Ex-Obama adviser leads Lazard quest for bigger share of dealmaking

Via Financial Times

A lot is riding on Peter Orszag. A one-time wunderkind economist turned adviser to Barack Obama when president, he is now an investment banker facing a familiar but formidable Wall Street challenge: breathing new life into Lazard.

The once unruly advisory firm suffered upheaval last month when its polarising star dealmaker quit as head of its European operations. The departure of Paris-based Matthieu Pigasse has drawn attention to bigger challenges at the 171-year-old company. Its shares trail US rivals such as Evercore, and it has lost market share on the biggest mergers and acquisitions to other independent firms such as Centerview Partners.

Now, a new generation of bankers led by Mr Orszag, who took control of the group’s financial advisory business in April, are being asked to squeeze more from Lazard’s outposts across the world in search of a bigger share of the dealmaking fee pool.

Mr Orszag’s solution comes across like the didactic briefs he used to prepare in the White House, where he was named budget director in 2008 aged only 39 and went on to push for a $900bn economic stimulus package and the Affordable Care Act.

The multi-part plan begins with pushing his US team to pursue deals involving companies valued at between $1bn and $10bn, which are often backed by private equity. The segment is not the most glamorous — but Mr Orszag is attuned to the fact that it pays healthy fees.

At the same time, he is banking on Lazard’s ability to retain and recruit talent attracted by its freewheeling culture. Success would position him to succeed the 61-year-old Ken Jacobs as Lazard’s chief executive.

Line chart of Global M&A revenue share (%) showing Lazard has lost ground to mid-market rivals

Mr Orszag, who studied at Princeton and the London School of Economics and is the son of an Ivy League mathematics professor, said he saw similarities between his former and current occupations. “You’ve got to get the numbers right,” he said. “But it’s a lot more than that and it involves ‘should this person call this person back or should we wait?’ And maybe a chairman of the board or a CEO instead of a senator or member of Congress, but the interpersonal dynamic is very similar.”

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His career in high finance began in late 2010 when he left the White House after less than two years to join Citigroup, one of the big US banks bailed out by the federal government during the financial crisis. The leap to Lazard came in early 2016 after a meeting of the minds between Mr Orszag and Mr Jacobs.

The two bumped into each other at a conference, where Mr Jacobs asked Mr Orszag how far along he was in his development as an investment banker. Mr Orszag said, “70 per cent”. Mr Jacobs repeated the question months later at another gathering. When Mr Orszag replied “90 per cent”, the pair decided he might fit in at Lazard.

The challenge for Lazard is that it faces rising competition from copycat firms. In 2018, it announced a fourth consecutive year of record dealmaking revenue. Yet since the start of that year, Lazard has played a role in only three of the 20 largest US M&A transactions. By contrast, Evercore worked on eight of those deals, and Centerview on seven, according to Dealogic data. Lazard’s shares have fallen 25 per cent in the past five years while shares in Evercore have risen 47 per cent.

Peter Orszag & Kenneth Jacobs of Lazard The person with the glasses (on the left in two shots) is Peter R. Orszag, CEO of Financial Advisory, Lazard The other person is Kenneth M. Jacobs, Chairman and CEO of Lazard Photographer: Haley Karis, Lazard Sent by PR
Success in leading the financial advisory business would position Peter Orszag, left, to follow Ken Jacobs as Lazard’s chief executive © Haley Karis/Lazard

At the same time, Lazard’s asset management unit, which accounts for roughly half of the firm’s revenue, has suffered from the shift to passive investing and Lazard Asset Management’s focus on emerging markets. Lazard recently announced it was laying off 200 employees across investment banking and asset management.

Mr Orszag insists he is unworried. Because of Lazard’s traditional tilt toward Europe, he says, it has been hit harder than its US rivals by weakening transaction volumes on the continent in recent years. Over time, Lazard believes its competitive position will be helped by the decline of European banks on the global stage, leaving it with a smaller number of competitors.

