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Text: I am Alexandra Deignan, the company's Head of Investor Relations.
Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance.
Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer and Evan Russo, Chief Financial Officer.
Today, Lazard reported strong results for the fourth quarter and full year 2020.
We achieved record quarterly operating revenue.
Financial Advisory had a record quarter with strong performance across practices and regions.
Asset Management's fourth quarter revenue increased 12% and achieved a record year end level of AUM.
We entered 2021 with significant momentum as we serve clients positioning themselves for a post pandemic recovery.
In Financial Advisory, our M&A activity progressed throughout 2020.
Our global announcement volume increased 3% even as the markets volume declined 10%.
This reflected strong activity in both the US and Europe.
In particular, our volume of French and UK announcements increased 34% and 37% respectively from the prior year.
Our preeminent global restructuring practice continued its work on a wide range of complex assignments.
In 2020, Lazard ranked number one in the league tables for completed restructurings globally.
As we anticipated, the pace of new restructuring assignments in Europe increased.
Our sovereign capital and private capital advisory businesses all had strong years as we advise governments, corporations and partnerships on financing strategy and capital raising.
Our private equity secondary business continues to grow and we are advising on a significant number of growth equity investments globally.
We continue to see opportunities for growth in Financial Advisory and have increased our pace of lateral hiring.
In 2020, we recruited 12 new Managing Directors globally, plus two more in January of this year.
In addition, we are promoting 15 new Managing Directors in Financial Advisory this month.
10 of them began their careers here as analysts or associates.
Our ability to develop talent organically remains a powerful competitive strength.
Our Asset Management business also had a strong fourth quarter, with higher management and incentive fees, reflecting AUM growth and the performance of our strategies.
On assets under -- our assets under management increased by $31 billion or 14% from the start to the finish of the fourth quarter.
Our investments in new strategies and product extensions continue to create new avenues for growth.
Our quantitative business achieved net inflows for both the fourth quarter and full year as did our global equities and our global and multiregional fixed income platforms.
We are also seeing an increase in solutions oriented mandates as we serve more clients with customized strategies.
We continue to invest in Asset Management's growth through investment in people, technology and distribution as well as the development of new funds and the scaling up of existing platforms.
In 2020, we introduced eight new strategies for clients across our traditional and alternative platforms.
Three of the strategies are from independent teams we recently recruited.
As the asset management industry undergoes a wave of consolidation, we see substantial opportunities to accelerate our recruitment of talent and investment teams, adding strategies that are complementary to our existing platforms.
We also continue to build our talent pool from within.
This year, Asset Management will name seven new Managing Directors in its annual promotion process.
Firm wide, Lazard's results -- record results for the quarter underscore the strength of our diversified business model, our global platform and our deep culture of client service.
We entered 2021 with momentum across our businesses.
We see substantial opportunities for growth in both Financial Advisory and Asset Management and are investing to capitalize on them.
Evan will now provide some color on our results and then I will comment on our outlook.
Lazard's full year and fourth quarter results reflect the stability and continued high performance of our businesses.
Our fourth quarter operating revenue of $849 million was a record quarter for the firm, 20% higher than last year's period.
Fourth quarter adjusted earnings per share of $1.66 increased 82%, reflecting the significant operating leverage in our model.
Annual revenue of $2.5 billion was about even with 2019, representing a strong recovery from the volatile environment of 2020.
Our Financial Advisory business had a breakout fourth quarter, with record quarterly revenue of $509 million, which is 23% higher than our previous peak level in 2018.
The compelling story behind Financial Advisory's record quarter is that it was driven by strong contributions across our advisory practices and across regions.
Our revenue performance demonstrates the earnings power of the diversified advisory business we have built.
In Asset Management, this story was similar as we generated $336 million in revenue for the fourth quarter, up 12% from the prior year.
This reflected contributions across our global platforms with accelerating momentum in a year of extreme volatility.
Fourth quarter management and other fees increased 10% sequentially from the third quarter, reflecting higher average AUM.
Fourth quarter incentive fees were up substantially from the prior year, primarily reflecting strong performance in our alternative strategies.
Average AUM for the fourth quarter was $246 billion, up 3% from last year's period and up 9% from the third quarter of 2020.
The sequential increase was driven by market appreciation of $25.4 billion and foreign exchange appreciation of $5.8 billion, partially offset by net outflows of $0.3 billion.
For the full year, we experienced net outflows of $11.4 billion, primarily in our value strategies within emerging markets and local equities.
