Q3 2024 Lazard Inc Earnings Call

Speaker Change: Good morning and welcome to the Zard's third quarter and first nine months, 2024 earnings conference call. This call is being recorded. Currently all participants are in a listen only mode.

Speaker Change: Following the remarks, we will conduct a question and answer session, instructions will be provided at that time.

Speaker Change: If anyone should require assistance during the call, please press the star key followed by zero on your telephone keypad. At this time, I will turn the call over to Alexandra Deignan, was our head of investor relations, Treasury and Corporate Sustainability. Please go ahead.

Speaker Change: Thank you Todd, good morning everyone and welcome to the Zarks earnings call for the third quarter in verse 9 months of 2024. I'm Alexandra Deignan, head of Industrial Relations, Treasury and Corp. sustainability.

Speaker Change: In addition to today's audio comments, we posted our earnings release on our website. We play this call will also be available on our website later today.

Speaker Change: Before we begin, let me remind you that we may make forward-looking statements about our business and performance.

Speaker Change: They're important factors that quick cause are actual results, level of activity, performance, achievements, or other events to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, those factors discussed in the company's SEC violence, which you can access on our website.

Speaker Change: The Zaris Sims No Responsibility for the Actors, the Heresia Compliance of these forward-looking statements, and the Sims No Diddy to update that.

Speaker Change: Today's discussion also includes certain non-gapsed financial measures that we believe are meaningful with evaluating the company's performance. Correct insiliation of these non-gapsed financial measures to the comparable gap measures is provided in our own release and investor presentation.

Speaker Change: hosting our call today, our Peter Orszag, who is our Chief Executive Officer and Mary Ann Bech, who is our Chief Financial Officer. After our prepared remarks, Peter and Mary Ann will be joined by Evan Russo, Chief Executive Officer of Asset Management, because they open the call for questions.

Speaker Change: on the Alps and the Callover to Peter.

Peter Orszag: Thank you, Alley. We are pleased to report another quarter of strong results with total firm wide adjusted net revenue of $2.1 billion for the first nine months.

Peter Orszag: of 2024, up 24% from 2023. These results demonstrate the ongoing execution of our Lizard 2030 strategy and our focus on delivering differentiated advice and investment solutions for clients.

Peter Orszag: In financial advisory, we achieved strong year-over-year performance in Europe in the third quarter and record revenue in America's year-to-date.

Peter Orszag: We structuring in liability management was also a meaningful contributor to overall revenue growth, which reflects our long standing excellence in this area, as well as investments made to diversify through expanding our coverage of the creditor's side.

Peter Orszag: There are several factors that present opportunity for further momentum. M&A activity continues to rebound with M&A valuation multiples having returned to their tenure average, narrowing the gap between buyer and seller expectations.

Peter Orszag: For the market as a whole M&A announced volume is up over 20% for the first three quarters of 2024 compared to the same period last year.

Peter Orszag: Private Equity is becoming increasingly active with a significant uptick in sponsored take private activity. Holding periods for PE back portfolio companies have been at an all-time high and we believe many of these companies will be brought to market.

Peter Orszag: We are also seeing significant activity in our private equity fundraising business, especially in the secondary market, as the longer a holding period I just noted has increased demand for liquidity.

Peter Orszag: With regard to growing momentum in private markets, we are well positioned due to our investments in hiring and developing teams, along with firm-wide collaborative efforts to deliver integrated client solutions.

Peter Orszag: You're today, revenue associated with our overall interactions with private capital, which spans strategic advisory, restructuring, and liability management, along with capital raising, is up more than 50% compared to the same period last year.

Peter Orszag: We believe that additional growth will occur as we continue to expand our efforts and as private markets participate more actively in M&A as the cycle develops.

Peter Orszag: Turning to acid management, we delivered another solid quarter of results while pursuing our strategy of strengthening our platform.

Peter Orszag: The third quarter ended on a strong note for equity and bond markets with US equity markets posting all times closing highs.

Peter Orszag: Despite secular headwinds affecting active asset management, we believe the reduction in rates and a more appealing outlook for global and emerging market equities support demand for Lizard's investment strategies going forward.

Peter Orszag: During the third quarter, we announced the Senior Leadership Higher for Asset Management to serve as our global head of ETFs.

Peter Orszag: As the active ETF market further develops, we are expanding our efforts to offer investors access to our premier investment products through a more efficient vehicle that aligns with their preferences.

Peter Orszag: For example, last quarter we launched the Luzard Global Listed Infrastructure Act of ETF to investors in Australia, which builds on the success of one of our specialty strategies, while capturing new business opportunities.

