What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-31 · 167 added, 149 removed, 748 unchanged (30% of the section changed)

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The following discussion should be read in conjunction with Lazard Ltd’s condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”), as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”).

All references to “2023,” “2022,” “second quarter,” “first half” or “the period” refer to, as the context requires, the three month and six month periods ended June 30, 2023 and 2022.

All references to “2023,” “2022,” “third quarter,” “first nine months” or “the period” refer to, as the context requires, the three month and nine month periods ended September 30, 2023 and 2022.

Forward-Looking Statements and Certain Factors that May Affect Our Business

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The Company is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations.

To that end, the Company uses its website, its twitter account (twitter.com/Lazard) and other social media sites to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of AUM in our Asset Management business.

To that end, the Company uses its website and social media sites to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates of AUM in our Asset Management business.

Investors can link to Lazard Ltd, Lazard Group and their operating company websites through http://www.lazard.com .

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Business Summary

Lazard, one of the world’s preeminent financial advisory and asset management firms, operates from 43 cities across 26 countries in North and South America, Europe, Asia and Australia.

Lazard, one of the world’s preeminent financial advisory and asset management firms, operates in North and South America, Europe, Asia and Australia.

With origins dating to 1848, we have long specialized in crafting solutions to the complex financial and strategic challenges of a diverse set of clients around the world, including corporations, governments, institutions, partnerships and individuals.

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Our principal sources of revenue are derived from activities in the following business segments:

• Financial Advisory, which offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of financial advisory services regarding strategic and mergers and acquisitions (“M&A”) advisory, capital markets advisory, shareholder advisory, restructuring and capital solutions, sovereign advisory, geopolitical advisory, and other strategic advisory matters and capital raising and placement, and

• Financial Advisory, which offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of financial advisory services regarding strategic and mergers and acquisitions (“M&A”) advisory, capital markets advisory, shareholder advisory, restructuring and liability management, sovereign advisory, geopolitical advisory, and other strategic advisory matters and capital raising and placement, and

• Asset Management, which offers a broad range of global investment solutions and investment and wealth management services in equity and fixed income strategies, asset allocation strategies, alternative investments and private equity funds to corporations, public funds, sovereign entities, endowments and foundations, labor funds, financial intermediaries and private clients.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Our Financial Advisory revenues are primarily dependent on the successful completion of merger, acquisition, restructuring, capital raising or similar transactions, and our Asset Management revenues are primarily driven by the levels of assets under management (“AUM”).

Weak economic and global financial market conditions can result in a challenging business environment for M&A and capital-raising activity as well as our Asset Management business, but may provide opportunities for our restructuring business.

Weak global economic and financial market conditions can result in a challenging business environment for M&A and capital-raising activity as well as our Asset Management business, but may provide opportunities for our restructuring business.

While there remains a level of uncertainty in the markets, the global macroeconomic environment is improving as inflation continues to fall and expectations of further interest rate hikes are moderating.

We believe that the M&A market is stabilizing, however that is yet to be reflected in M&A completions, which have remained low since transaction volume began to slow in the first quarter of 2022 and the pace of recovery will likely be slow.

In the meantime, we are seeing increasing board and investor confidence, valuation gaps are narrowing and financing, while more expensive, is becoming more accessible.

In the meantime, we are seeing regulatory headwinds reducing, valuation gaps narrowing and financing, while more expensive, is becoming more accessible.

Our outlook with respect to our Financial Advisory and Asset Management businesses is described below.

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Furthermore, net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter.

Overall, we continue to focus on the development of our business, including the generation of stable revenue growth, earnings growth and shareholder returns, the evaluation of potential growth opportunities, the investment in new technology to support the development of existing and new business opportunities, the prudent management of our costs and expenses, the efficient use of our assets and the return of capital to our shareholders.

Overall, we continue to focus on the development of our business, including the generation of revenue growth, earnings growth and shareholder returns, the evaluation of potential growth opportunities, the investment in new technology to support the development of existing and new business opportunities, the prudent management of our costs and expenses, the efficient use of our assets and the return of capital to our shareholders.

Certain market data with respect to our Financial Advisory and Asset Management businesses is included below.

Financial Advisory

As reflected in the following table, which sets forth global M&A industry statistics, the value and number of all completed transactions, including the subset of completed transactions involving values greater than $500 million, decreased in the first half of 2023 as compared to the first half of 2022.

With respect to announced M&A transactions, the value and number of all transactions, including the subset of announced transactions involving values greater than $500 million, decreased in the first half of 2023 as compared to the first half of 2022.

As reflected in the following table, which sets forth global M&A industry statistics, the value and number of all completed transactions, including the subset of completed transactions involving values greater than $500 million, decreased in the first nine months of 2023 as compared to the first nine months of 2022.

With respect to announced M&A transactions, the value and number of all transactions, including the subset of announced transactions involving values greater than $500 million, decreased in the first nine months of 2023 as compared to the first nine months of 2022.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Incr / (Decr) 2023 2022 %

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____________________________________

Dealogic as of July 4, 2023.

Global restructuring activity during the first half of 2023, as measured by the number of corporate defaults, decreased as compared to 2022.

The number of defaulting issuers was 81 in the first half of 2023 according to Moody’s Investors Service, Inc., as compared to 98 in the first half of 2022.

Dealogic as of October 4, 2023.

Global restructuring activity during the first nine months of 2023, as measured by the number of corporate defaults, decreased as compared to 2022.

The number of defaulting issuers was 119 in the first nine months of 2023 according to Moody’s Investors Service, Inc., as compared to 128 in the first nine months of 2022.

Net revenue trends in Financial Advisory are generally correlated to the level of completed industry-wide M&A transactions and restructuring transactions occurring subsequent to corporate debt defaults, respectively.

However, deviations from this relationship can occur in any given year for a number of reasons.

For instance, our results can diverge from industry-wide activity where there are material variances from the level of industry-wide M&A activity in a particular market where Lazard has significant market share, or regarding the relative number of our advisory engagements with respect to larger-sized transactions, and where we are involved in non-public or sovereign advisory assignments.

For instance, our results can diverge from industry-wide activity where there are material variances from the level of industry-wide M&A activity in a particular market where Lazard has greater or lesser relative market share, or regarding the relative number of our advisory engagements with respect to larger-sized transactions, and where we are involved in non-public or sovereign advisory assignments.

