Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lazard Inc (LAZ, Financial) reported a strong increase in firmwide adjusted net revenue, reaching $2.1 billion for the first nine months of 2024, up 24% from 2023.
- The financial advisory segment showed significant growth, with adjusted net revenue up 41% year-over-year in the third quarter.
- M&A activity is rebounding, with announced volume up over 20% for the first three quarters of 2024 compared to the same period last year.
- Asset management delivered solid results, with AUM increasing by 8% year-over-year as of September 30, 2024.
- Lazard Inc (LAZ) is investing in talent and technology, including AI tools, to enhance productivity and deliver innovative client solutions.
Negative Points
- Despite strong revenue growth, Lazard Inc (LAZ) faces secular headwinds in active asset management.
- The adjusted compensation expense ratio remains high at 66%, although it has decreased from the previous year.
- Net outflows in asset management were $12 billion, driven by a client restructuring its assets into passive strategies.
- Geopolitical risks and macroeconomic challenges in Europe could impact future business decisions and M&A activity.
- The company's effective tax rate increased to 32.5% in the third quarter, up from 14% in the previous quarter.
Q & A Highlights
Q: Can you elaborate on the conditions needed to achieve a compensation ratio below 60%?
A: Peter Orszag, CEO, explained that achieving a sub-60% comp ratio depends on continued momentum in the M&A market and maintaining the pace of hiring managing directors as per the Lazard 2030 plan. If the market develops as expected and hiring remains consistent, they anticipate achieving this target. However, if opportunities arise to hire exceptional bankers beyond the plan, they may adjust their strategy accordingly.
Q: Are there any plans to manage expenses to achieve the comp ratio target?
A: Peter Orszag, CEO, noted that there is substantial operating leverage from increased activity levels, especially by raising managing director productivity. Mary Betsch, CFO, added that reducing deferral rates is part of the plan, which will benefit both employees and the 2025 ratio. They also expect new hires to ramp up productivity faster than usual.
Q: What is driving the growing interest in emerging market equities in the asset management business?
A: Peter Orszag, CEO, mentioned that ongoing rate cuts and a weaker dollar are boosting demand for emerging market equities. Evan Russo, CEO of Lazard Asset Management, added that clients are under-allocated in emerging markets and are beginning to see potential upside, leading to increased interest and mandates.
Q: How is the divergence in macro trends between the US and Europe affecting the M&A environment?
A: Peter Orszag, CEO, observed that while the US macro environment is more favorable, Lazard saw stronger growth in advisory in Europe this quarter. He emphasized that sectoral trends can outweigh macroeconomic factors and highlighted Lazard's deep local roots in both regions as a competitive advantage.
Q: How has the conversion to a C Corp affected investor interest and ownership base?
A: Peter Orszag, CEO, stated that the C Corp conversion has been positive, increasing liquidity and attracting new investors who previously avoided Lazard due to its structure. The conversion has led to oversubscription at investor conferences and interest from new investors like Capital Group.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
