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The following segment was excerpted from this fund letter.
Lazard Ltd. (NYSE:LAZ)
Lazard has two business segments, an asset management business focused predominantly on equity investments and an Advisory segment where they assist clients with M&A, Restructuring, and other strategic initiatives. Over the past three years, Advisory and Asset management revenues have been roughly 50/50.
On the Asset Management side, equities comprise 78% of assets, fixed income comprises 18%, and alternative investments make up the rest. As with most active managers, fund outflows have occurred over the past several years, while fees have decreased marginally from 51bps to the high 40s. Aware of this headwind, Lazard’s active management fees remain below a typical active manager’s. We exited our position in Franklin Resources (BEN), using the proceeds to fund our LAZ purchase.
Our goal was to gain exposure to an asset manager with an equity focus over a company focused on growing its Fixed Income and Alternative Investments base. Lazard’s investment strategies are tilted toward value investments. This style gives us confidence that assets may go from a net outflow to a net inflow as the value rotation continues. Additionally, the risk of owning unprofitable, pie-in-the-sky ideas is reduced when investing with Lazard.
While the asset management business is experiencing headwinds, Lazard’s Financial Advisory business, specifically the restructuring business, is set to see an uptick in demand. Rising interest rates and tight capital markets force companies with debt-laden balance sheets to reorganize. The countercyclical nature of this segment can help offset lost revenues in other segments that perform poorly during periods of stress.
Lazard has built a stellar reputation over the company’s 150+ years of existence. Ken Jacobs has been with Lazard since 1991 and CEO since 2009. We have the utmost confidence in his ability to lead Lazard. The company has raised the dividend from $0.36 in 2006 to $2.00 in 2022, paying out special dividends along the way. The company has also repurchased over 25m shares over the past three years. The capital-light nature of this business should result in increasing dividends and buybacks.
Finally, we believe Lazard could be an acquisition candidate by either an Asset Manager or Investment Bank, though we are happy to hold the position and collect our dividends.
DisclaimerThis document is for informational purposes only. O’Keefe Stevens Advisory is not providing any investment recommendations with the publishing of this document, and no firm performance data is included in this document. |
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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