Asset Management

The percentage change in major equity market indices at June 30, 2023, as compared to such indices at March 31, 2023, December 31, 2022 and at June 30, 2022, is shown in the table below:

The percentage change in major equity market indices at September 30, 2023, as compared to such indices at June 30, 2023, December 31, 2022 and at September 30, 2022, is shown in the table below:

Percentage Changes

June 30, 2023 vs.

March 31, 2023 December 31, 2022 June 30, 2022

September 30, 2023 vs.

June 30, 2023 December 31, 2022 September 30, 2022

MSCI World Index (3) % 11 % 22 %

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Financial Statement Overview

The majority of Lazard’s Financial Advisory net revenue historically has been earned from the successful completion of M&A transactions, capital markets advisory, shareholder advisory, restructuring and capital solutions, sovereign advisory, geopolitical advisory, and other strategic advisory matters and capital raising and placement.

The majority of Lazard’s Financial Advisory net revenue historically has been earned from the successful completion of M&A transactions, capital markets advisory, shareholder advisory, restructuring and liability management, sovereign advisory, geopolitical advisory, and other strategic advisory matters and capital raising and placement.

The main drivers of Financial Advisory net revenue are overall M&A activity, the level of corporate debt defaults and the environment for capital raising activities, particularly in the industries and geographic markets in which Lazard focuses.

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Significant fluctuations in Financial Advisory net revenue can occur over the course of any given year, because a significant portion of such net revenue is earned upon the successful completion of a transaction, restructuring or capital raising activity, the timing of which is uncertain and is not subject to Lazard’s control.

Lazard’s Asset Management segment principally includes Lazard Asset Management LLC (together with its subsidiaries, (“LAM”), Lazard Frères Gestion SAS (“LFG”) and Edgewater.

Lazard’s Asset Management segment principally includes Lazard Asset Management LLC (together with its subsidiaries (“LAM”), Lazard Frères Gestion SAS (“LFG”) and Edgewater Funds (“Edgewater”).

Asset Management net revenue is derived from fees for investment management and advisory services provided to clients.

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Institutional and individual clients, and firms with which we have strategic alliances, can terminate their relationship with us, reduce the aggregate amount of AUM or shift their funds to other types of accounts with different rate structures for a number of reasons, including investment performance, changes in prevailing interest rates and financial market performance.

In addition, as Lazard’s AUM includes significant amounts of assets that are denominated in currencies other than U.S.

addition, as Lazard’s AUM includes significant amounts of assets that are denominated in currencies other than U.S.

Dollars, changes in the value of the U.S.

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As a result, the Company recognizes incentive fees earned on our private equity funds when it is probable that a clawback will not occur.

Corporate segment net revenue consists primarily of investment gains and losses on the Company’s “seed investments” related to our Asset Management business and principal investments in private equity funds, net of hedging activities, as well as gains and losses on investments held in connection with Lazard Fund Interests (“LFI”) and interest income and interest expense.

Corporate segment net revenue consists primarily of investment gains and losses on the Company’s investments to seed strategies and funds in our Asset Management business and principal investments in private equity funds, net of hedging activities, as well as gains and losses on investments held in connection with Lazard Fund Interests (“LFI”) and interest income and interest expense.

Corporate net revenue also can fluctuate due to changes in the fair value of debt and equity securities, as well as due to changes in interest and currency exchange rates and in the levels of cash, investments and indebtedness.

Corporate segment total assets represented 57% of Lazard’s consolidated total assets as of June 30, 2023, which are attributable to cash and cash equivalents, investments in debt and equity securities, interests in alternative investment, debt, equity and private equity funds, deferred tax assets and certain other assets associated with LFB.

Corporate segment total assets represented 57% of Lazard’s consolidated total assets as of September 30, 2023, which are attributable to cash and cash equivalents, investments in debt and equity securities, interests in alternative investment, debt, equity and private equity funds, deferred tax assets and certain other assets associated with LFB.

Operating Expenses

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We believe that “awarded compensation and benefits expense” and the ratio of “awarded compensation and benefits expense” to “operating revenue,” both non-GAAP measures, when presented in conjunction with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) measures, are appropriate measures to assess the annual cost of compensation and provide a meaningful and useful basis for comparison of compensation and benefits expense between present, historical and future years.

“Awarded compensation and benefits expense” for a given year is

calculated using “adjusted compensation and benefits expense,” also a non-GAAP measure, as modified by the following items:

GAAP”) measures, are appropriate measures to assess the annual cost of compensation and provide a meaningful and useful basis for comparison of compensation and benefits

expense between present, historical and future years.

“Awarded compensation and benefits expense” for a given year is calculated using “adjusted compensation and benefits expense,” also a non-GAAP measure, as modified by the following items:

• we deduct amortization expense recorded for U.S.

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(i) the deferred incentive compensation awards granted in the year-end compensation process with respect to the fiscal year ( e.g ., deferred incentive compensation awards granted in 2023 related to the 2022 year-end compensation process), including performance-based restricted stock unit (“PRSU”) and performance-based restricted participation unit (“PRPU”) awards (based on the target payout level);

(ii) the portion of investments in people ( e.g ., “sign-on” bonuses or retention awards) and other special deferred incentive compensation awards that is applicable to the fiscal year the award becomes effective;

(ii) the portion of investments in people ( e.g ., “sign-on” bonuses or retention awards) and other special deferred incentive compensation awards including stock performance-based restricted participation units (“SPRPUs”) that is applicable to the fiscal year the award becomes effective;

(iii) amounts in excess of the target payout level for PRSU and PRPU awards at the end of their respective performance periods;

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Cost-Saving Initiatives

The Company is conducting firm-wide cost-saving initiatives including closing certain offices over the course of 2023.

The Company is conducting firm-wide cost-saving initiatives over the course of 2023.

See Note 14 of Notes to Condensed Consolidated Financial Statements.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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(Gains) losses on investments pertaining to LFI (d) 10,598 16,180 (15,530) 65,601

Losses associated with cost-saving initiatives (e) 4,647 - 4,647 -

Operating revenue $ 531,617 $ 723,551 $ 1,678,661 $ 2,098,097

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(d) Represents changes in the fair value of investments held in connection with LFI and other similar deferred compensation arrangements for which a corresponding equal amount is excluded from compensation and benefits expense.

(e) Represents losses associated with the closing of certain offices as part of the cost-saving initiatives including the reclassification of currency translation adjustments to earnings from accumulated other comprehensive loss and transactions related to foreign currency exchange.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Headcount information is set forth below:

June 30, 2023 (a) December 31, 2022 June 30, 2022

September 30, 2023 (a) December 31, 2022 September 30, 2022

Managing Directors:

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(a) Includes reductions associated with the cost-saving initiatives as of June 30, 2023.

