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Edited Transcript of LAZ earnings conference call or presentation 31-Oct-19 12:00pm GMT

Q3 2019 Lazard Ltd Earnings Call

HAMILTON Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Lazard Ltd earnings conference call or presentation Thursday, October 31, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexandra M. Deignan

Lazard Ltd - Head of IR

* Evan L. Russo

Lazard Ltd - CFO

* Kenneth Marc Jacobs

Lazard Ltd - Chairman & CEO

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Conference Call Participants

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* Brennan Hawken

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials

* Devin Patrick Ryan

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* James Francis Mitchell

The Buckingham Research Group Incorporated - Research Analyst

* Michael C. Brown

Keefe, Bruyette, & Woods, Inc., Research Division - Associate

* Richard Nigel Ramsden

Goldman Sachs Group Inc., Research Division - MD

* Steven Joseph Chubak

Wolfe Research, LLC - Director of Equity Research

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Presentation

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Operator [1]

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Good morning, and welcome to Lazard's Third Quarter and Nine Months 2019 Earnings Conference Call. This call is being recorded. (Operator Instructions)

At this time, I will turn the conference over to Alexandra Deignan, Lazard's Head of Investor Relations. Please go ahead.

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Alexandra M. Deignan, Lazard Ltd - Head of IR [2]

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Thank you, Paul. Good morning, and welcome to Lazard's Earnings Call for the Third Quarter and First Nine Months of 2019. I'm Alexandra Deignan, the company's Head of Investor Relations.

In addition to today's audio comments, we've posted our earnings release and an investor presentation, which you can access on our website at www.lazard.com. A replay of this call will also be available on our website later today.

Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance or achievements 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 filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update these forward-looking statements.

Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measure is provided in our earnings release and investor presentation.

Hosting our call today are Kenneth Jacobs, Lazard's Chairman and Chief Executive Officer; and Evan Russo, Chief Financial Officer. They will provide opening remarks, and then we will open up the call to questions.

I'll now turn the call over to Ken.

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [3]

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Good morning. In the third quarter, we continued to navigate a mixed macroeconomic environment. Trade and geopolitical uncertainty persisted and global equity markets were volatile. Nonetheless, our Financial Advisory activity gained momentum. Our global volume of M&A announcements for the third quarter and past 6 months increased significantly from a year ago, even as the markets volume decreased. Our North American M&A business remained strong and our European announcements have increased as well. These included a number of sizable U.K. transactions despite the uncertainty around Brexit.

Our other Financial Advisory practices remained active globally. In Restructuring, we continue to advise on large complex assignments. Our Shareholder Advisory practice is winning assignments around the world and is an important component of our M&A advisory work. Our capital and sovereign and advisory businesses remain active, advising corporations and governments on financing strategy and capital raising. In Asset Management, our average AUM for the third quarter was $234 billion, up slightly from the first half of the year. At quarter end, our AUM was about 8% higher than the start of 2019.

Institutional rebalancing and derisking have continued to affect our business as we experienced net outflows mostly in emerging market strategies. Overall, our investment performance continues to be strong across a range of our platforms.

We continue to manage our firm proactively with a discipline on costs, and in the third quarter, we initiated business realignment to create greater flexibility to accelerate investment in our businesses.

In Financial Advisory, future growth opportunities include the expansion of our footprint in North America, where we see a significant amount of white space, and we are focused on building momentum in our non-M&A advisory practices globally.

In Asset Management, growth opportunities include reinvesting in key product areas where we believe we can provide an investment edge and the expansion of our quant strategies, ESG and investment solutions globally. Firm-wide, we continue to make substantial investments in our technology and data science platforms. We are implementing new capabilities and tools across both Asset Management and Financial Advisory to enhance our competitive edge and drive growth.

Thanks to our scale and strong cash flow, we can make these investments through business cycles even as we've returned substantial capital to shareholders.

Evan will now provide color on our results, and then I'll comment on our outlook.

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Evan L. Russo, Lazard Ltd - CFO [4]

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Thank you, Ken. Financial Advisory third quarter operating revenue of $304 million was approximately even with last year's level. This reflected an increase in completions across the Americas, offset by a decrease in Europe and Asia.

Asset Management operating revenue of $283 million was down 6% from last year. On a sequential basis, it decreased 3% from the second quarter of this year. