The David Rubenstein Show: Peter Orszag

This is my kitchen table and also my filing system. Over much of the past three decades, I've been an investor the highest calling of mankind I've often thought was private equity. And then I started interviewing.

I watch your interview with coach. I know how to do something. I've learned in doing my interviews how leaders make it to the top.

I asked him how much you wanted. He said to 50. I said, Fine.

I didn't negotiate with him. I didn't know due diligence to have something I'd like to sell and how they stay there. You don't feel inadequate now because being only the second wealthiest man in the world, is that right?

One of the most interesting and smartest people running an investment bank today is Peter Orszag. He previously served as head of the Congressional Budget Office, the Office of Management Budget, and has a Ph. D.

in economics from the London School of Economics. I sat down with him, his offices at Lazard Prior, talk about his career and also the future of investment banking as Lazard practices its. So you have been in the financial service world as an advisor for quite some time, but you also served in government.

We'll talk about both aspects of your career. But right now, one of the things that has held back M&A people say is the regulatory environment in Washington. There hasn't been as much M&A activity as some people in the M&A advisory business like Lazard would like.

Do you think it's the regulatory environment where you think it's high interest rates? What has kept M&A from going forward at the pace that maybe some people think it should be going forward? Well, let's start with what's driving it.

The sort of the tailwinds. So the biotech revolution, ongoing technology, I mean, we're seeing a revolution in generative AI de-risking and changes in supply chains and energy transition. I mean, there are some big building blocks that propel deal activity forward.

And then on the headwinds, I think there have been a few. The rate at which interest rates went up meant that there was a disconnect between buyers and sellers on the value of the assets. It also meant that financing was challenging.

The financing markets were a little bit more illiquid and then, yes, regulatory, but all three of those headwinds have been abating. First, as interest rates have topped out and now we're debating how quickly they'll come down. And then secondly, on the regulatory front, the government has lost some important cases in court.

And what that has meant in turn is that many more boards and c-suites are willing to say, you know what, we'll see you in court. We'll litigate for those people that are not really involved in the M&A world or the financial service world, they may not know about Lazard. Tell us about the brothers that started Lazard.

How did they convert themselves from dry goods sellers to financial experts? So the story of Lazard, where 176 years old, we began in New Orleans. Three French brothers started dry goods store like many other firms.

And this is documented in a great book called The Money Kings. So the Seligman's, the chefs and others follow the gold rush out to California, realize that lending gold to your customers or shipping the gold back to their home countries and then lending on credit that to your customers was more attractive than selling the The suits and other dry goods moved back to New York to set up a bank and then had correspondent banks in our case in Paris and London. And the rest is history.

So it is. And I would say out of all those firms that started that way, we're the only one still standing. Lazard today manages money.

You have an asset management business and you have an M&A advisory business. Is that right? Yes.

And you're a leader in M&A advisory. Tell me when CEOs want to do deals. Why do they need an advisor?

Because if they're smart CEOs, can't they get together without an advisor? What does an advisor really do for smart CEOs when they want to do an acquisition or a merger? Well, I think there's there's several things.

I mean, Lazard bankers are known as bankers with conviction. So a lot of content, a lot of backbone in terms of saying, no, I don't actually think that's a good idea. So, you know, you've been in many of these positions.

It is very helpful to have well-informed, smart people who are willing to push back, suggest this versus that, etc. . I think the role of an advisor is not just the narrow, you know, what's this thing worth, but do you really want to do this?

What's the regulatory implications? How is this going to play from an investor relations and a PR perspective? It's the multi dimensionality and having a thought partner or a someone who's counsel you you could benefit from, that's one part.

The second part is in many negotiations, it's helpful to have a intermediary. It's why often you don't want to be your own lawyer. And so I think that's the second part of the advisory role.

So when you call a CEO of a Fortune 50 company, I assume you can get a meeting with that person. It's not that hard. So we always have an idea of saying this is a good thing that you might consider doing, or they come the ideas to you, they bring them to you.

It works both ways, but what I like to do with CEOs is to have a broader discussion both about the world and then about what their objectives are. And there's I we present ideas and then sometimes people say, I'm thinking about this. Could you work on this with us on the M&A advisory business, you're competing against people that have or organization have large balance sheets.

So if somebody wants to do a deal, they might say to Morgan, Can you be my advisor? But can you also lend me money to do the deal? And the same is true with Morgan Stanley and Goldman Sachs.

