primarily driven by market depreciation of $12.4 billion, net outflows for the quarter of $6.5 billion, and foreign currency depreciation of $2.1 billion. Average AUM for the first quarter was $256 billion, 2% lower than a year ago and 6% lower on a sequential basis. Since the start of the year, a number of drivers have been impacting market valuations of several asset classes with a consequent impact on our AUM. These drivers have included Russia's invasion of Ukraine, surging inflation globally, and rising interest rates.
Incentive fees were $25 million, representing the second highest incentive revenue we have reported in a first quarter, driven by the strong performance of our funds, including European equities and fixed income, as well as Japanese equities. Gross flows showed strong demand, including in global and multi-regional equities. We had net inflows in a number of strategies led by emerging markets debt and alternatives. Additionally, we continue to see strong demand from our increased focus on distribution in Europe. As of April 22nd, our AUM was $243 billion, driven by market depreciation of $5.4 billion, foreign exchange depreciation of $3.6 billion, and net outflows of approximately $240 million. We continue to invest for growth across the firm.
In Financial Advisory, we are continuing to increase our team of senior talent through internal promotes as well as strategic recruiting. In Asset Management, we are growing the business through our investment in people, technology, and distribution. This includes focus on strategic investments in recruiting and building out of new teams and strategies such as sustainable private infrastructure and climate action. Now turning to expenses. In the first quarter, we accrued compensation expense at a 58.5% adjusted compensation ratio, consistent with our full year 2021 ratio, and compared to 59.5% in the first quarter of last year.
Our adjusted non-compensation ratio for the first quarter was 16.8% compared to 15.8% in the first quarter of last year, primarily reflecting higher travel and business development expenses as COVID-related restrictions began to relax in many parts of the world, as well as the continued investments in technology. Regarding taxes, our effective tax rate for the first quarter as adjusted was 25.4%, which compares to 28.6% effective tax rate in last year's first quarter. We currently expect this year's annual effective tax rate to be in the mid-20% range. We continue to generate strong cash flow, which supports return of capital to shareholders. In the first quarter, we returned $281 million, including $47 million in dividends and $176 million in share repurchases.
During the first quarter, we bought back 4.7 million shares of our common stock at an average price of $37.26. These repurchases more than offset potential dilution from our 2021 year-end equity compensation. Our weighted average share count at quarter end was 109 million shares, reflecting a decrease of 6% from the prior year quarter. Going forward, we expect to continue to use excess cash flow towards share repurchases. In addition, yesterday, we declared a quarterly dividend on our common stock of $0.47 per share. Despite the significant market volatility and uncertainty which impacted global markets in the first quarter, the resiliency of our quarterly results underscores the strength and stability of our model and the continued high performance of our businesses. Ken will now share his perspective on our performance and outlook.
Thank you, Evan. The global macroeconomic environment remains unsettled due to a number of factors, including Russia's invasion of Ukraine, heightened inflation, COVID-related lockdowns in China, a rising interest rate environment, and supply chain challenges. Despite the volatility markets have experienced since the start of the year, we remain cautiously optimistic. The M&A environment continues to be robust, and we see sustained activity across the Financial Advisory business, buoyed by three factors. While interest rates are clearly rising, rates are still historically low, which continues to sustain a favorable financing environment. In spite of shifts in valuations, we are still seeing healthy deal activity, and CEO and board confidence, while challenged, remains constructive. There continues to be a number of catalysts for M&A activity globally. Technology is driving strategic activity across every sector and market cap.
We're observing significant flows into alternatives, with investors focused on private equity, driving activity for both M&A and capital raising. The energy transition is an increasingly important factor influencing strategic decisions and one that we believe is going to increase in significance in the future. Lastly, we believe infrastructure is a sector that will be transformative and will emerge as central to M&A and strategic advice both in the immediate and longer term. In Asset Management, investors generally de-risk during the first quarter of the year. Looking ahead, we expect to see a greater emphasis on fundamental active investing as a result of rising interest rates as well as volatile and challenged market conditions. Our Asset Management business is well positioned in this environment, with a diverse array of innovative strategies and solutions for a sophisticated client base.