Platforms with net inflows for the year included global and quantitative equities as well as our global and multiregional fixed income strategies.
We finished 2020 with AUM of $259 billion.
And as of January 28, AUM was approximately $258 billion.
The decrease was driven by foreign exchange depreciation of $1.3 billion and net outflows of $1 billion, partially offset by market appreciation of $1.3 billion.
Looking ahead across our franchise, in Financial Advisory, client activity is strong across our advisory practices globally in an improving environment.
Asset Management is off to a good start in 2021 with AUM well above its average level for 2020.
We have a strong pipeline of unfunded mandates.
We continue to see demand for both our quantitative and fundamental strategies across our platforms as well as growing demand for our sustainable and customized solutions.
Turning to expenses, our compensation ratio for 2020 on an adjusted basis was 59.5%, up from 57.5% in 2019.
On an awarded basis, our annual compensation ratio was 59.8% compared to 57.7% for 2019.
The increase reflected our investments for growth as well as the change in business mix this year.
We are maintaining our cost discipline while we navigate a volatile market environment.
Non-compensation expense of $117 million in the fourth quarter was 10% lower than the same period last year, primarily reflecting a continuation of global travel restrictions and lower business development costs.
Our adjusted non-compensation ratio for the fourth quarter was 13.7% and the ratio for the full year was 17.1%.
As business activity picked up in the fourth quarter, we saw commensurate rise in non-compensation costs especially related to variable expenses.
Our effective tax rate for 2020 was 20.2% compared to 24.1% a year ago.
For 2021, we expect an annual effective tax rate in the low to mid 20% range.
Regarding capital allocation, our business continues to generate significant free cash flow, which supports our goal of returning excess capital to shareholders.
Throughout the year, we have been consistent in returning capital through our quarterly common dividend.
In the fourth quarter, we returned $51 million of capital to shareholders.
Yesterday, we declared a quarterly dividend on our common stock of $0.47 per share.
In 2021, we have resumed our share repurchase program in order to at a minimum, offset dilution from our year end equity grants.
Our total outstanding repurchase authorization is now $267 million.
Lazard's financial position remains strong with ample liquidity and balance sheet flexibility.
As of December 31, our cash and cash equivalents were approximately $1.4 billion.
Ken will now conclude our remarks.
A few words on our outlook before we open the call to questions.
In the near-term, the macroeconomic outlook remains uncertain based on the ongoing health crisis.
However, fiscal and monetary stimulus in developed countries and the rollout of vaccines globally are driving expectations of a recovery by the second half of this year.
Both of our businesses are already benefiting from growing optimism in boardrooms and investment committees.
In Financial Advisory, the forces driving global strategic activity have accelerated.
Technology-driven disruption continues to be a catalyst for M&A across industries.
Shareholder activism has resumed its growth after a brief pause during the first half of 2020 with increasing impact in Europe.
The rapid growth of SPACs alongside strategic and private capital, adds substantial dry powder to the M&A market.
In addition, climate risk is becoming increasingly relevant to company valuations and is an emerging catalyst for strategic activity.
Our ESG expertise is well entrenched in our Asset Management business and increasingly in our Financial Advisory business as well.
In Asset Management, the expectation of low interest rates for the foreseeable future is a tailwind for our business.
Investors need for income and return is driving increased demand for risk assets, including equities and corporate and emerging market debt as well as alternative investments.
In addition, institutional investors are seeking sources of differentiated alpha, including ESG, thematic and alternative strategies.
We are in an excellent position to meet this demand with a world class investing franchise in markets that reward deep fundamental research and our quantitative strategies are competing effectively in the market for low-cost products.
We see substantial opportunities for growth across our businesses and we continue to invest in our people, capability and technology infrastructure to enhance our competitive edge.
We remain focused on serving all of our clients well, while we manage the firm for profitable growth and shareholder value over the long-term.
In one of the most challenging environments in modern history, they rose to the occasion serving our clients with outstanding financial advice and solutions and reinforcing this great franchise.
I am proud to work with them.
Now, let's open the call to questions.

user
q4 adjusted earnings per share $1.66.
q4 revenue rose 20 percent to $849 million.
for q4 of 2020, financial advisory operating revenue was $509 million, 29% higher than q4 of 2019.
aum as of december 31, 2020 was of $259 billion, up 4% from december 31, 2019, and up 14% from september 30, 2020.

assistant