You don't use your balance sheet for that purpose. You just use your your brainpower to kind of say it's a good deal or not a good deal. Is that a competitive disadvantage or a competitive advantage?

I think it's a well, let the market speak. What's happened? And over the past 15 or 20 years is massive share that went to independent advisory firms like ours that don't use their balance sheets to provide that advice or that only provide the advice and don't use their balance sheets.

And I think to win in that kind of environment, you need to have differentiated content, great ideas, insight into the players, an ability to read between the lines on the regulatory and other other development and also deep relationships. You need to be both trusted and discreet. So you became the CEO in October of 23, and I think shortly thereafter you said you wanted to double revenues.

Is that I actually said that right before I took over. Okay. So you're going to double revenues by 2030?

Correct? Right. So is that realistic?

Are you on that path to do that? We're ahead of schedule accomplishing that. And I think I think that really reflects the power of wizards standing in the world.

Our brand and what we needed to do is just up our ambition and increase from a cultural perspective, our focus on working together. And we're we're doing it. And so you're seeing that in the results.

I mentioned the record first half. We're really excited about the people that we're bringing on and we're really excited about, most importantly, about what we're able to do on behalf of our clients. Now you have a unit here, a I guess it's called a geopolitical advisory unit.

Yeah. Do clients pay for that? And are they happy to get that and pay for it?

Or you kind of give it as a service? And do people really care about geopolitical events when they're doing it, M&A deals? Absolutely.

So, I mean, in today's world. Well, let's step back. What's happened over the past three or four decades is we've moved from an environment in which the oil and gas companies that always operated globally and needed to have geopolitical insight and maybe a few others had to take geopolitical considerations into account to a situation today in which pretty much every important business decision that is made has to take geopolitical issues into account, or else you're going to go you're going to go wrong.

It's a fundamental business need. And Lazard has always been known as a banker plus. So people that had the ability to provide insight into not only what the other CEO was thinking, but what the prime minister was thinking or the president.

So these are people who cross those boundaries between business and government. So Lazard was always known as having that skill set, and we thought we could professionalize it by bringing in people who have done that for a living in different settings. So the short answer is it it's very much part of Lazard DNA.

We now have a unit that's dedicated to it in addition to just the bankers. And we are it is a revenue generating activity, but it's also something that is a great entree into boardrooms and c-suites for our bankers also. So this has been a resounding success.

What is the biggest geopolitical risk that you think now faces the world and certainly the United States? I think the fact of the matter is the biggest risk is that the world is changing and we don't yet have a intellectual framework that matches this new reality. So we have a splintering that's occurring between the major blocs of the U.

S. and Europe on the one hand, China, Russia and others on the other, and then some some countries that are in between the two. And we have not adapted to that new world quite yet.

Beyond that, there's there flash points. There are two hot wars going on in Europe, in the Middle East, with unclear trajectories on both. So there is obviously elevated risk even before you get to the traditional will China invade Taiwan and other things that people often talk about.

Many people who are running investment banks come from Wall Street. Their whole career. You've been in government.

Is there an advantage or disadvantage in having served in government when you're doing the job you currently have? I view it as a significant advantage and the reason is that it brings a perspective having served in government that is useful in lots of different settings, and it's that multi dimensionality, the ability to stitch together pieces from different worlds that I think is very helpful. The other advantage that it gives, I believe, is that I have a lot of respect and admiration for our senior bankers at Lazard, and so I view it as my job to do part of the work, but then to hand things off to our senior bankers.

And I think people who have spent their entire careers doing one thing. The natural inclination is to then go do it yourself. And then the problem becomes that you're not providing enough upward movement and ability to grow to the senior people.

So this is a fantastic job. But I think I'm I hope and I believe that I'm better at it because of what I've done before. Let's talk about your own background as opposed to Assad's background.

So where were you born? I was born in Lexington, Massachusetts, outside of Boston. What did your parents do?

My dad was an MIT math professor at the time, and he also ran a consulting firm that my mother managed. So if your father is teaching math at MIT, I presume you're pretty good at math and not by his standards. Oh, no.

But I was a You were good. I was okay. Yes.

Did you get 800 on your math S. A. T.

? I did very well in my mouth, as I tell you. So you chose not to go to MIT or another school up there called Harvard.

But you went to Princeton? I did. And you got a Ph.

D. at the London School of Economics? That's correct.

So when you got your Ph. D. , what did you decide to do with a Ph.