(a) Includes reductions associated with the cost-saving initiatives as of September 30, 2023.

Operating Results

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Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods.

Three Months Ended June 30, 2023 versus June 30, 2022

The Company reported net loss attributable to Lazard Ltd of $124 million, as compared to net income attributable to Lazard Ltd of $95 million in the 2022 period.

Net revenue increased $4 million, or 1%, with operating revenue decreasing $56 million, or 8%, as compared to the 2022 period.

Three Months Ended September 30, 2023 versus September 30, 2022

The Company reported net income attributable to Lazard Ltd of $7 million, as compared to net income attributable to Lazard Ltd of $106 million in the 2022 period.

Net revenue decreased $203 million, or 28%, with operating revenue decreasing $192 million, or 27%, as compared to the 2022 period.

Fee revenue from investment banking and other advisory activities decreased $189 million, or 42%, as compared to the 2022 period.

Asset management fees, including incentive fees, increased $3 million, or 1%, as compared to the 2022 period.

In the aggregate, interest income, other revenue and interest expense increased $56 million, as compared to the 2022 period.

Compensation and benefits expense, which included $137 million associated with the cost-saving initiatives in 2023, increased $208 million, or 57%, as compared to the 2022 period.

Adjusted compensation and benefits expense (which excludes certain items and which we believe allows for improved comparability between periods, as described above) was $424 million, an increase of $29 million, or 7%, as compared to $395 million in the 2022 period.

Asset management fees, including incentive fees, decreased $13 million, or 5%, as compared to the 2022 period.

In the aggregate, interest income, other revenue and interest expense remained substantially the same, as compared to the 2022 period.

Compensation and benefits expense decreased $56 million, or 13%, as compared to the 2022 period.

Adjusted compensation and benefits expense (which excludes certain items and which we believe allows for improved comparability between periods, as described above) was $364 million, a decrease of $71 million, or 16%, as compared to $434 million in the 2022 period.

The ratio of adjusted compensation and benefits expense to operating revenue was 68.4% for the 2023 period, as compared to 60.0% for the 2022 period.

Non-compensation expense increased $31 million, or 21%, as compared to the 2022 period primarily due to $10 million associated with the cost-saving initiatives in 2023, higher travel and business development and professional services expenses.

Non-compensation expense increased $16 million, or 11%, as compared to the 2022 period.

Adjusted non-compensation expense increased $9 million, or 7%, as compared to the 2022 period.

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The Company reported an operating loss of $5 million, as compared to operating income of $158 million in the 2022 period.

Earnings from operations decreased $97 million, or 65%, as compared to the 2022 period, and, as a percentage of operating revenue, was 8.4% for the 2023 period, as compared to 22.1% in the 2022 period.

Earnings from operations decreased $131 million, or 81%, as compared to the 2022 period, and, as a percentage of operating revenue, were 5.7% for the 2023 period, as compared to 22.3% in the 2022 period.

The provision for income taxes reflects an effective tax rate of 239.5%, as compared to 22.4% for the 2022 period.

The change in the effective tax rate principally relates to changes in the geographic mix of earnings inclusive of losses without tax benefits.

Net income attributable to noncontrolling interests reflected income of $4 million in the 2023 period as compared to a loss of $4 million in the 2022 period.

Six Months Ended June 30, 2023 versus June 30, 2022

The change in the effective tax rate principally relates to changes in the geographic mix of earnings inclusive of losses without tax benefits and the impact of discrete items.

Net income attributable to noncontrolling interests was de minimis in the 2023 period as compared to income of $17 million in the 2022 period.

Nine Months Ended September 30, 2023 versus September 30, 2022

The Company reported net loss attributable to Lazard Ltd of $139 million, as compared to net income attributable to Lazard Ltd of $315 million in the 2022 period.

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Compensation and benefits expense, which included $166 million associated with the cost-saving initiatives in 2023, increased $205 million, or 17%, as compared to the 2022 period.

Adjusted compensation and benefits expense (which excludes certain items and which we believe allows for improved comparability between periods, as described above) was $823 million, an increase of $19 million, or 2%, as compared to $804 million in the 2022 period.

Adjusted compensation and benefits expense (which excludes certain items and which we believe allows for improved comparability between periods, as described above) was $1,187 million, a decrease of $51 million, or 4%, as compared to $1,238 million in the 2022 period.

The ratio of adjusted compensation and benefits expense to operating revenue was 70.7% for the 2023 period, as compared to 59.0% for the 2022 period.

Non-compensation expense increased $62 million, or 22%, as compared to the 2022 period, primarily due to $10 million associated with the cost-saving initiatives in 2023, higher travel and business development expenses and professional services expenses, and continued investments in technology.

Non-compensation expense increased $79 million, or 18%, as compared to the 2022 period, primarily due to higher travel and business development expenses and professional services expenses, continued investments in technology and expenses associated with the cost-saving initiatives in 2023.

Adjusted non-compensation expense increased $47 million, or 13%, as compared to the 2022 period.

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The Company reported an operating loss of $152 million, as compared to operating income of $444 million in the 2022 period.

Earnings from operations decreased $284 million, or 88%, as compared to the 2022 period, and, as a percentage of operating revenue, was 3.3% for the 2023 period, as compared to 23.5% in the 2022 period.

Earnings from operations decreased $415 million, or 86%, as compared to the 2022 period, and, as a percentage of operating revenue, were 4.1% for the 2023 period, as compared to 23.1% in the 2022 period.

The provision for income taxes reflects an effective tax rate of 15.2%, as compared to 24.4% for the 2022 period.

The change in the effective tax rate principally relates to changes in the geographic mix of earnings inclusive of losses without tax benefits and the impact of discrete items.

Net income attributable to noncontrolling interests increased $7 million as compared to the 2022 period.

Net income attributable to noncontrolling interests decreased $10 million as compared to the 2022 period.

Business Segments

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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________________________________________

Dealogic as of July 4, 2023.

The geographical distribution of Financial Advisory net revenue is set forth below in percentage terms and is based on the Lazard offices that generate Financial Advisory net revenue, which are located in the Americas (U.S., Canada, and Latin America), EMEA (primarily in the U.K., France, Germany, Italy and Spain) and the Asia Pacific region and therefore may not be reflective of the geography in which the clients are located.