Peter Orszag: Across both of our businesses, excellence in serving clients is predicated on our culture and our people.

Peter Orszag: Periodically, we conduct employee engagement surveys to evaluate and enhance our workplace.

Peter Orszag: We are pleased to see substantial improvement in our latest study which took place this month. With the best results achieved since launching these engagement surveys.

Peter Orszag: Our colleagues commitment to Lizard's future is evident in our latest study and in our successful performance this year.

Speaker Change: Let me now turn the call over to Mary Ann to provide further details on our results and then I'll share more on our performance and outlook.

Mary Ann: Thank you, Peter.

Mary Ann: Today we reported third quarter from why to just a net revenue of $646 million. Up 21% from the same time last year.

Mary Ann: The increase in firm wide revenue was primarily driven by our financial advisory business.

Mary Ann: Financial Advisory Adjusted Net Revenue was $369 million for the third quarter, a 41% from one year ago, and 1.2 billion for the first nine months of 2024, up 39%.

Mary Ann: Our M18s performed well across the firm.

Mary Ann: Restructuring and liability management also delivered another strong quarter, as client demand persists for the bespoke capital structure solutions we provide.

Mary Ann: Those are participated in a number of marquee transactions in the third quarter.

Mary Ann: Completed transactions include air products and chemical sale of its LNG business to Honeywell. KPS Capital Partners acquisition of Inamodix from Siemens AG.

Mary Ann: Cooper Tino Electrics Acquisitions by Quantistervices and the Test Go Technologies merger with Schepler.

Mary Ann: Recently announced transactions included Telenova's acquisition by Mars.

Mary Ann: Carlisle, sale of cogentrics to quantum capital and C.T. foods acquisition by PepsiCo.

Mary Ann: We also advise on several capital markets assignments, including ultimate capital partners, successful continuation fund vehicle, with Tacala. We'll work in companies closing of its fund for Colberg Investors 10.

Mary Ann: Kingswood Capital Management's closing of its fund three.

Mary Ann: Phoenix Equity Partners Continuation Fund.

Mary Ann: Health Catalist New Term Loan provided by Silver Point's Anance and a Coddos Capital Race.

Speaker Change: Turning to asset management, third quarter adjusted net revenue was $272 million. A 4% compared to the third quarter last year.

Speaker Change: Management Seas for the third quarter of $269 million increase 3% compared to the third quarter last year.

Speaker Change: As of September 30th, we reported AUM of $248 billion. 8% higher than September 2023, and 1% higher than June 2024.

Speaker Change: During the quarter we had market appreciation of 9 billion, foreign exchange appreciation of 6 billion, and net outflows of 12 billion, which were largely driven by one client that restructured its developed market assets into past its strategies.

Speaker Change: Average AUM for the third quarter was $246 billion. For% higher than the third quarter of 2023, an inline with the second quarter of 2024.

Speaker Change: As the management continued to provide a durable source of revenue during third quarter.

Speaker Change: We saw strong performance and ongoing demand across several of our core and specialty products.

Speaker Change: including global listed infrastructure, Japanese equities, and emerging market equities, and across our quantitative platform.

Speaker Change: During the third quarter, new business across our priority strategies and products included, funding a Japanese large cap equity's custom mandate for Swiss pension fund, and launching a tax transparent fund for global equity franchise for an Asian pension fund.

Speaker Change: Interest in Emerging Market's Equity is also growing, highlighted by a large new mandate from a US public fund and the launch of a tailored Emerging Market's fund for Scandinavian clients.

Speaker Change: During the third quarter, we were pleased to be selected as a sub-advisor to an active passive international equity ETS series, utilizing our international quality growth strategy.

Speaker Change: Now turning to expenses for the third quarter are adjusted compensation spent expense was $426 million. Resulting in a ratio of 66%. Compare to 68.4% for the third quarter one year ago.

Speaker Change: For the third quarter, our adjusted non-comensation expense was $138 million. Down 7% from the second quarter, an inline with the prior year quarter.

Speaker Change: This equated to a ratio of 21.4% compared to 25.9% one year ago.

Speaker Change: We remain focused on managing expenses as conditions for our business improve while at the same time investing in talent and initiatives that support future growth.

Speaker Change: Disting to taxes are adjusted effective tax rates in the third quarter with 32.5% compared to 14% last quarter.

Speaker Change: Given the global nature of our business, our adjusted effective tax rates can vary from quarter to quarter due to changes in the geographic mix of our earnings and the impact of discrete items in the quarter in which they occur.

Speaker Change: Despite these quarterly fluctuations, we continue to expect our full year 2020-24 effective tax rate to be in the mid to high 20% range.

Speaker Change: Turning to capital allocation in the third quarter of 2024 we return $51 million to shareholders, including a quarterly dividend of $45 million.

Speaker Change: Here today we've purchased 1.1 million shares and we currently have share-reporteous authorization of $356 million outstanding.

Speaker Change: We remain committed to balancing investments and growth as returning capital to our shareholders with a quarterly dividend of the 50 cents per share declared yesterday.

Speaker Change: Now we'll turn the call back to Peter.

Peter Orszag: Thank you, Mary Ann. Geo political risks remain a key consideration for business decisions with increasing client demand for our geo political advisory group as a result.

Peter Orszag: Despite uncertainty in the broader landscape, however, we see ongoing improvement in the underlying conditions relevant to our business.

Peter Orszag: Inflation continues to head in the right direction as we had predicted earlier in the year.

Peter Orszag: with the Fed's Great Cut last month and additional cuts expected in the future.

Peter Orszag: We anticipate that our asset management business will benefit over time as industrial shift toward more risk-oriented active management. We also expect M&A activity to further strengthen in the near-to-midterm and we are well positioned in financial advisory to meet that moment.

Peter Orszag: As a result, we see an increasingly constructive operating environment for both businesses moving forward.

Peter Orszag: If the recovery we have seen over the past year continues at the same pace next year. And if our recruiting occurs at the rate envisioned under our Lizard 2030 plan, we currently believe our cop ratio will be at or below 60% in 2025.

Peter Orszag: Our ability to achieve this is sensitive to both factors.

Peter Orszag: First, the market environment substantially affects the operating leverage we can deliver.

Peter Orszag: Second, expansion of advisory M.D.s at a rate of 10 to 15 net per year is a core component of our long-term strategy.

Peter Orszag: If we find opportunities to hire additional exceptional bankers beyond this rate, we will take them. As we believe that hiring to further accelerate our growth objectives is in the long-term interest of our shareholders.

Peter Orszag: On that topic, we continue to invest in talent and technology to capture growth opportunities.

Peter Orszag: You're today in financial advisory we have hired 16 new managing directors all consistent with our Luzard 2030 plan.

Peter Orszag: These new hires include senior leaders in restructuring and liability management and capital solutions, along with financial sponsors and sovereign and pension fund coverage.

Peter Orszag: In addition, senior hires and targeted sectors, including expanding our leading global healthcare group and building our consumer retail and leisure group along with our media, entertainment and sports practice.

Peter Orszag: Our ability to attract new talent to join our existing team of exceptional bankers helps us build those art for the future by combining institutional knowledge networks and relationships with new ideas, perspectives and areas of expertise.

Peter Orszag: We are increasingly focused on developing and deploying AI tools across the firm.

Peter Orszag: Over the past 12 months, we have implemented tailored instances of chat, GBT and other related tools, including a custom Gen-AI platform designed to support activities such as research compilation, content creation, and benchmarking analysis.

Peter Orszag: We see Jenny I as a transformative technology that will help us to evolve the way we work by freeing colleagues who spend more time on higher impact activities and help us to deliver innovative solutions for our clients by harnessing the intellectual capital of our firm.

Peter Orszag: Overall, this quarter's results demonstrate the ongoing successful execution of our long-term growth strategy against an improving economic and market backdrop.

Speaker Change: Over the past year, the sense that Lizard is experiencing an inflection point has become palpable.

Speaker Change: with tangible results in revenue, productivity and profitability.

Speaker Change: As I've reflected on my first 12 months of CEO, what I've found most satisfying is how quickly Lizard colleagues worldwide have embraced aiming higher and a winning together mentality.

Speaker Change: and how that combination has resulted in substantial momentum behind our ambition for the future.

Speaker Change: Have a little bit of the call to questions.

Speaker Change: If you have a question at this time, please press star 1 on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star 2.

Speaker Change: So others can hear your questions clearly. We ask that you pick up your handset for best sound quality.

Speaker Change: Again, that's Star One to ask a question. Our first question will come from Brendan O'Brien with Wolf Research. Please go ahead.

Brendan O'brien: Good morning and thank you for my question.

Brendan O'brien: from our questions. I just wanted to roll down the concrete.

Speaker Change: I think he heard that he was 60% You're breaking up finally, could we try one more time?

Brendan O'brien: Can you hear me now? Better, yes.

Brendan O'brien: Okay, sorry about that. So I just want to drill down on the Comprehensive Commentary. It was encouraging to hear the commitment.

Brendan O'brien: So getting back to the city of San Aixir, but his plan to understand by type of revenue growth is needed to get there.

Brendan O'brien: I'm going to be, you know, considering at just 24% year on your growth rate that you see in the year today or is there a lot of growth rate that we need to looking at any non-execrify therapy at the whole.

Speaker Change: Sure, again you broke up slightly but I will do my best at guessing what the question was and answer that.

Speaker Change: As I said, and I'll just elaborate. I'll just reinforce.

Speaker Change: Yes, we have seen significant momentum building, frankly, on both sides of the business, the M&A.

Speaker Change: and Advisory Society is obviously historically more volatile so focusing on that for a moment. If the M&A market continues to develop as we currently anticipate and that includes the cycle spreading into private equity increasingly.

Speaker Change: and I'm a part of the cycle developing. That's part one of...

Speaker Change: The Pre-conditions for Getting Back to 60%. And the second is that we have been doing very well at lateral hiring as I mentioned before.

Speaker Change: Yes?

Speaker Change: I don't know what that was. But if, and so the second condition is that we continue at that pace of hiring and I just wanted to flag that if we were to be presented with opportunities to

Speaker Change: Fire additional.

Speaker Change: Reely talented bankers, even above and beyond the baseline for building up the Lizard 2030 plan, we would grab that opportunity. And I would say that in the marketplace, the sense that Lizard is at an inflection point.

Speaker Change: is growing and so we are being presented with lots of interesting opportunities for bringing additional bankers on board. If...

Speaker Change: There were a match between where the talent were available and where we see the most opportunity. We would take advantage of that even if it meant that our corporation came down a bit less than anticipated. So bottom line is...

Speaker Change: If the market develops as it looks like it will and has it has been and this year is largely played out as we expected and if we remain on the baseline path for Luzard 2030 in terms of hiring.

Speaker Change: But don't go beyond that. Those are the conditions under which we currently anticipate that we'll be able to achieve 60% or below in the comprehensive.

Speaker Change: Thank you for taking my questions and apologies for the phone issues. That's a good act, thank you.

Speaker Change: Thank you, our next question. We'll come from Brennan Hawken with UBS. Please go ahead.

Brennan Hawken: Good morning, thanks for taking my question.

Brennan Hawken: Hey, how are you, Peter? So, love to follow up on that. So really get you on the revenue side and what you're thinking about plus the recruiting side for that 60%.

Brennan Hawken: Is there anything that you guys are considering doing on the expense side to provide you with greater flexibility to deliver that kind of magnitude of complex, because you know, 600 basis points is rather substantial in a year. So, have you guys been looking at maybe?

Brennan Hawken: Accelerating some of the deferred, you know, or making any other changes to drive greater flux.

Speaker Change: Well, I'll say a couple things and then Mary Ann may weigh in here also. What I would say is the following that there is...

Speaker Change: Substantial operating leverage that we see in the business from expanded activity levels. I've talked about this before especially as we continue to raise managing director productivity levels. So I just want to double click on that for a second because I think it's really important.

Speaker Change: This is A.

Speaker Change: A very important vector for us to again obtain that operating leverage and bring the compression down because basically the non-MD resources that each MD requires.

Speaker Change: Doesn't vary that much, whether they're more or less productive. And so as you move up the productivity scale at the MD level,

Speaker Change: Not that non-india extent is...

Speaker Change: is doesn't move that much in the numerator and the denominator goes up and so the ratio comes down quite quickly. That is a very important driver of...

Speaker Change: Abtaining additional reductions in the comp ratio. In addition, obviously, since we're talking about a gap comp here, that is affected by deferral rates and by many other factors, and so on that Mary Ann.

Speaker Change: Come on, Anna.

Speaker Change: Yeah, so I think the...

Anna: Bringing the deferral rate down this year, as we said, in past calls, was definitely part of our plan, and that's good for our employees and also good for the 2025 ratio.

Anna: How much will be able to do that is going to depend on where we land in terms of Robinhood. For the year.

Speaker Change: I would also just add on the productivity point some of the new hires that we've made this year. I would expect Peter, hopefully you agree with this that they're going to ramp up a lot faster than the typical that, you know, three year period that we've generally seen with new hires. And we're actually seeing that.

Speaker Change: I think we're going to get even more of that leverage on the new hire front than we've seen in the past. And then I would also just remind you that this is the first year we're going to have kind of a full year impact of the head count reductions that we did last year.

