Lazard CEO Ken Jacobs just dropped some clues about how his firm plans to grow its $259 billion asset manager, which includes scooping up talent from smaller firms and promoting 7 MDs

  • Lazard executives said they’re eyeing “smaller teams” as a way to bulk up their asset manager.
  • The firm’s unit manages $259 billion in assets, according to its fourth-quarter earnings report.
  • Previously, Lazard sought to trim the group in size during a wave of restructuring in late 2019.
  • Visit the Business section of Insider for more stories.

Lazard is eyeing plans to expand its asset management unit in 2021 by scooping up teams from smaller hedge funds and asset managers.

That’s according to statements made by the boutique firm’s chief executive on its quarterly earnings call Friday morning. Lazard, which also offers financial advisory services in addition to asset management, reported strong earnings for the fourth quarter of 2020.

On the call, Michael Brown, an associate in the research division of the investment bank Keefe, Bruyette & Woods, asked Kenneth Jacobs, Lazard’s CEO, about consolidation within the asset management landscape.

“Obviously, there’s quite a bit of change going on in the asset management landscape,” Jacobs said, according to a transcript of the call from Sentieo.

“One of the things we’ve identified as a significant source of opportunity for us is the landscape of smaller firms,” he added, referencing smaller asset managers with about $3 billion or less in assets under management as being ripe targets with teams that Lazard is keen to tap in order to expand its own ranks.

“There are literally hundreds, if not thousands, of these firms out there,” Jacobs said, adding later: “We see an opportunity to pick up these teams.”

It’s unclear if Jacobs meant that Lazard would look to purchase smaller firms or look primarily to hire members of their teams.

But it’s not just outside talent that Lazard, which reported $259 billion in assets under management as of year-end, will look to tap. Jacobs said that Lazard Asset Management is also planning to promote seven people to the rank of managing director this year, as part of the group’s annual promotion process. 

‘A wave of consolidation’ is sweeping asset management

At the start of the call, Jacobs said the firm was assessing “a wave of consolidation” across the asset management sector.

“We see substantial opportunities to accelerate our recruitment of talent and investment teams, adding strategies that are complementary to our existing platforms,” he said. 

Jacobs also noted that Lazard had introduced “eight new strategies for clients across our traditional and alternative platforms.” 

Lazard’s various investment strategies include everything from global equity to real estate and commodities. 

“We’re pretty excited about this,” Jacobs said. “We’ve got a pipeline of things to come,” he added.

Meanwhile, Evan Russo, Lazard’s chief financial officer, said that the firm experienced continuing demand for its “quantitative and fundamental strategies across our platforms.”

An about-face from past strategies

Friday’s comments show Lazard may be adopting a distinctly different strategy from one it laid out in 2019 as the firm undertook significant restructuring efforts, which included cuts within its asset management group.

In the fall of 2019, Bloomberg reported that Lazard’s asset management unit had plans to cull as much as 7% of its team and close several investment funds by the end of that year.

The reduction was part of broader restructuring efforts, with a number of offices also being slated to close as part of the strategy shift. Bloomberg reported at the time that Lazard was planning to shutter some overseas offices in India, Australia, and Peru. 

Representatives for Lazard Asset Management did not immediately respond to requests for comment from Insider on Friday regarding the firm’s thinking on asset management expansion.

More recently, 2020 saw high-profile asset-management consolidation from larger firms. Morgan Stanley, for instance, announced plans to acquire Eaton Vance in a $7 billion deal expected to close next quarter.

Consulting firm PwC said in a recent report there were 220 announced deals between November 2019 and November 2020. Asset management and wealth management M&A totaled $53.4 billion during that time, which the firm said was a record.

ESG is top of mind for investors

Lazard’s asset management unit averaged $225 billion in assets under management for 2020, which was down slightly (4%) from the year before, according to the firm’s fourth-quarter earnings release.

On the earnings call, Jacobs noted that the division’s assets under management had grown by $31 billion from the start of the fourth quarter to its conclusion.

Among the funds it manages are assets for institutional investors like mutual and pension funds, as well as private clients including high-net-worth individuals and family offices.

Russo, the chief financial officer, said that the division had produced $336 million in revenue for the fourth quarter, an increase of 12% from the prior year.

Jacobs called the forecast for a low interest-rate environment for “the foreseeable future” a “tailwind” for asset management.

“Investors’ need for income and return is driving increased demand for risk assets,” he said, “including equities and corporate and emerging market debt as well as alternative investments.”

What’s more, he said, ESG trends are hot among both investors and shareholders.

In response, Lazard is equipping its managers with resources to help them more deeply assess and “understand the impact of ESG” in investments, Jacobs explained.

Another key pillar of their strategy to respond to this demand for ESG, he added, is the launch of sustainable funds. He did not add more specificity around what shape those funds would take.

The general demand for ESG investing has bled over onto the advisory side of Lazard’s business, too.

“Our shareholder advisory practice has incorporated many, many of these insights into the advice we’re providing companies and the tools we’re using to help guide companies in their conversations with shareholders,” he said.

“Increasingly, we expect this is going to become a very important part of the advisory function for companies when thinking about acquisitions.”

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