Dealogic as of October 4, 2023.

and Latin America), EMEA (primarily in the U.K., France, Germany, Italy and Spain) and the Asia Pacific region and therefore may not be reflective of the geography in which the clients are located.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Total 100 % 100 % 100 % 100 %

The Company’s managing directors and many of its professionals have significant experience, and many of them are able to use this experience to advise on M&A, restructuring and other strategic advisory matters, depending on clients’ needs.

This flexibility allows Lazard to better match its professionals with the counter-cyclical business cycles of mergers and acquisitions and restructurings.

The Company’s managing directors and many of its professionals have significant experience, and many of them are able to use this experience to advise on a combination of M&A, restructuring and other strategic advisory matters, depending on clients’ needs.

This adaptability enables Lazard to more effectively deploy its professionals to best advantage based on the often counter-cyclical nature of restructuring as compared to our M&A business.

While Lazard measures revenue by practice area, Lazard does not separately measure the costs or profitability of M&A services as compared to restructuring or other services.

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Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods.

Three Months Ended June 30, 2023 versus June 30, 2022

Three Months Ended September 30, 2023 versus September 30, 2022

Financial Advisory net revenue decreased $190 million, or 42%, as compared to the 2022 period.

The decrease in Financial Advisory net revenue was primarily a result of a decrease in the number of fees between $1 million and $5 million as compared to the 2022 period.

Operating expenses, which included $82 million associated with cost-saving initiatives in the 2023 period, increased $123 million, or 39%, as compared to the 2022 period.

The decrease in Financial Advisory net revenue was primarily driven by decreased number of completed M&A transactions with values greater than $500 million as compared to the 2022 period, reflecting a significant decline in industry-wide completed M&A transactions.

Operating expenses decreased $46 million, or 13%, as compared to the 2022 period primarily due to a decrease in compensation and benefits expense associated with decreased operating revenue.

Financial Advisory operating loss was $30 million as compared to operating income of $115 million in the 2022 period and, as a percentage of net revenue, was (11.1)%, as compared to 25.2% in the 2022 period.

Six Months Ended June 30, 2023 versus June 30, 2022

Nine Months Ended September 30, 2023 versus September 30, 2022

Financial Advisory net revenue decreased $359 million, or 29%, as compared to the 2022 period .

The decrease in Financial Advisory net revenue was primarily a result of a decrease in the value of fees greater than $10 million as compared to the 2022 period.

Operating expenses, which included $92 million associated with cost-saving initiatives in the 2023 period, increased $107 million, or 11%, as compared to the 2022 period.

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The following table shows the composition of AUM for the Asset Management segment:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

($ in millions)

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Total AUM $ 228,264 $ 216,125

Total AUM at June 30, 2023 was $239 billion, an increase of $23 billion, or 11%, as compared to total AUM of $216 billion at December 31, 2022 due to market and foreign exchange appreciation and net inflows.

Average AUM for the three month period ended June 30, 2023 increased 2% as compared to the three month period ended June 30, 2022 and decreased 5%, as compared to the six month period ended June 30, 2022.

As of June 30, 2023, approximately 84% of our AUM was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors, compared to 85% as of December 31, 2022.

As of June 30, 2023, approximately 16% of our AUM was managed on behalf of individual client relationships, which was principally with family offices and individuals, compared to approximately 15% as of December 31, 2022.

As of June 30, 2023, AUM with foreign currency exposure represented approximately 63% of our total AUM as compared to 65% at December 31, 2022.

Total AUM at September 30, 2023 was $228 billion, an increase of $12 billion, or 6%, as compared to total AUM of $216 billion at December 31, 2022 due to market appreciation partially offset by foreign exchange depreciation.

Average AUM for the three month period ended September 30, 2023 increased 11% as compared to the three month period ended September 30, 2022 and remained substantially the same as compared to the nine month period ended September 30, 2022.

As of September 30, 2023, approximately 84% of our AUM was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors, compared to 85% as of December 31, 2022.

As of September 30, 2023, approximately 16% of our AUM was managed on behalf of individual client relationships, which was principally with family offices and individuals, compared to approximately 15% as of December 31, 2022.

As of September 30, 2023, AUM with foreign currency exposure represented approximately 63% of our total AUM as compared to 65% at December 31, 2022.

AUM with foreign currency exposure generally declines in value with the strengthening of the U.S.

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Dollar weakens, with all other factors held constant.

The following is a summary of changes in AUM by asset class for the three month and six month periods ended June 30, 2023 and 2022:

Three Months Ended June 30, 2023

The following is a summary of changes in AUM by asset class for the three month and nine month periods ended September 30, 2023 and 2022:

Three Months Ended September 30, 2023

Balance Inflows Outflows Net

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Total $ 239,340 $ 7,268 $ (9,262) $ (1,994) $ (5,751) $ (3,331) $ 228,264

Inflows in the Equity asset class were primarily attributable to the Multi-Regional and Global platforms, and inflows in the Fixed Income asset class were primarily attributable to the Multi-Regional and Global platforms.

Inflows in the Equity asset class were primarily attributable to the Global platform, and inflows in the Fixed Income asset class were primarily attributable to the Multi-Regional platform.

Outflows in the Equity asset class were primarily attributable to the Global, Multi-Regional and Local platforms, and outflows in the Fixed Income asset class were primarily attributable to the Multi-Regional and Global platforms.

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Balance Inflows Outflows Net

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Inflows include approximately $3.9 billion related to a wealth management acquisition.

Inflows in the Equity asset class were primarily attributable to the Global, Multi-Regional and Emerging Markets platforms, and inflows in the Fixed Income asset class were primarily attributable to the Multi-Regional and Global platforms.

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Balance Inflows Outflows Net

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Total $ 216,626 $ 7,148 $ (9,154) $ (2,006) $ (10,256) $ (6,598) $ 197,766

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Balance Inflows Outflows Net

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Total $ 273,739 $ 26,570 $ (39,750) $ (13,180) $ (45,898) $ (16,895) $ 197,766

Average AUM for the three month and six month periods ended June 30, 2023 and 2022 for each significant asset class is set forth below.

Average AUM for the three month and nine month periods ended September 30, 2023 and 2022 for each significant asset class is set forth below.

Average AUM generally represents the average of the monthly ending AUM balances for the period.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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September 30,

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September 30, Nine Months Ended

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2023 2022 2023 2022

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Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods.

Three Months Ended June 30, 2023 versus June 30, 2022

Asset Management net revenue decreased $1 million as compared to the 2022 period.