Speaker Change: The End

Speaker Change: The End

Speaker Change: Thank you for your next question. We'll come.

Speaker Change: Our next question will come from Ryan Kenny with Morgan Stanley. Please go ahead.

Ryan Kenny: I, good morning. So on the asset management business, it came up that interest in emerging market activities is growing. Can you give us some color on what's driving that? Is that truly a function of rate cuts in a weaker dollar? Is it sustainable? Any color that would be helpful. Thanks.

Speaker Change: Yeah, it'd be very brief and then I'll let Evan comment more. I think the combination of...

Speaker Change: I'm going to rate cuts in the future. We'll help to boost demand for emerging market equities. I'd also note that our performance has been.

Speaker Change: and Strawng.

Speaker Change: Over time that also attracts the...

Speaker Change: Attention. Evan, do you want to? Yeah, look, I think we've talked about this for a little bit. I mean, clients have been under allocated and are becoming more and more under allocated, especially as US markets continue to strengthen relative to global markets and especially emerging markets over the past several years.

Speaker Change: and so I think you are seeing the beginnings.

Speaker Change: I think it is early stages of you seeing the beginnings of some of the allocators, larger institutional clients thinking about where there's potential upside in the future relative to current levels.

Speaker Change: and seeing a little bit more balance in the way they want to manage their portfolios. I'd question it's early, but it's for several years we weren't seeing a whole lot of interest. Earlier this year we talked about the conversations levels taking up. We saw a few mandates coming through now, but I think this is going to be a trend. We'll see play out over the next year or two.

Speaker Change: and I think Peter mentioned some of that has to do with great cuts a little bit relating to.

Speaker Change: and Education Decisions Around where Opportunities Sets are and the valuation levels of those markets. And so as markets continue to develop and as we get more certainty around rate paths and geopolitical events, I think there's definitely more opportunities within the emerging market space over the coming years.

Speaker Change: Thank you.

Speaker Change: Thank you our next question. We'll come from James Yarrow with the Goldman Sachs. Please go ahead.

James Yarrow: Good morning and thanks for taking my question. I think we've started to see a bit of a divergence in macro trends across the US and Europe. How is this weighing on the M&A environment in Europe relative to the US?

Speaker Change: Yeah, it's really interesting, thanks for the question. I actually just returned from a week and a half in Europe and so...

Speaker Change: and I had a very high level of interaction with corporate and government leaders across the continent.

Speaker Change: I would say the macro environment in the United States is more auspicious than in Europe. And that's because of underlying structural challenges in Europe that were at the heart of the draggy report.

Speaker Change: Exhausted by Higher Energy Prices associated with the Russian invasion of Ukraine.

Speaker Change: the challenge to whether exporting to China remains a viable economic strategy going forward.

Speaker Change: That having been said, the macro environment is only one of the inputs into, you know, our businesses. There are many, you know, activity levels across sectors can vary for lots of different reasons.

Speaker Change: Whether you're growing at a half or a percent. I mean, the delta here is growing at a half or a percent versus two or three percent on the macro level and that can be swamped by sexual trend.

Speaker Change: and one of the interesting things that we've seen is we actually signed this quarter stronger growth on the advisory side in Europe than elsewhere despite that macroeconomic environment. And so that just underscores the point that I've.

Speaker Change: The Making. We also anticipate that our deep local roots in...

Speaker Change: Europe and in the United States, which as you know the two largest markets, will be beneficial as the geopolitical environment evolves.

Speaker Change: As one example, one response if there were hypothetically additional tariffs imposed in the United States.

Speaker Change: One incentive that creates is to try to invest further in the US. And so there are many European companies that are looking at that potential. And we are very well positioned to help them.

Speaker Change: Sworththrough, the various scenarios, and identify potential targets, etc. Because again, we are really the only independent advisory firm that has a local route both in Europe and in the United States.

Speaker Change: Very clear, thank you so much.

Speaker Change: Thank you, our next question will come from Devon Ryan with Citizens JMP. Please go ahead.

Devon Ryan: Hey, good morning, Peter Mary Ann and Evan, how are you?

Speaker Change: Morning, God!

Devon Ryan: So question just on advisory and really kind of think potential. So you know the first nine months, obviously your second best ever for advisory. You seem to be outperforming a number of firms we track just when we look at kind of.

Devon Ryan: and where you are in your recovery and revenues up 40% year to date and advisory. You just want to get a little bit of a flavor for what you would attribute.

Devon Ryan: The difference to, and then also how you would frame what a normalization for Lizard looks like, you are in the right.