As institutional investors continue to seek sources of differentiated alpha, including ESG and alternative strategies, we expect our active management approach to benefit. As announced earlier this month, Ashish Bhutani and Alex Stern are retiring at the end of this year after almost 20 and 30 years at the firm, respectively. I would like to thank Ashish and Alex for the enormous contributions they have made to Lazard over their careers at the firm. I would also like to congratulate Evan on his appointment as CEO of Asset Management, effective June 1. I look forward to working closely with Evan in his new role alongside Peter Orszag, CEO of the Financial Advisory business, who also joins us on the call today. Now let's open the call to questions. Thank you.
If you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We can now take our first question from Devin Ryan of JMP Securities. Please go ahead.
Hey, good morning, everyone. How are you?
Hi, Devin.
Hey, Devin.
Hi. I guess first question. You know, Ken, great to hear, I think some of the commentary on the M&A backdrop and kind of the constructiveness here that remains in the market. I'm curious, we've heard from some of your peers just around the macro pushing out kind of the timing of deals and just maybe slowing the process as kind of both parties want a little more clarity on the macro backdrop. I guess one, are you seeing that? Then can you differentiate between what you're seeing in Europe, given you know the strong position you have there versus in the U.S. as well?
Okay, let's break it into a couple of pieces. I mean, first is regulatory versus the M&A environment. The second, let's just talk geography, U.S. versus Europe. On the regulatory front, I think generally speaking, we saw in the first quarter, and candidly, the second half of last year, deals being extended because of regulatory concerns. We haven't seen an interruption in the deals. That is things failing that we didn't expect would be challenged, but we are seeing timelines extended. That's probably point one, and that had some impact on us, I think, in the first quarter. Second is the environment.
I think there is certainly in the beginning of February, and when you have big events in the market, there is a tendency to kind of push things out a little bit. The sell side may not begin the day that it was planned. Someone may take a little longer to finish their due diligence and arrive at a conclusion on a deal. I think those are the things you tend to see happen in periods of intense volatility. We certainly I think everybody probably got some inclination or some indication that was happening in the beginning of February. I think things calmed down, but you know, big market movements, big events tend to have an impact like that. I would say pleasantly surprised by both the level of completions and announcements in Europe in the first quarter, especially given the volatility.
In terms of activity levels right now, still good in Europe. The key thing for us across our pipeline or across our business, I should say, is to see how it continues to accelerate or continues to build over the course of the next couple of months or so. You know, right as I think Evan said, activity levels right now are historically very high. You know, we had quite an acceleration in our business as the year progressed last year, and I think that's something we're keeping a careful eye on as the year progresses this year.
Okay, terrific. Thanks, Ken. Then just a follow-up on, you know, the non-M&A businesses, the areas that are maybe a little bit harder for us to track from the outside. You know, it feels like, or at least it seems like from what we're seeing in the market, you know, activism defense has been very active and there's probably a lot to do there this year in this type of market. You know, restructuring, we're hearing some better commentary and particularly on the liability management side, just into a rising rate environment.
Mm-hmm.
Some of the stress in certain pockets. Can you maybe talk about just the expectations for some of these areas on the year maybe that are gonna be harder for us to keep track of in the public data?
Okay. Probably touch on three or four of those areas. Restructuring activity levels haven't appreciably picked up yet, but dialogues have, and that's not a surprise. As you see interest rates rising, credit markets more challenged, at least parts of the credit markets more challenged. I think an increasing focus on what's gonna happen with earnings in the economy over the course of the next year. I think you're by almost definition gonna see dialogues pick up in restructuring and that usually is followed by activity levels picking up. We haven't seen the activity yet, but we have seen the dialogues. That's part one. Part two is on shareholder advisory broadly, which really encompasses activism.
