Nelson Peltz’s Trian Partners bought a 5.1% stake in Lazard recently and has backed Lazard’s new proper plan. I haven’t looked at these independent advisory firms too closely before as they have usually traded at high levels. The other impartial advisory firms are Evercore Partners (EVR) and Greenhill & Co (GHL). But Peltz’s purchase provided me a justification to take a close look at LAZ. I looked at it briefly when it emerged the general public in 2005 but had no real interest in it in the past for the reasons I state above.
Here’s the long-term chart of LAZ since it’s list back in 2005. When it was shown, LAZ was run by Bruce Wasserstein, a famous investment banker (He composed a fairly good reserve about M&A; check it out here). Anyway, how come LAZ so interesting now? The main story is that if LAZ can get their compensation and benefits consistent with peers, operating margins can be higher and this would make LAZ a cheap stock as of this true point.
LAZ’s business is within advisory and asset management. Neither of the are capital intensive; they don’t use the balance sheet. In this environment of concern for potential deficits at financial companies (not knowing what’s really on the total amount bedding), this is an optimistic. I don’t have too much concern about financial balance linens (at least at the nice firms like JPM and GS), but a fee-driven model can be interesting as long as it’s not too expensive. Also LAZ wouldn’t normally be affected by many of the new regulations (Volcker guideline, capital ratios etc.).
LAZ is an independent advisory company instead of a complete service bulge-bracket investment bank or investment company, which is an advantage these days with all the problems of issues appealing that seem to plague the best banks. I did so call this a countercyclical play and undoubtedly, that may be overstating it.
It’s a play on financials and LAZ can do well on a worldwide economic and market recovery. That is the scenario that can make them the most money. But, like Oaktree Capital Management, there is a countercyclical element here. Oaktree tends to increase invest and money in bad times and do less in memories. They manage themselves in that way for a good long-term performance.
But still, in a bad market, the funds that OAK manages will most likely not do too well. David Einhorn bought some Oaktree recently, and I believe that is kind of a countercyclical play for him too. LAZ has that aspect to it. This year’s 2009 increase in the restructuring business became an airbag for the business enterprise quite. When things unravel really, LAZ might very well be a large beneficiary of that. And that means you think big bankruptcies are on the real way? Have I acquired a stock for you! The other half of LAZ’s business (net revenues) is asset management.
What surprised me here’s that the majority of their possessions are in equities. From your above table, the truth is that equities are 82% of total possessions under management (AUM), and a lot of that is in international and global equities. People shall have different views about this, but I tend to think it’s a good thing.
Everyone else appears to be hurrying into hedge money and alternatives. I do think that stock prices are affordable and believe they will do much better than most people think (money seem to be hurrying out of stocks into alternatives). And AUM has risen nicely over the years, recovering the 2007 highs, and operating income are already above 2007 levels.
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There isn’t much detail provided about the real funds; I would like to see more of that like asset management companies typically show in their filings. But one thing I did notice is that throughout the problems, from 2007-2010, the asset management business had net inflows into their funds each year which is interesting.
Most of the AUM is institutional and the money does appear to be sticky up to now. There is some comfort in realizing that LAZ is increasing AUM in equities while we know that organizations are rushing out of stocks and shares and into alternatives. It’s a lot more comforting than an asset management company that keeps growing AUM due to the current hurry into alternatives (which might or may not pan out).