Management fees and other revenue remained substantially the same as compared to the 2022 period.

Three Months Ended September 30, 2023 versus September 30, 2022

Asset Management net revenue decreased $14 million, or 5%, as compared to the 2022 period.

Management fees and other revenue was $283 million, an increase of $6 million, or 2%, as compared to $277 million in the 2022 period.

Incentive fees were $2 million, a decrease of $20 million as compared to $22 million in the 2022 period.

Operating expenses, which included $37 million associated with cost-saving initiatives in the 2023 period, increased $37 million, or 16%, as compared to the 2022 period.

Operating expenses decreased $2 million, or 1%, as compared to the 2022 period.

Asset Management operating income was $53 million, a decrease of $12 million, or 19%, as compared to operating income of $65 million in the 2022 period and, as a percentage of net revenue, was 18.6%, as compared to 21.8% in the 2022 period.

Six Months Ended June 30, 2023 versus June 30, 2022

Nine Months Ended September 30, 2023 versus September 30, 2022

Asset Management net revenue decreased $69 million, or 7%, as compared to the 2022 period.

Management fees and other revenue was $561 million, a decrease of $34 million, or 6%, as compared to $595 million in the 2022 period primarily due to a decrease in average AUM.

Management fees and other revenue was $844 million, a decrease of $29 million, or 3%, as compared to $872 million in the 2022 period.

Incentive fees were $14 million, a decrease of $40 million as compared to $54 million in the 2022 period.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Lazard management believes that annual results are the most meaningful basis for comparison among present, historical and future periods.

Three Months Ended June 30, 2023 versus June 30, 2022

Net interest expense decreased $2 million as compared to the 2022 period.

Other revenue was positively impacted by gains attributable to investments held in connection with LFI in the 2023 period, as compared to losses in the 2022 period.

Operating expenses increased $80 million as compared to the 2022 period primarily due to $28 million associated with cost-saving initiatives in the 2023 period, and charges in the 2023 period as compared to credits in the 2022 period pertaining to LFI.

Six Months Ended June 30, 2023 versus June 30, 2022

Net interest expense decreased $8 million as compared to the 2022 period.

Other revenue was positively impacted by gains attributable to investments held in connection with LFI in the 2023 period, as compared to losses in the 2022 period.

Such gains in the 2023 period were partially offset by losses incurred from the impairment of equity method investments and the liquidation of LGAC in February 2023.

Three Months Ended September 30, 2023 versus September 30, 2022

Net interest expense increased $1 million, or 10%, as compared to the 2022 period.

Other revenue (loss) reflects losses in both periods attributable to investments held in connection with LFI.

Operating expenses increased $8 million as compared to the 2022 period.

Nine Months Ended September 30, 2023 versus September 30, 2022

Net interest expense decreased $6 million, or 13%, as compared to the 2022 period.

Other revenue (loss) was positively impacted by gains attributable to investments held in connection with LFI in the 2023 period, as compared to losses in the 2022 period.

Such gains in the 2023 period were offset by losses incurred from the impairment of equity method investments and the liquidation of LGAC in February 2023.

Operating expenses excluding the benefit pursuant to the TRA of $40 million, increased $135 million as compared to the 2022 period primarily due to $33 million associated with cost-saving initiatives in the 2023 period, and charges in the 2023 period as compared to credits in the 2022 period pertaining to LFI.

The Company’s cash flows are influenced primarily by the timing of the receipt of Financial Advisory and Asset Management fees, the timing of distributions to shareholders, payments of incentive compensation to managing directors and employees and purchases of common stock.

M&A and other advisory and Asset Management fees are generally collected within 60 days of billing, while Restructuring fee collections may extend beyond 60 days, particularly those that involve bankruptcies with court-ordered

Fees from our Private Capital Advisory activities are generally collected over a four-year period from billing and typically include an interest component.

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Summary of Cash Flows:

Six Months Ended

Nine Months Ended

September 30,

($ in millions)

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(a) Consists of the following:

Six Months Ended

Nine Months Ended

September 30,

($ in millions)

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Noncash lease expense 47 46

Currency translation adjustment reclassification 2 -

Amortization of deferred expenses and share-based incentive

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Net revenue, operating income and cash receipts fluctuate significantly between periods and could be affected by various risks and uncertainties.

In the case of Financial Advisory, fee receipts are generally dependent upon the successful completion of client transactions, the occurrence and timing of which is irregular and not subject to Lazard’s control.

While cash flow from Asset Management activities is relatively stable, in the case of Financial Advisory, fee receipts are generally dependent upon the successful completion of client transactions, the occurrence and timing of which is irregular and not subject to Lazard’s control.

Liquidity is significantly impacted by cash payments for incentive compensation, a significant portion of which are made during the first three months of the year.

As a consequence, cash on hand generally declines in the beginning of the year and gradually builds over the remainder of the year.

We expect this seasonal pattern of cash flow to continue.

We also pay certain tax advances during the year on behalf of certain managing directors, which serve to reduce their respective incentive compensation payments.

Additionally, we anticipate payments in August 2023 with respect to deferred cash awards and throughout the year relating to severance and other employee termination costs associated with the cost-saving initiatives (See Note 14 of Notes to Condensed Consolidated Financial Statements).

Additionally, we made payments in August 2023 with respect to deferred cash awards and anticipate payments throughout the year relating to severance and other employee termination costs associated with the cost-saving initiatives (See Note 14 of Notes to Condensed Consolidated Financial Statements).

Liquidity is also affected by the level of deposits and other customer payables, principally at LFB.

In the first half of 2023, as reflected on the condensed consolidated statements of financial condition, both “deposits with banks and short-term investments” and “deposits and other customer payables” decreased as compared to December 31, 2022, and reflect the level of LFB customer-related demand deposits, primarily from clients and funds managed by LFG.

To the extent that such deposits and other customer payables rise or fall, this has a corresponding impact on liquidity held at LFB, with the majority of such amounts generally being recorded in “deposits with banks and short-term investments.” In the first nine months of 2023, as reflected on the condensed consolidated statements of financial condition, both “deposits with banks and short-term investments” and “deposits and other customer payables” decreased as compared to December 31, 2022, and reflect the level of LFB customer-related demand deposits, primarily from clients and funds managed by LFG.

We regularly monitor our liquidity position, including cash levels, lease obligations, investments, credit lines, principal investment commitments, interest and principal payments on debt, capital expenditures, dividend payments, purchases of shares of common stock and matters relating to liquidity and to compliance with regulatory net capital requirements.