An intense level of activity in Europe right now, probably more campaigns there than I think we can remember at any other point in time. U.S. continues to be very active in that sector as well. Third is the private capital advisory business, which is fundraising for private capital. There, I think on the primary side, probably a little more challenging given the number of firms going to market right now and just a little bit of pause on the part of institutional investors in committing money. That said, on the secondary side, particularly in the area of continuation funds, as active as we've ever seen it. I think that probably continues for the foreseeable future, especially in these kind of markets. I think that's gonna be something that remains quite active.
The last piece, which is a smaller piece for us, but growing pretty rapidly, is the venture growth banking business. There, we're off to a great start in Europe, and our intention is to expand that globally.
Great. Great color. Thanks so much. I'll leave it there.
Sure. Thank you.
We can now take our next question from Brennan Hawken of UBS. Please go ahead.
Good morning. Thank you for taking my questions. Evan, congrats on the promotion, new gig. I'm curious to hear what your plans are for the Asset Management business. You know, while you've just been awarded the new role, certainly not a stranger to Lazard and to the business as CFO for the past many years. You know, understand it may be early days, but how are you intending to keep things similar, and in what ways might things be a little bit different under your leadership?
Brennan, I'm gonna take a little of the pressure off of Evan and just have him qualify his answer a bit here, because he doesn't officially start in the job until June 1. It's a little unfair to ask his impressions this early in the job. That said, Evan, why don't you give a couple of moments to Brennan, and then I promise that at some point, once Evan's got his feet on the ground in the job, we'll be back with a much more fulsome presentation to everyone.
Hey, Brennan. Thank you. Yeah, as Ken mentioned, look, it's early transition, really not the beginning of June, but I could say, you know, early impressions, obviously, under Ashish's leadership, we've built a truly tremendous business for providing a truly great foundation for opportunities for growth going forward. I'd say over the last, you know, couple of months, just spending time more closely with so many of the team members globally, which I've had the opportunity to interact with. I mean, it truly stands out the quality of our people, the talent we have within that organization, within our Asset Management business globally, and for sure the intellectual capital that we have across that business, it's just super impressive. I mean, it's a really wonderful business, a great foundation to work for.
As you say, no stranger to the business. I've worked closely with Ashish and the leadership team and the management team within Asset Management for the past five years in my role as CFO, and I'm certainly looking forward to joining them and sort of helping to drive the continuation of that success in that business over the coming years ahead. I just think it's a great opportunity, great platform, as you know, to continue to build off of, especially in this environment with all the changes going on in the industry.
Sure. Ken, unfair questions are kind of my calling card, if you haven't.
I know that.
Yeah.
I've learned that, Brennan. Yes.
Sticking with Asset Management. The month-to-date flow picture certainly seems to be better than the recent quarters. Is that sustainable, or is it a bit too early to say that to call it one way or another? The core fee rate, you know, ex performance fees this quarter, showed some improvement after having some pressure in the back half to finish off last year. What drove that fee rate dynamic, and how should we be thinking about it going forward?
Okay. Evan, you wanna take that? Go ahead.
Yeah, sure. Let's start with two parts there. Start with the flow picture. As you said, look, the gross flows as we talked about in February during our call there, you know, gross flows have always remained steady for the last, you know, several months. What really happened in terms of a net basis was a sort of an expected sort of growth that we saw in the outflow picture around the year-end, where we saw larger outflows after asset prices sort of had gone straight up for the past couple of years. We were expecting to see, and as we saw some, you know, more significant reallocation from certain of our clients and certain clients around the world, just rethinking their portfolios, rethinking their asset allocation picture.
Not surprisingly, we kind of talked about that in the past two quarters as we sort of expected to see that at year-end. On the monthly picture, you can see that in sort of November, December, January, and February. As you saw in March, sort of that became a little bit more balanced. We returned to a sort of a more muted picture and a little bit more balanced between between the gross inflows and gross outflows. As you mentioned, the numbers we just quoted to you today so far in April looking like a continuation of that trend. Look, I'd expect it to, you know, it'll remain choppy month to month for sure. You know, we do definitely see significant flows in both directions.