D. in economics? You want to go, teacher?

What did you do when you came back to the States with your dad? Well, actually, I had in the meanwhile, in the middle of graduate school. And I think it reflects the fact that I clearly did not yearn to be a pure academic.

I had spent a year, not quite a year, but a year in Moscow with a team of advisers to the government there. And then when President Clinton was elected, one of my undergraduate professors, Alan Blinder, called me up and said, Isn't it kind of cold in Moscow? Would you like to come join the new Clinton administration at the Council of Economic Advisors, which I did.

And how long were you in the Clinton administration? I did a couple of stints, so I did a couple of years. I went back and quickly finished my Ph.

D. I went back in for about a year or two. So it must have been a cumulatively, maybe four or five years in the Clinton administration.

You eventually left and you went to Brookings. Is that true? So I left the Clinton administration.

I then have the shortest tenure of anyone who voluntarily left McKinsey. I went to McKinsey in San Francisco. After three weeks, I decided that was not for me.

My younger brother and I then founded an economic consulting firm which subsequently grew. I taught at Berkeley. I then moved to Brookings in 2001.

So eventually the Congressional Budget Office people called you and said, Can you come up and run the Congressional Budget Office? The Congressional Budget Office was set up under the Budget Act of 1974, correct? Since the Budget Act of 1974.

Deficits have been going this way. Budgets have been going with not not balanced. Was the budget Act a good idea because we were doing pretty well without it?

Well, first, deficits haven't quite. They went up, down, and now they're back up. But I think what the Budget Act did is it gave Congress better tools.

But ultimately, these decisions are not going to be up to an agency like the Congressional Budget Office. They're up to our elected representatives. So I view the Congressional Budget Office as empowering the legislature to make decisions.

But those decisions are not you know, they're driven by other factors, too. Okay. So you're doing that for a number of years.

And then President Obama is elected and he asks you to be the head of the Office of Management Budget. So for those who aren't familiar with that, what does that office do? So that's slightly different.

It sounds similar to the Congressional Budget Office, but think of the Congressional Budget Office as an independent entity who's really analytical and whose job it is to evaluate the costs and implications of legislation and then to testify on those to Congress. The Office of Management and Budget does some of that, but it also implements the president's policies. It's think of it as like a CEO type role for a lot of the government.

So the role is is complex because you're a member of the of the cabinet, but also a member of the White House staff effectively. And the organization is partly analytical but also quite operational. So it's a it's an unusual organization.

When I worked in the Carter administration, there were two budget directors. One, the first one was Bert Lance, and he was a very good friend of Jimmy Carter's. And sometimes he would sit at the Cabinet room where we're going through budget appeals, and he would say, Mr President, that's the OMB position.

Let me tell you my view. I never did that. You never did that.

So before the administration was over, you decided to get it back into the private sector and you left OMB to go to Citicorp. And can you explain why you go to Citicorp and nice bank and everything, but how did you happen to pick Citicorp as a place to go to? Well, actually, I spent a little bit of time at the Council on Foreign Relations, which, you know well, just to figure out what I wanted to do next, I was about to sign with one of Lizard's actually competitors when I got a call from Citi, which I had not really been considering.

And the argument was which I found some merit in. You've done other things, including consulting, etc. , but you've never done banking.

If you go to this other firm, you're only doing M&A. If you come to us, we've got ten different things you could try. If you're bad at all of them, that's your fault.

And why don't you kind of get trained and get experience across a variety of things and see what you really like and that logic. Made sense to me. So you eventually went to Lazard about, I think, 2006.

16. 16. Yes.

So how did you rise up to be the CEO in a relatively short period of time where you're really good at M&A advisory and to be good at M&A advice? Or do you have to come up with ideas that clients want? Or do you have to kind of just execute the things that they say they want to do?

All of the above. On M&A advisory. And with regard to my role at Lazard, I think Lazard is a special place.

It's a place that has always valued people that are useful to their colleagues. So when I came here, my whole goal was, how can I be useful to you? You banker in industrials, you the banker in health care, you the banker in technology.

And that's what I tried to do. So let's suppose the next president, United States, is a Democrat, and you've served in two Democratic administrations. And the Clinton administration, The Obama administration.

Suppose the next president is President Harris, and she calls you up and says, I need a secretary of Treasury who knows? Wall Street also knows Washington. You're one of the few people who have worked in Wall Street and also worked in Washington.

What would you say if she offered you that job? I think with regard to the question of returning to government, there's neither supply nor demand. So I don't think your hypothetical is going to happen.