Devon Ryan: Lebland, Lebland, from here to more normal or productivity.

Devon Ryan: and I appreciate it, it's hard to say what a baseline is and it's moving targets you had bankers. But you're trying to sense of kind of that order of magnitude because there's a cyclical aspect, but you know, your advice or revenues have recovered quite a bit in your sitting closer records. I just love to think about where we can get to from here. Thanks.

Speaker Change: Sure, so what I would say is it is our belief that we have more upside potential than others in either the independent advisory space or among the bulge brackets. And so...

Speaker Change: We believe you are seeing the early signs of that and the reason that we have lots of upside potential is partly just what I mentioned before, which is we have the people of Peru, both in the United States and Europe, we have significant potential, which is embodied.

Speaker Change: and Bodys in the Lizard 2030 plan on a sector by sector basis.

Speaker Change: and the way we're going to be doing this.

Speaker Change: Lots of upside from that perspective. Now, they're big component that I would just highlight is historically at least in the United States. Lizard had less exposure to private capital than others may have. We have now built out a infrastructure and the ecosystem.

Speaker Change: in which we can touch alternate-of-asset managers and private capital in multiple different ways from restructuring liability management to fundraising, to Lizard Capital Solutions, to sponsor coverage, to traditional private equity M&A, and that.

Speaker Change: Beed on itself and is another source of growth for us as that part of the marketplace expands.

Speaker Change: In addition to the more traditional large cap M&A that we also see lots of uptitled. So in terms of capturing that, that's a combination of hiring which we've mentioned.

Speaker Change: Other measures to make sure that we are collaborating and working very effectively as teams across the platform.

Speaker Change: You, new norms around the fees that we charge, new norms around mandate selection, all of that is contributing to...

Speaker Change: Contributing to the momentum that we've been experiencing and we see lots of additional outside potential as we continue to execute in these ways. In fact, I think, again, I use the phrase in selection point on purpose because

Speaker Change: As these pieces come together, they increasingly build on and reinforce one another. I think again the reason we mention this.

Speaker Change: The Glint Survey results are the internal results, as you can sense that internally, people can feel that we are on the move and that they like the direction that we are moving.

Speaker Change: Alright, very clear thanks, Peter.

Speaker Change: Thank you, our next question will come from Mike Brown with Wells Fargo Securities. Please go ahead.

Speaker Change: Today is Good Morning Everyone!

Speaker Change: Morning.

Mike Brown: To ask a question about the ownership base here. So really this year you converted from a public and creative partnership to see Corb now we're 10 months in. So I'd just be interested to hear how that conversion has gone compared relative to expectations in terms of industrial interest engagement and overall the ownership base.

Mike Brown: and then how could it evolve from here? What are some of the index implications that actually continue to help that ownership base evolve from here? Thank you.

Speaker Change: Sure, we've been very pleased with the reaction to the C-Corp conversion, both because one of the motivations was additional liquidity in our daily turnover. Share a turnover and we've seen that, but perhaps more fundamentally and more importantly.

Speaker Change: To open up the idea of owning a lizard to investors that had previously not considered it because of our previous structure.

Speaker Change: So we have been oversuscribed to every IR conference that we've been going to, which is fantastic. We've had multiple meetings with lots of different sends of investors and we've seen a variety of new investors.

Speaker Change: Take a hard look at Lizard and decide that there was a lot of outside potential. I call out for example, Capital Group as one.

Speaker Change: New Shareholder that...

Speaker Change: You know, it was very well regarded in the space, but there are many, many others. So we continue to be very, very active in terms of our discussions with both existing and potential investors, and I think the C-Corp helped unlock that. Now with regard to the index inclusion,

Speaker Change: That was that's just sort of additional upside potential from the conversion. And...

Speaker Change: If it were to occur great but we see lots of upside even outside of that.

Speaker Change: Fundamentally the Seacorp conversion made sense for us, even just given the kind of reaction that we've been getting from new investors. And again, I would just view the...

Speaker Change: Index Inclusion House, or any Index Inclusion House potential upside beyond that.

Speaker Change: Okay, great, thank you for all the colors here.

Speaker Change: Thank you. I'll take a follow-up question from Brandon Hawken with UBS. Please go ahead.

Brennan Hawken: Hello again, thanks for taking my follow up.

Brandon Hawken: Just one more question on the sub 60% Peter and Alexandra Vansch, your patients. But you may be, you gave a lot of color on the advisory rev. Maybe what are the baseline assumptions on the asset management side of the business?

Brandon Hawken: for Revenant.