As you know, on the institutional basis, that's just what happens. We are seeing, you know, significant interest in a lot of our value and quality strategies. As we mentioned in this environment, where there's been more of a tilt, more towards fundamental active investing, sort of gears more towards our quality, sort of our value type investments, and certainly the thematic strategies that we've been building out over the last number of years, continuing to see very, very significant interest. I think that's sort of the picture I'd say on the flows. On the fee rate question, in terms of basis points, you know, we ticked higher from Q4. Our fee rate, average fee rate in the business was up a bit from Q4. That has to do mostly with the business mix of assets that we have.
This quarter, there's more alternatives, a little bit more thematics in the mix of our asset base, and that actually takes up the average fee rate. Of course, a little bit of the significant portion, I'd say, of the larger outflows we had seen around that year-end allocation were from some lower fee mandates, Brennan. That sort of offsets, and sort of brings up the average fee rate over time on an average basis. I wouldn't say anything specific in the change, just more the continuation of the business mix evolution of the business, and this time and this quarter sort of moving more in our favor towards the strategies and areas that we've been focusing on a little bit more on the higher fee rate side.
Okay. Certainly based upon the interest that you flagged in the flow commentary around thematic and active and whatnot, assuming that translates into gross sales for you guys, then that also would be supportive of a better fee rate generally, I would think. Is that fair?
Yeah. That would be more positive into the mix. Obviously, a lot of other things go into that.
Oh, sure.
-factor as well. Yes. Yeah, if everything moves in that trend, yeah, the business mix obviously tilts towards the higher fee strategies. That's going to lead us to either more stable or increasing fee rate. Again, we look at fee rate as sort of an output, not as a-
Right.
Target, as an input, right? We try to drive the assets and the flows, but all the product lines we're in, and ultimately, the fee rate will just be an output of whatever the mix of assets we have at the time are.
Totally fair. Thanks for all the color.
Thank you, Brennan.
We can now take our next question from Steven Chubak of Wolfe Research. Please go ahead.
Hey, Steven.
Good morning. This is actually Brendan O'Brien filling in for Steven. On the flow outlook, I know you said that it was coming from more outside of the EM equity platform this quarter. However, that has typically been the driver of your outflows of late. With the portion of AUM associated with that business now hovering near 10%, we should be getting close to the point where outflows from that business have become less impactful, and maybe we've already gotten there. I was wondering if there's a level as a percentage of your AUM that you'd expect the better flows elsewhere to start overwhelming those outflows there, and you actually start seeing things head in the other direction.
Hey, sure. Let me take that. It's Evan. Look, I think this quarter we continued to see on the net outflow situation, still related some more to that EM overall EM equity type strategies across the EM platform. I don't think it's all done just yet. As we said, still choppy. We're starting to see some newer interest in coming back into some of the EM markets, given valuations, given sort of the movement that we've seen across the asset allocators. I think it's early stage, but we might start to see that move over time as well. Obviously, our strategies continue to.
The performance we talked about in previous quarters, our EM strategies continue to perform really, really well in this environment, as we had expected, as well as many of our global and other quant strategies as well. EM has actually had a great performance run over the last year and a half. I think ultimately that could be a positive driver, again, in the coming years ahead. Right now, we're still in that sort of net outflow position. As you point out, look, EM as a percentage on the equity side is a percentage of total AUM, certainly a lot smaller today than it was, you know, four or five years ago, or at least from 2018. It's probably about half the size in terms of percentage of total AUM we have.
Yeah, a smaller piece of the business overall. But look, we're seeing a lot of great opportunities and a lot of great flows coming in in the areas that I mentioned, you know, sort of things focused on value, focused on quality, focused on thematics, and I think that's gonna be the areas we'll see, the sort of near term, early term areas where we'll see positive opportunities.
That's a great color. Thank you. Then, on the buyback, this quarter, you obviously returned quite a bit of capital, which is great to see. With the strong pipeline that you've discussed and your relatively constructive outlook, I was hoping to get some, like, some color around how we should be thinking about the cadence of buybacks from here, just given you still have a substantial amount of cash on the balance sheet and where the valuation is today.