At June 30, 2023, Lazard had approximately $698 million of cash, including approximately $417 million held at Lazard’s operations outside the U.S.

At September 30, 2023, Lazard had approximately $653 million of cash, including approximately $382 million held at Lazard’s operations outside the U.S.

Lazard provides for income taxes on substantially all of its foreign earnings.

We expect that no material amount of additional taxes would be recognized upon receipt of dividends or distributions of such earnings from our foreign operations.

As of June 30, 2023, the Company’s remaining lease obligations were $41 million for 2023 (July 1 through December 31), $153 million from 2024 through 2025, $124 million from 2026 through 2027 and $281 million through 2033.

As of June 30, 2023, Lazard had approximately $209 million in unused lines of credit available to it, including a $200 million, five-year, senior revolving credit facility under the Second Amended and Restated Credit Agreement.

As of September 30, 2023, the Company’s remaining lease obligations were $21 million for 2023 (October 1 through December 31), $154 million from 2024 through 2025, $127 million from 2026 through 2027 and $281 million through 2033.

As of September 30, 2023, Lazard had approximately $209 million in unused lines of credit available to it, including a $200 million, five-year, senior revolving credit facility under the Second Amended and Restated Credit Agreement.

The Second Amended and Restated Credit Agreement contains customary terms and conditions, including limitations on consolidations, mergers, indebtedness and certain payments, as well as financial condition covenants relating to leverage and interest coverage ratios.

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As long as the lenders’ commitments remain in effect, any loan pursuant to the Second Amended and Restated Credit Agreement remains outstanding and unpaid or any other amount is due to the lending bank group, the Second Amended and Restated Credit Agreement includes financial covenants that require that Lazard Group not permit (i) its Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement) for the 12-month period ending on the last day of any fiscal quarter to be greater than 3.25 to 1.00, provided that the Consolidated Leverage Ratio may be greater than 3.25 to 1.00 for four (consecutive or nonconsecutive) quarters so long as it is not greater than 3.50 to 1.00 on the last day of any such quarter, or (ii) its Consolidated Interest Coverage Ratio (as defined in the Second Amended and Restated Credit Agreement) for the 12-month period ending on the last day of any fiscal quarter to be less than 3.00 to 1.00.

For the 12-month period ended June 30, 2023, Lazard Group was in compliance with such ratios, with its

Consolidated Leverage Ratio being 2.21 to 1.00 and its Consolidated Interest Coverage Ratio being 13.53 to 1.00.

In any event, no amounts were outstanding under the Second Amended and Restated Credit Agreement as of June 30, 2023.

For the 12-month period ended September 30, 2023, Lazard Group was in compliance with such ratios, with its Consolidated Leverage Ratio being 2.86 to 1.00 and its Consolidated Interest Coverage Ratio being 11.51 to 1.00.

In any event, no amounts were outstanding under the Second Amended and Restated Credit Agreement as of September 30, 2023.

In addition, the Second Amended and Restated Credit Agreement contains certain other covenants (none of which relate to financial condition), events of default and other customary provisions.

At June 30, 2023, the Company was in compliance with all of these provisions.

At September 30, 2023, the Company was in compliance with all of these provisions.

Lazard’s annual cash flow generated from operations historically has been sufficient to enable it to meet its annual obligations.

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See also Notes 10, 12, 13, 15 and 17 of Notes to Condensed Consolidated Financial Statements regarding information in connection with commitments, incentive plans, employee benefit plans, income taxes and tax receivable agreement obligations, respectively.

The table below sets forth our corporate indebtedness as of June 30, 2023 and December 31, 2022.

The table below sets forth our corporate indebtedness as of September 30, 2023 and December 31, 2022.

The agreements with respect to this indebtedness are discussed in more detail in our condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Form 10-K.

Outstanding as of

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Senior Debt Maturity Principal Unamortized

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The indenture and supplemental indentures relating to Lazard Group’s senior notes contain certain covenants (none of which relate to financial condition), events of default and other customary provisions.

At June 30, 2023, the Company was in compliance with all of these provisions.

At September 30, 2023, the Company was in compliance with all of these provisions.

We may, to the extent required and subject to restrictions contained in our financing arrangements, use other financing sources, which may cause us to be subject to additional restrictions or covenants.

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Stockholders’ Equity

At June 30, 2023, total stockholders’ equity was $416 million, as compared to $675 million at December 31, 2022, including $360 million and $556 million attributable to Lazard Ltd on the respective dates.

The net activity in stockholders’ equity during the six month period ended June 30, 2023 is reflected in the table below (in millions of dollars):

At September 30, 2023, total stockholders’ equity was $420 million, as compared to $675 million at December 31, 2022, including $361 million and $556 million attributable to Lazard Ltd on the respective dates.

The net activity in stockholders’ equity during the nine month period ended September 30, 2023 is reflected in the table below (in millions of dollars):

Stockholders’ Equity - January 1, 2023 $ 675

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Other - net (13)

Stockholders’ Equity - June 30, 2023 $ 416

Stockholders’ Equity - September 30, 2023 $ 420

________________________________________

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The Board of Directors of Lazard has issued a series of authorizations to repurchase common stock, which help offset the dilutive effect of our share-based incentive compensation plans.

During a given year the Company intends to repurchase at least as many shares as it expects to issue pursuant to such compensation plans in respect of year-end incentive compensation attributable to the prior year.

The Company aims to repurchase at least as many shares as it expects to issue pursuant to such compensation plans in respect of year-end incentive compensation attributable to the prior year.

The rate at which the Company purchases shares in connection with this annual objective may vary from period to period due to a variety of factors.

Purchases with respect to such program are set forth in the table below:

Six Months Ended June 30:

Nine Months Ended September 30:

Shares Purchased Average

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2023 2,782,662 $ 36.67

As of June 30, 2023, a total of $203 million of share repurchase authorization remained available under Lazard Ltd’s share repurchase program, which authorization will expire on December 31, 2024.

During the six month period ended June 30, 2023, Lazard Ltd had in place trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to which it effected stock repurchases in the open market.

On July 26, 2023, the Board of Directors of Lazard declared a quarterly dividend of $0.50 per share on our common stock.

The dividend is payable on August 18, 2023 to stockholders of record on August 7, 2023.

As of September 30, 2023, a total of $200 million of share repurchase authorization remained available under Lazard Ltd’s share repurchase program, which authorization will expire on December 31, 2024.