Speaker Change: I think I said if the next 12 months develop basically as the previous 12 months have so you can, you know, more or less

Speaker Change: Take that as the basis on the asset type.

Speaker Change: Great. And then you guys there was a large lumpy outflow during the quarter, but my sense is it was a bit lower, fee rate. You know, could you maybe help us walk through some of the fee rate impact?

Speaker Change: from that and what we should be expecting for the next quarter. Yeah, I think we're all starting and then I'll let Evan come in on that. Look, anytime this was one.

Speaker Change: Large one mandate and so anytime you have a AUM from a particular client that is larger due to expect.

Speaker Change: The B-Rate to be lower and then in addition the particular strategy or fun that it was in also tends to have somewhat lower rates than other strategies. So you put the two together and that outflow mechanically.

Speaker Change: would raise the average fee rate because it was...

Speaker Change: because it was located and because it was relatively large but we do view it as

Speaker Change: EDSCNCRADIK and not reflective of.

Speaker Change: and the underlying steady state have anyone to add anything. Yeah, I should bring it on the average fee rates for the quarter you mentioned. I think as Peter just said, the one large flow sort of certainly had an impact. The business mix, as we always say, is going to be the biggest driver in the quarter.

Speaker Change: We did have some outflows in the U.S. versus some inflows.

Speaker Change: Some of the specialty products that we have such as Japanese equities and others. So that makes also work in our favorite this month and a little bit more fun versus SMAs that would call that significant.

Speaker Change: Used funds were a little bit higher relative to SMAsus Quarter. So a few things sort of contributed to keeping that flat year over year and help on a sequential basis. I'd say, you know, going forward, look, I think the trends are probably in line with where we've been in the past.

Speaker Change: I think you can expect a little bit more compression just because US markets continue to outperform emerging markets and global equities and so as that proportion of the business goes up just because of market returns and performance there you're obviously going to do it a little bit lower in the feed rate so those are some of the puts and takes hopefully it helps you give you some context that's how to think about the average pets.

Speaker Change: Great, thanks for taking my fall.

Speaker Change: Thank you, our next question will come from 8 in hall with KBW, please go ahead.

Speaker Change: Great, thanks for taking my question. Anyone just for Mary Ann, have heard your comments about the expectation to potentially based on the environment take care of some more deferred comp in the future.

Speaker Change: 4th quarter but...

Speaker Change: Just curious how we should be thinking about the conference show.

Speaker Change: a chance that

Speaker Change: That actually takes up and for cue as you opportunistically take care of some of that, or do you think given the expectations for the revenue environment, you could make progress there while holding the Comprehensive. Any color how to be thinking about that?

Speaker Change: Sure, thanks for the follow-up. So I would think about it as sort of...

Speaker Change: This is our best estimate at this point in time. There's always uncertainty about where the fourth quarter is going to land. You always have some timing risk on larger deals that could have a big impact. We'll be on our best estimate today. That is our ratio.

Speaker Change: So, you know, I think it's unlikely that it ticks up. I think it's also probably unlikely that we do much better, just given the intent to do as much as we can on the deferral frankly.

Speaker Change: Appreciate that. Maybe just a quick one for Evan.

Speaker Change: Here a lot of the optimism around the Asim Management Business last day of the month. Any kind of color on how organic growth trends have faired so far and any visibility through kind of the through year end.

Speaker Change: Yeah, so look, I'd say Peter mentioned this in his remarks earlier, but we believe that it's going to take some time as the...

Speaker Change: Raiden, firemen, the fire rates come down to get some of that money off the cash flow. So we are seeing...

Speaker Change: Slawor Gross in flows this year and I think that trend is going to continue as you get towards

Speaker Change: You're in.

Speaker Change: Also some of the comments we made earlier, but there's certainly a big focus.

Speaker Change: In the market right now on the US market and specifically in style for growth. So growth is in the US market relative to international global emerging markets, which is

Speaker Change: You know, predominance of our business.

Speaker Change: and also the style that we managed to relative value and quality and so you put all that together and so we would expect it to remain.

Speaker Change: A little bit more lumpy or choppy or a tool year-end because you're not going to see that new inflows, the gross inflows rebound, which we would expect more into the end of this year. So I would expect the October sort of flows to go more in line, maybe a little bit more outflows relative to where we've been on average this year. And as we get towards the end of the year, beginning next year, those allocations.

Speaker Change: Start to broaden as we start to see yields start to fall and the money market rates from that cash coming off the sidelines that take your seat gross inflows rebound and hopefully more towards a balanced level as we get into next year.