Yeah, sure. Look, we bought back, as you mentioned, a significant number of shares in the first quarter of this year, 4.7 million shares. I would say, you know, that's after the 2.7 million shares we bought back in Q4. Obviously taking advantage, trying to take advantage of the lower share price, the weakness in the share prices that we've seen over the last four or five months for us, really taking advantage of that to more aggressively utilize the cash we had on our balance sheet. You can see the cash came down pretty dramatically from year-end. Part of that is just due to the natural course.
We're usually at the lower end of our cash position in Q1 after we pay out year-end compensation and some other things, but also because of the excess buybacks that we've been doing over the last five or six months. Look, we're starting to see that impact here in the weighted average share count below 110 for the first time in over a decade, and you know, sitting around 109 at the end of the quarter. You're starting to see that kind of come through in the weighted average share count. I think, you know, we expect that we're gonna continue buying shares with excess free cash flow, you know, continuing the policy we've had.
As we generate cash through the year, and again, as the business, you know, strengthens, as we get some revenue growth, certainly we're more aggressive in buying back shares, and it's been a focus of ours. We've certainly tilted, our capital management policy towards you know, returning capital through share repurchases. As I said, you can see that in the weighted average share count decline in the first quarter of this year.
Great. Thanks for taking my questions.
We can now take our next question from James Yarrow of Goldman Sachs. Please go ahead.
Hey, good morning, and thanks for taking my questions. Maybe if we just start on the Asset Management business. You obviously saw very strong incentive income this quarter. Maybe you could just contextualize for us how you would expect that incentive income to perform, given a more, you know, turbulent macro backdrop. Just remind us, you know, around the seasonality around that part of the business as well.
Sure. Hey, James, it's Evan. I'll take that one as well. Look, incentive fees in the quarter, $25 million, certainly a strong quarter for us. First quarter strength there we had amidst a really turbulent and volatile market environment. I think it really points to the performance of a lot of our funds. As we mentioned, some of that this quarter was driven by European equities, multi-asset fixed income that we have across Europe, Japanese equities, quant, just a whole host of strategies participating in driving that incentive fees in the quarter. I really do think that reflects, you know, some really strong performance we had in these turbulent markets. From a cadence perspective, look, it's hard to predict.
You know, especially in these types of volatile markets, it really does depend on the performance of markets as well as the performance of our funds. We have lots of different various shapes and sizes of the types of things that have incentive fees. It does move around from quarter to quarter. Generally, what we have seen is, you know, first quarter, there's opportunities for incentive fees. Q4 is really where we have the largest opportunities for incentive fees. You can see that in the incentive fees we've captured in a fourth quarter for the last several years.
Sometimes a little bit in Q2, although I'd say given the performance, given the market volatility that we've seen and sort of the turndown in so many asset classes and different markets, just over the last several weeks, I think you'd expect it to be more muted towards the middle of this year. Look, over time, as you've seen just in the last two or three years, incentive fees are becoming a bigger portion of the sort of the fee structure that we have and a little bit more in terms of the total revenue across the Asset Management business. It's hard to predict quarter to quarter, but I think if you look at it over a reasonable period, you know, a four or eight-quarter period, you'll just start to see that continue to be a part of the revenue picture in Asset Management.
Okay, that's really helpful. Then as you think about restructuring, we obviously have the data for how that business performed during the 2008 recession, and it obviously performed, you know, extraordinarily well back then. Obviously it's evolved since, you know, 15 years ago. If we did enter a deep recession this time around, to what extent do you think your restructuring business could perhaps offset a decline in M&A? And are there other more countercyclical revenues we should also be thinking about that could offset that decline?