But more importantly, I'm really excited about what we're doing here at Lazard. We've got a lot of momentum and Lazard is a special place. It's an important place.

And I have a vision of what we'd like to accomplish here that I'd like to see through. So I'll take that. That you're not interested in being Secretary of Treasury for the time being?

I have a great, unbelievably great job. Perhaps the most important thing in providing good advice to either president or CEO is first, do your homework. It is too easy to make things up that never works.

And the second thing is to have conviction. What's the difference between advising a president of the United States and advising a CEO? Do you ever say to a CEO, look, I've advised presidents and you're not a president, but I'll give you my advice or you don't mention that you've been advising the president.

I think perhaps the most important thing in providing good advice to either president or CEO is, first, do your homework. Don't you know it is too easy to make things up that never works. And the second thing is to have conviction.

The number of times I've seen people who say I'm going to tell the president, you know, put him in his place or put maybe her in her place, and then they get into the Oval Office and they say, and I I'll one one episode really sticks out in my mind on this front. And if it's something I try to remember in this job and it's something that I definitely remember when I was in Washington, which is I was in my mid-twenties and I happened to be in the Oval Office, which is, you know, in your mid twenties is quite a thrill. And there was a discussion with Bob Rubin and President Clinton, and President Clinton said something like, Well, we're going to go out and say X and Bob, you'll give this speech.

And and I'll there are a lot of people nodding their head yes, like, yes, Mr President. And Bob said something like, Well, that's terrific, Mr President. We only have one problem.

I can't give that speech. And President kind of looks at that. I'm quite stunned and said, well, why not?

And he said, Because I don't think it's true. And it was a moment when I he did it in a way that wasn't offensive. It sort of but he had backbone, he had conviction.

And I think those that is what many CEOs that's what many presidents either should want or do want in an adviser. You have a point of view. You're respectful, but you're not just riding the wave of what everyone else would say.

So your goal for Lazard is to grow the revenue and to keep it as an independent, publicly traded company. Is there an advantage to being a publicly traded company in the business? You do because some of your competitors are not publicly traded.

I think the goal is to make Lazard far in a way. I already think it's the best place to work on Wall Street. But far and away the preeminent both financial advisory and in the part of asset management that we do firm.

And you could do that either as a public company or a private company. As you mentioned, some of our competitors are public, some are private. So I don't really view that as the key determinant.

Instead, it it is about that that ambition to win. It's about conviction and about the contest. So today, if somebody says I want I want to work at one of these kind of firms, a small, not J.

P. Morgan size organization, I want to use the skills that I develop to work at a place like those are. How does one get hired here if you're in college or business school, What are you looking for when you hire somebody?

Well, I talk a lot about succeeding at Lazard in our people being commercial and collegial. So what do I mean by that commercial? The ability to go out and act on behalf of our clients effectively collegial in terms of being able to work together as a team in delivering the best possible outcomes for our clients.

But beyond that, I think the attributes that we look for that and that I seek out in our colleagues, it would be curiosity. You've talked a lot about that resilience and a work ethic and the ability to have conviction around your ideas so that you're not just going with the conventional wisdom and playing five year old soccer, that young investment bankers that often said work 80 hours a week, 90 hours a week. Why do they do that?

Why can't they work 9 to 5 and not come in on weekends and just say, look, I got to have a balanced life and I'm just not going to come in at night or in weekends? Why don't they do that? Teddy Roosevelt once said that the greatest gift in life is the opportunity to do work worth doing.

So I think the point here is there are many professions where you can't get around the effort part of it. But what I think our firm requires or owes are people who are putting in that effort is three things. The first is the opportunity.

I talk I talk about practicing at the top of your license to run as far and as fast as you can. One of the exciting things, for example, about being in government at a relatively young age is you have this sense that, oh my goodness, I'm in this age, that I'm doing that. And to create that same sense of excitement for people entering financial services, I think is a characteristic of Lazard and it's very important.

That's part one. Part two is even if you're working hard, you need to have the some degree of agency and the ability to, if something else is important in your life, to take time off, to go do that. That's one of the reasons why here in New York, for example, we still have three days a week in the office and two days remote because it eases those trade offs from.

For many people. And then the the third really important part of this compact is the feeling that you're part of something. You know, you're working on important things.

It's not just make work. And I think if you put all of those elements together, there are many, many people who would rather work, you know, whatever number of hours per week on interesting, important things rather than fewer hours on things that are not that interesting. And that's what we're looking for.

That's the tradeoff. You.