Speaker Change: Appreciate the color, thanks for taking my questions.

Speaker Change: Thank you, we'll take a follow up question from James Yarrow with Goldman Sachs. Please go ahead.

James Yarrow: Thanks for taking the follow up. Just quickly on the non-compt, I think you're non-compt this one is quite strong in the quarter. Maybe you just speak to the non-compt growth trajectory from here. Anything that we should read into the lower non-compt level did you find perhaps some additional non-compt costs, say, sources, previous expectations.

Speaker Change: Yeah, I'll take that one. So remember there's seasonality here in the non-compt lines.

Speaker Change: Surveys quarters typically are lightest quarter and four-squaders typically are heaviest quarter and so I would expect that pattern to hold this year.

Speaker Change: We have been disciplined in finding cuts to offset the increases that would normally go along with.

Speaker Change: The growth that we've had in the business, including travel, including recruiting costs, including investments in technology. So I think we've done a pretty good job of sort of offsetting those with.

Speaker Change: More disciplined in other areas. If you're looking at the full year, I would think we're probably end up a ticker too on a full year basis in dollar terms. So that's how I think about remainder of the year.

Speaker Change: Thank you so much.

Speaker Change: We also have a follow-up from Devon Ryan with Citizens JMP. Please go ahead.

Devon Ryan: Thanks a lot. Just a philosophical question on asset management giving some of the headwinds in that industry more broadly. So obviously with that, people are very focused on incremental investment and returns on investment that are being made and you guys spoke about some newer areas of focus, obviously actively managing the ETFs and some others.

Devon Ryan: I appreciate that there's a level scale that's necessary before new businesses start contributing positively and so I just want to think about kind of how you guys are.

Devon Ryan: Framing the need to grow and perhaps invest in the long term without deluding current earnings power, or any of that segment or just from why. Thanks.

Speaker Change: I can start and then maybe I've been, we'll have some additional commentary. Look, I think as we've articulated before, I think we need to think about the market in different segments. So there are the core strategies which

Speaker Change: Historically, have been the focus of Lizard Ascent Management.

Speaker Change: These are the base of many...

Speaker Change: Investors, portfolios in particular areas.

Speaker Change: and Annette Category, it's very important to be investing in research.

Speaker Change: and Distribution and a new ways of delivering the product, for example, active ETFs. So we're doing all of that and making those investments.

Speaker Change: and...

Speaker Change: There's also a second category, which I would call specialty funds or specialty strategies, where the theory of the case for active management going forward, even in public markets, is very strong, and we're making additional investments there too. So...

Speaker Change: Examples would include systematic flush quant.

Speaker Change: Some of our specialized products like global listed infrastructure, maybe even Japanese equities would fall under that bucket. And then the third category is things outside of public market investing. So wealth management, private assets. We are...

Speaker Change: Looking at all three categories, I would say with regard to organic growth that will be disproportionately in the first two and the inorganic activity that you know

Speaker Change: We continue to evaluate, would be disproportionately in the third category.

Speaker Change: 17.

Speaker Change: I think it's great summary and look, I think we're taking steps in all of those areas. We mentioned active ETFs into part of our strategic plan for build out of active ETF products in 2025. We think this is an important and growing area of the market.

Speaker Change: and Gordon Vyickle for clients, certainly gaining a lot of traction. We're excited that as we announced we've hired ahead of the Global ETFs to help us build that out that plan, the infrastructure launch that 2025, everything's underway now. And we think our investment strategies are well positioned.

Speaker Change: To do well in this space is happening. So this is an exciting vector of opportunity. Growth for us. It's a build strategy so it's going to take time to get off of running. But it's going to create a vector of growth.

Speaker Change: for us that we didn't have previously. And then on the other two areas, we're also links on the groundwork.

Speaker Change: recently, the announcement that we did in Europe.

Speaker Change: with a Liapartner's, you know, Liap Capital, the Premier Venture Capital for our focused on technology, where we're launching a JV to launch a private road equity fund in 2025. We're very excited about the team and the opportunity set and the reaction that we've gotten from our client base as we've started to discuss with them, the opportunities for them to take part in invested in those areas. That's tremendous. And then the work we've done earlier this year to integrate and acquisition we didn't both management and the U.S. continues on.

Speaker Change: and I think that's another vector of focus for us as well. So I think we're taking smaller steps on each of these areas to build out opportunities for the years ahead.

Speaker Change: Great, thanks so much.

Speaker Change: Thank you. This now concludes Lazard's third quarter 2020 for earnings conference call. Please disconnect your line at this time and have a wonderful day.

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