Great question. I don't think there's any reason to believe that in a cycle like we had in 2008, 2009, and I'm not predicting that, by any stretch, that we wouldn't see the same kind of buffeting of the revenues or support of the revenues in the advisory business by the restructuring business. I think that that's intact. One of the unique aspects of our restructuring business at Lazard is that we have a lot of flexibility in moving people from one part of the business to the other. It's not dependent entirely upon just the restructuring team.
It's really very much integrated with the industry groups and the geographies to ensure that when we need to flex to accommodate a change in cycle, we can do that, and that's something that we've done over numerous cycles and is sort of built into the DNA of the place. That's kind of point one. Point two is we've got obviously other revenue streams around fundraising, shareholder advisory, capital markets advisory, which all, I think in some ways, are not truly countercyclical in the same way that restructuring is, but do have some countercyclical aspects to them, which I think would help in an environment where you saw a sudden decline in M&A activity.
Okay, thanks for taking my questions.
We can now take our next question from Michael Brown of KBW. Please go ahead.
Great. Good morning, everyone.
Morning.
Hey, Mike.
I guess I just wanted to start with the announced management changes, and I guess the other element there is that you guys are looking externally for a CFO. Ken, just given the strong internal talent at Lazard, can you speak to why you guys are committed to looking externally? Then can you just give us a view into what the key strengths are that you are looking for in your next CFO?
Well, look, I mean, it's not necessarily gonna be the outcome that it's external, but we're including in our search an external element to it. That's the part I'd like to correct first. Second is, look, we have over the course of the last decade, the capabilities of the finance group at Lazard through the efforts of first Matthieu Bucaille, and obviously over the last five years, really, of Evan, have really improved dramatically. With that, I think that the type of leadership we need probably has evolved a little bit with it as well.
I think that's, you know, as always, the mix is gonna be obviously someone that's got the core qualifications to be CFO, and then at the same time, someone that can operate within the atmosphere of Lazard, which is a challenging, highly intellectual, highly demanding place. You know, if we find the right person on the outside, great. We've also got some internal candidates as well.
Okay. Apologize for the mistake.
No, it's okay.
Correcting that. I just wanted to dig in a little bit on the advisory activity in Europe. It's certainly a real positive to hear that you guys are seeing really strong activity there. Certainly impressive given the turmoil occurring over in Europe. Can you just dive into that a little bit deeper, though? Where are the key strengths in terms of, you know, sectors, countries, and which elements as you look at the market and the challenges facing the continent there, which elements of the market could really come under pressure as you think about, you know, the balance of 2022 here?
Peter, you wanna take that one?
Sure. Thanks, Ken. First, just in terms of what we're seeing, what I would highlight is how distributed it is. It's not just our historical strength, points of strength in London and Paris, but in countries like Italy and Spain, we're seeing a lot of activity, so pretty much across the board on the continent. With regard to sectors, I'd say the same thing. This is actually true globally at this point. It's fairly well-distributed distribution across FIG, industrials, healthcare, tech, power and energy, TME. It's not one place that is generating the activity. It's a fairly widely distributed set of activities instead.
With regard to the outlook, I guess I'd go back to some comments that were made earlier, which is our activity levels, including in Europe, remain higher than last year. As you go out a little bit over time, there's a next stage of perhaps some uncertainty surrounding not only the Russian invasion of Ukraine, but also its aftereffects and the situation in China with regard to zero COVID policy and supply chains. But if you go out one layer beyond that, you're back to the underlying drivers that Ken spoke about earlier involving technology, energy transition, and infrastructure. All in all, and at least so far, we see cautious optimism as warranted, including specifically with regard to our European business.
Okay. Thank you for all that, Peter. Thanks, Ken, and congrats, Evan. Looking forward to hearing more about the plans for Asset Management.
Thanks, Mike.
Thank you.
We can now take our final question from Jeff Harte of Piper Sandler. Please go ahead.
Good morning, guys. Nice quarter.
Thank you.
A couple of questions left for me. Most have kind of been hit. One, going back to the incentive fee strength, can you give us any more color about the sources of that? I'm kinda specifically thinking, one, in the first quarter, given the price, the risk-off price declines late in the quarter and what appears, or I'm guessing, are seed capital losses in the corporate line, but then also in general, kind of since we saw incentive fees really kind of spike up in 4Q 2020.