During the nine month period ended September 30, 2023, Lazard Ltd had in place trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to which it effected stock repurchases in the open market.

On October 25, 2023, the Board of Directors of Lazard declared a quarterly dividend of $0.50 per share on our common stock.

The dividend is payable on November 17, 2023 to stockholders of record on November 6, 2023.

See Notes 11 and 12 of Notes to Condensed Consolidated Financial Statements for additional information regarding Lazard’s stockholders’ equity and incentive plans, respectively.

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Annual discretionary compensation represents a significant portion of our annual compensation and benefits expense.

We allocate the estimated amount of such annual discretionary compensation to interim periods in proportion to the amount of operating revenue earned in such periods based on an estimated annual ratio of awarded compensation and benefits expense to operating revenue.

We allocate the estimated amount of such annual discretionary compensation to interim periods in proportion to the amount of operating revenue earned in such periods based on an estimated annual ratio of adjusted compensation and benefits expense to operating revenue.

See “Financial Statement Overview—Operating Expenses” for more information on our periodic compensation and benefits expense.

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Pursuant to the periodic revaluation of the TRA liability and the assumptions reflected in the estimate, the revaluation had the effect of reducing the estimated liability under the TRA.

As a result, the Company recorded a “benefit pursuant to tax receivable agreement” of $40 million on the condensed consolidated statement of operations for the six month period ended June 30, 2023.

In addition, the Company made a payment under the TRA in the six months ended June 30, 2023 of $32 million.

The cumulative liability relating to our obligations under the TRA as of June 30, 2023 and December 31, 2022 was $119 million and $191 million, respectively, and is recorded in “tax receivable agreement obligation” on the condensed consolidated statements of financial condition.

As a result, the Company recorded a “benefit pursuant to tax receivable agreement” of $40 million on the condensed consolidated statement of operations for the nine month period ended September 30, 2023.

In addition, the Company made a payment under the TRA in the nine months ended September 30, 2023 of $32 million.

The cumulative liability relating to our obligations under the TRA as of September 30, 2023 and December 31, 2022 was $119 million and $191 million, respectively, and is recorded in “tax receivable agreement obligation” on the condensed consolidated statements of financial condition.

In accordance with current accounting guidance, goodwill has an indefinite life and is tested for impairment annually, as of November 1, or more frequently if circumstances indicate impairment may have occurred.

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To the extent material, we consolidate seed and LFI investment entities in which we own a controlling interest, and we would deconsolidate any such entity when we no longer have a controlling interest in such entity.

Seed investments held in entities in which the Company maintained a controlling interest were $91 million in nine entities as of June 30, 2023, as compared to $112 million in thirteen entities as of December 31, 2022.

LFI investments held in entities in which the Company maintained a controlling interest were $170 million in ten entities as of June 30, 2023, as compared to $139 million in nine entities as of December 31, 2022.

As of June 30, 2023 and December 31, 2022, the Company did not consolidate any seed investment entities or LFI investment entities, with the exception of the consolidation of certain LFI funds (see Note 20 of Notes to Condensed Consolidated Financial Statements).

Seed investments held in entities in which the Company maintained a controlling interest were $89 million in nine entities as of September 30, 2023, as compared to $112 million in thirteen entities as of December 31, 2022.

LFI investments held in entities in which the Company maintained a controlling interest were $150 million in ten entities as of September 30, 2023, as compared to $139 million in nine entities as of December 31, 2022.

As of September 30, 2023 and December 31, 2022, the Company did not consolidate any seed investment entities or LFI investment entities, with the exception of the consolidation of certain LFI funds (see Note 20 of Notes to Condensed Consolidated Financial Statements).

As such, seed investments and substantially all of LFI investments included in “investments” on the consolidated statements of financial condition represented the Company’s economic interest in the seed and LFI investments.

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Data relating to investments is set forth below:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

($ in thousands)

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_______________________

(a) At June 30, 2023 and December 31, 2022, seed investments in directly owned equity securities were invested as follows:

June 30, 2023 December 31, 2022

(a) At September 30, 2023 and December 31, 2022, seed investments in directly owned equity securities were invested as follows:

September 30, 2023 December 31, 2022

Percentage invested in:

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Total 100 % 100 %

The Company makes investments primarily to seed strategies in our Asset Management business or to reduce exposure arising from LFI and other similar deferred compensation arrangements.

The Company makes investments primarily to seed strategies and funds in our Asset Management business or to reduce exposure arising from LFI and other similar deferred compensation arrangements.

The Company measures its net economic exposure to market and other risks arising from investments that it owns, excluding (i) investments held in connection with LFI and other similar deferred compensation arrangements, (ii) investments in funds owned entirely by the noncontrolling interest holders of certain acquired entities and (iii) investments accounted for under the equity method of accounting.

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For equity market price risk, investment portfolios and their corresponding hedges are beta-adjusted to the All-Country World equity index.

Fair value and sensitivity measurements presented herein are based on various portfolio exposures at a particular point in time and may not be representative of future results.

Fair value and sensitivity measurements presented herein are based on various portfolio exposures at a particular point in time and may not be

representative of future results.

Risk exposures may change as a result of ongoing portfolio activities and changing market conditions, among other things.

Equity Market Price Risk—At June 30, 2023 and December 31, 2022, the Company’s exposure to equity market price risk in its investment portfolio, which primarily relates to investments in equity securities, equity funds and hedge funds, was approximately $148 million and $147 million, respectively.

Equity Market Price Risk—At September 30, 2023 and December 31, 2022, the Company’s exposure to equity market price risk in its investment portfolio, which primarily relates to investments in equity securities, equity funds and hedge funds, was approximately $140 million and $147 million, respectively.

The Company hedges market exposure arising from a significant portion of our equity investment portfolios by entering into total return swaps.

The Company estimates that a hypothetical 10% adverse change in market prices would result in a net (increase) decrease of approximately $(1.3) million and $2.0 million in the carrying value of such investments as of June 30, 2023 and December 31, 2022, respectively, including the effect of the hedging transactions.

Interest Rate/Credit Spread Risk—At June 30, 2023 and December 31, 2022, the Company’s exposure to interest rate and credit spread risk in its investment portfolio related to investments in debt securities or funds which invest primarily in debt securities was $17 million and $53 million, respectively.

The Company estimates that a hypothetical 10% adverse change in market prices would result in a net (increase) decrease of approximately $(0.8) million and $2.0 million in the carrying value of such investments as of September 30, 2023 and December 31, 2022, respectively, including the effect of the hedging transactions.