“We are the only global independent advisory firm,” Mr Orszag boasts, citing deals Lazard has recently completed in Peru, Chile and China.

As has often been the case throughout its long history, there have been ructions between the international outposts.

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Only a month after Mr Orszag was put in charge of financial advisory, Mr Pigasse was installed as his deputy, as well as head of Europe. The temperamental Mr Pigasse was the face of Lazard in France, the group’s strongest European office. But rumours of his dalliances with other US boutique investment banks persisted — even as he worked with Mr Orszag on a strategic plan.

Finally, on the evening of October 20 — a Sunday — the French dealmaker bid adieu to Lazard, saying in a press release that he was “excited to begin his next chapter beyond investment banking in a new entrepreneurial new project” that was not identified.

Bar chart of Operating margins (%) showing Doubling down on costs has boosted Lazard's margins

Mr Orszag declined to comment on Mr Pigasse, saying: “We’ve got a team of five or six people globally, all of whom grew up at Lazard and know the power of the global network. They’re both commercial and collegial and that’s a great combo . . . This team is super tight knit.”

Lazard has also revamped its London leadership to keep pace with its main European rival, Rothschild. Under Mr Orszag, it is set to roll out industry sector teams in Europe, rather than rely on country coverage, as it has in the past. As part of his focus on smaller companies, Mr Orszag has hired a nine-person group from London brokerage Numis that will focus on venture and growth banking, aiming to match late-stage start-ups with capital sources around the world.

True to his wonkish background, Mr Orszag is emphasising data analytics as a strength. He said Lazard has just won its first client mandate where it had used machine learning and natural language processing in its analysis.

Lazard is even trying to soften its image, attempting to promote a more hospitable workplace than its past reputation. Mr Orszag and Mr Jacobs are quick to tout its board-level committee on “culture” and its social media presence is filled with pictures of events showing its commitment to women and diversity.

“Evidence suggests having people from diverse backgrounds produces better outcomes when the problems you are facing are not cookie cutter,” he said. “That’s our entire business.”

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Still, fewer than 10 per cent of its managing directors in investment banking are women and its longest-standing woman managing director in New York recently resigned.

Line chart of Share prices rebased showing Lazard has fallen behind peers

And commercial imperatives continue to triumph at the venerable firm. Despite Saudi Arabia’s chequered record on human rights and growing backlash to doing business with the kingdom, Lazard recently signed up to advise the national oil company, Saudi Aramco, on its forthcoming IPO. The decision came after its Paris office insisted that it was a crucial business to win, though Lazard says there was a variety of views on taking the mandate.

While Mr Jacobs has calmed the waters in his decade running the firm, internal drama was once as common at Lazard as the blockbuster deals it assembled. In 2001, Michel David-Weill, then chairman and a descendant of Lazard’s founding family, brought in Bruce Wasserstein to revitalise the firm after a series of star banker defections and to sort out its then-byzantine ownership structure. The men eventually clashed and Mr David-Weill departed upon the Lazard’s landmark 2005 IPO. In 2009, Mr Wasserstein suddenly died. It was left to Mr Jacobs to clean up the bloated cost structure that threatened Lazard in the depths of the financial crisis.

In recent years, several brand-name rainmakers have left, including Antonio Weiss, who joined the US Treasury and then launched his own advisory firm; Gary Parr, who became a private equity investor at Apollo Global; and George Bilicic, who became president of Sempra Energy.

“Lazard is bigger than any one individual,” insisted Mr Jacobs. “It survived Michel David-Weill stepping down, all the transitions and craziness of the ’90s. It got through Bruce Wasserstein’s tragic passing and the financial crisis in 2009. It’s going to survive my stepping-down as leader someday.

“And as long as we keep strengthening the foundation of Lazard — that is making it always on the cutting edge of intellectual capability, expertise — we’re going to do great. As soon as the quality starts to go down, then you have to worry.”