By Jaiveer Shekhawat and Saeed Azhar

(Reuters) – Investment bank Lazard’s profit beat expectations in the first quarter, as its asset management business performed better than anticipated, but its CEO warned the ongoing economic uncertainty could keep dealmaking in check.

Shares of the firm were down 2.6% at $38.85 in afternoon trading.

The recent pullback in markets, heightened volatility and economic uncertainty has prompted CEOs and boards to hold back on acquisitions.

Lazard, with its more specialized focus, faces different pressures compared to its bigger competitors such as Morgan Stanley and Goldman Sachs, which have large trading operations that can benefit from volatility.

“The drivers for M&A (mergers and acquisitions) activity remain strong. But there is an overhang of uncertainty right now,” Lazard CEO Peter Orszag said on a call, noting there were several “strong incentives” for deals.

The company’s adjusted net income fell 9% from a year earlier to $60 million, or 56 cents per share, for the quarter ended March 31. Analysts were expecting 38 cents per share, according to estimates compiled by LSEG.

Financial advisory revenue fell 17% to $370 million, lower than analysts’ estimates of $394 million. Asset management revenue fell 4% to $264 million, but beat expectations of $254.2 million.

Investors’ skepticism of high risk assets such as equities has led to a decline in fees for asset managers such as Lazard. Its average assets under management fell to $231 billion in the quarter from $247 billion a year earlier.

HEADCOUNT

Lazard kept its headcount mostly flat at 3,253 as of the end of the quarter, it said.

“We are constantly evaluating where to expand and where we can adjust in another direction, and that’s just an ongoing process,” Orszag said.

The company, however, is doubling down on the Middle East to capitalize on the region’s dealmaking opportunities.

It has opened a new office in Abu Dhabi to boost its advisory business in the region and supplement operations in Riyadh and Dubai, Orszag said.

(Reporting by Jaiveer Singh Shekhawat and Niket Nishant in Bengaluru and Saeed Azhar in New York; Editing by Krishna Chandra Eluri)