Interest Rate and Credit Spread Risk—At September 30, 2023 and December 31, 2022, the Company’s exposure to interest rate and credit spread risk in its investment portfolio related to investments in debt securities or funds which invest primarily in debt securities was $17 million and $53 million, respectively.

The Company hedges market exposure arising from a portion of our debt investment portfolios by entering into total return swaps.

The Company estimates that a hypothetical 100 basis point adverse change in interest rates or credit spreads would result in a net (increase) decrease of approximately $(0.1) million and $0.1 million in the carrying value of such investments as of June 30, 2023 and December 31, 2022, respectively, including the effect of the hedging transactions.

Foreign Exchange Rate Risk—At June 30, 2023 and December 31, 2022, the Company’s exposure to foreign exchange rate risk in its investment portfolio, which primarily relates to investments in foreign currency denominated equity and debt securities was $68 million and $63 million, respectively.

The Company estimates that a hypothetical 100 basis point adverse change in interest rates or credit spreads would result in a net decrease of approximately $0.01 million and $0.1 million in the carrying value of such investments as of September 30, 2023 and December 31, 2022, respectively, including the effect of the hedging transactions.

Foreign Exchange Rate Risk—At September 30, 2023 and December 31, 2022, the Company’s exposure to foreign exchange rate risk in its investment portfolio, which primarily relates to investments in foreign currency denominated equity and debt securities was $65 million and $63 million, respectively.

A significant portion of the Company’s foreign currency exposure related to our equity and debt investment portfolios is hedged through the aforementioned total return swaps.

The Company estimates that a 10% adverse change in foreign exchange rates versus the U.S.

Dollar would result in a decrease of approximately $1.6 million and $3.0 million in the carrying value of such investments as of June 30, 2023 and December 31, 2022, respectively, including the effect of the hedging transactions.

Dollar would result in a net decrease of approximately $1.4 million and $3.0 million in the carrying value of such investments as of September 30, 2023 and December 31, 2022, respectively, including the effect of the hedging transactions.

Private Equity—The Company invests in private equity primarily as a part of its co-investment activities and in connection with certain legacy businesses.

At June 30, 2023 and December 31, 2022, the Company’s exposure to changes in fair value of such investments was approximately $29 million and $37 million, respectively.

The Company estimates that a hypothetical 10% adverse change in fair value would result in a decrease of approximately $2.9 million and $3.7 million in the carrying value of such investments as of June 30, 2023 and December 31, 2022, respectively.

At September 30, 2023 and December 31, 2022, the Company’s exposure to changes in fair value of such investments was approximately $29 million and $37 million, respectively.

For additional information regarding risks associated with our investments, see Item 1A, “Risk Factors—Other Business Risks—Our results of operations may be affected by fluctuations in the fair value of positions held in our investment portfolios” in our Form 10-K.

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We determine the adequacy of the allowance by estimating the expected credit losses based on our analysis of the client’s creditworthiness and specifically provide for exposures where we determine the receivables are uncollectible.

At June 30, 2023, total receivables amounted to $675 million, net of an allowance for credit losses of $27 million.

At September 30, 2023, total receivables amounted to $632 million, net of an allowance for credit losses of $21 million.

As of that date, Financial Advisory and Asset Management fees, and customers and other receivables comprised 80% and 20% of total receivables, respectively.

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LFG and LFB offer wealth management and banking services to high net worth individuals and families.

At June 30, 2023 and December 31, 2022, customers and other receivables included $112 million and $129 million, respectively, of LFB loans.

At September 30, 2023 and December 31, 2022, customers and other receivables included $90 million and $129 million, respectively, of LFB loans.

Such loans were fully collateralized and monitored for counterparty creditworthiness.

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Risks Related to Derivatives

Lazard enters into forward foreign currency exchange contracts and interest rate swaps to hedge exposures to currency exchange rates and interest rates and uses total return swap contracts on various equity and debt indices to hedge a portion of its market exposure with respect to certain seed investments related to our Asset Management business.

Lazard enters into forward foreign currency exchange contracts and interest rate swaps to hedge exposures to currency exchange rates and interest rates and uses total return swap contracts on various equity and debt indices to hedge a portion of its market exposure with respect to certain investments that seed strategies and funds in our Asset Management business.

Derivative contracts are recorded at fair value.

Net derivative assets amounted to $1 million and $15 million at June 30, 2023 and December 31, 2022, respectively, and net derivative liabilities, excluding the derivative liability arising from the Company’s obligation pertaining to LFI and other similar deferred compensation arrangements amounted to $5 and $1 million at June 30, 2023 and December 31, 2022, respectively.

Net derivative assets amounted to $4 million and $15 million at September 30, 2023 and December 31, 2022, respectively, and net derivative liabilities, excluding the derivative liability arising from the Company’s obligation pertaining to LFI and other similar deferred compensation arrangements amounted to $2 million and $1 million at September 30, 2023 and December 31, 2022, respectively.

The Company also records derivative liabilities relating to its obligations pertaining to LFI awards and other similar deferred compensation arrangements, the fair value of which is based on the value of the underlying investments, adjusted for estimated forfeitures.

Changes in the fair value of the derivative liabilities are equally offset by the changes in the fair value of investments which are expected to be delivered upon settlement of LFI awards.

Derivative liabilities relating to LFI amounted to $373 million and $326 million at June 30, 2023 and December 31, 2022, respectively.

Derivative liabilities relating to LFI amounted to $341 million and $326 million at September 30, 2023 and December 31, 2022, respectively.

Risks Related to Cash and Cash Equivalents and Corporate Indebtedness

A significant portion of the Company’s indebtedness has fixed interest rates, while its cash and cash equivalents generally have market interest rates.

Based on account balances as of June 30, 2023, Lazard estimates that its annual operating income relating to cash and cash equivalents would increase by approximately $7 million in the event interest rates were to increase by 1% and decrease by approximately $7 million if rates were to decrease by 1%.

As of June 30, 2023, the Company’s cash and cash equivalents totaled approximately $698 million.

Based on account balances as of September 30, 2023, Lazard estimates that its annual operating income relating to cash and cash equivalents would increase by approximately $7 million in the event interest rates were to increase by 1% and decrease by approximately $7 million if rates were to decrease by 1%.

As of September 30, 2023, the Company’s cash and cash equivalents totaled approximately $653 million.

Substantially all of the Company’s cash and cash equivalents were invested in (i) highly liquid institutional money market funds (a significant majority of which were invested solely in U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis