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Setting Lazard Asset Management's future

In the 21 years since Herb Gullquist and Norman Eig became co-CEOs of Lazard Asset Management, assets under management have climbed from $2 billion to about $60 billion.

More recently, however, Gullquist and Eig have watched assets bleed, while presiding over a meltdown in the firm's lucrative hedge fund business.

Their era maybe coming to an end.

Last month LAM informed clients that Gullquist, 66, will retire at year-end. The day-to-day impact of his departure won't be great: For the past few years, he has devoted only a few weeks a year to the firm. Eig, 62, has remained active, continuing the ironfisted rule that he and Gullquist introduced to Lazard when they arrived from Oppenheimer Capital in 1982. A Lazard spokesman says, "Norman Eig is running the firm." But sources tell II that Lazard is likely to lay out a succession plan for LAM in the next few weeks.

Once Lazard's hidden treasure chest, LAM has struggled mightily, with total assets now 25 percent below their 2000 peak of $80 billion. About 80 percent of the firm's $4 billion in hedge fund assets vanished this year, following William von Mueffling, the firm's hedge fund mastermind, who struck out on his own. Insiders say that hedge funds accounted for half of LAM's 2002 income of $130 million -- or nearly a third of the total income recorded by the firm's parent, investment bank Lazard LLC.

The setback put the kibosh on any plans to take LAM public. Last December, when Lazard CEO Bruce Wasserstein floated the idea of an offering, the prospective IPO was expected to raise as much as $2 billion.

Who's likely to ascend at LAM? The firm just created a new five-man "oversight committee" made up of four Lazard veterans: Charles Carroll, who runs the wrap business; institutional marketer Bob DeConcini; analyst and portfolio manager Andrew Lacey; and John Reinsberg, the head of international equity portfolio management. Also on board is newcomer Ashish Bhutani, a longtime Wasserstein loyalist who joined this summer after retiring as co-CEO of Dresdner Kleinwort Wasserstein, North America.

"Lazard does seem to have identified the future leadership at the firm, and that will be an important step if they hope to ever regain credibility," says Santa Monica, California­based pension fund consultant Michael Rosen. "Right now they are a firm with just too many red flags popping up around it."