Yeah. Jeff, I mean, the seed capital doesn't flow through the incentive line. That's gonna go through the corporate line item, which you saw this quarter. That's where you'll see the impact of the seed capital portfolio. I'd say in general, it's really what we said. Look, there's a handful of strategies, a lot of them related to our European, you know, equities, multi-asset and fixed income businesses. That was the biggest driver, but really a host of smaller smaller components of that contributed to the incentive fees this quarter. I mean, if you go back, we had pretty strong incentive fees in Q1 of last year as well, and so a lot of that has to do.
They're all different shapes, sizes, and forms, so it's hard for me to give you really the actual color as to what drives in any specific quarter. It has to do some combination of either, market success, which you'll see, or performance. You know, significant outperformance in certain funds can drive pretty substantial incentive fees in those structures that we have incentive fee opportunities.
There's not necessarily, you know, a couple of specific strategies or regions kind of responsible for most of it?
Yeah, I would say the biggest component of it was the European equities, fixed income, and multi-asset. Really more focused on our European strategies. As I said, a host of other strategies participated as well. I don't wanna say it's all that. It really is that the largest component of what was probably 15 or so different strategies that participated in some level of incentive fees this quarter.
Okay. Just the backdrop commentary, I mean, for M&A, still fairly constructive. It is good to hear. I may have missed it, but if I didn't, can you describe kind of where your pipeline/backlog is sitting today, maybe relative to where it was at the beginning of the year, even the prior a year back?
We don't usually discuss pipeline and backlog specifically. We usually refer in terms of activity levels. I'd kinda characterize it in the following way. Last year, we saw an accelerating level of announcements over the course of the year that obviously resulted in a higher level of completions in the fourth quarter into the first quarter of this year. We continue to have a pretty substantial number of announced deals outstanding, as you can probably see in the public data. We had a strong quarter in the first quarter relative to the market for announcements everywhere. Again, you can see that in the public data.
I think as Peter and Evan referred to it in the comments, activity levels, that is what we're seeing in the business, looking at what people are doing, how busy they are, the kind of metrics that we look at to measure activity, is at historic levels right now. I qualify that by saying that, you know, we're very sensitive to the environment. The three factors in M&A that we tend to focus on, financing, valuation, and confidence, all are probably more fragile than they were last year at this time.
That said, when you look at the financing markets, the high yield markets are challenged, clearly, but a lot of the vacuum there has been filled by the private credit markets so far, both in the U.S. too, not the same extent, but to a similar extent in Europe. Interest rates are still, while higher, still, you know, near historic lows, and such. In terms of valuation, you've seen the frothier part of the market. That is, places where valuations were excessive relative to earnings, really, has tended to be in the tech and the biopharma sectors. I think in those sectors, it'll probably be more difficult, at least in the near term, to arrive at a point of consensus between buyers and sellers.
For the rest of the market, at least so far, we haven't seen the kind of valuation movements that lead to that inability to arrive at a consensus to buy between buyers and sellers. For the moment, at least for now, it appears like it's still constructive. On confidence levels or animal spirits or however you wanna describe it, clearly there was some pullback in the earlier part of February. It's better now. Clearly, there's a lot of dry powder in private equity that is still being put to work, and as long as the financing market is constructive, that probably remains the case.
Again, if earnings start to decelerate broadly across the economy, we start to see real concerns around recession and such, that's gonna, I think at some level, have some impact on confidence levels. Very importantly, when you think out longer term here, there are some really strong catalysts that are driving M&A activity that we've referred to. It's technology, it's the energy transition, it's the amount of capital that's been dedicated to private equity, and also I think the impact of infrastructure funds, generally speaking, across a range of sectors these days. I think those are all constructive issues, but at the same time, we're in a volatile environment.
Okay, great. Thank you.
This now concludes the Lazard earnings conference call.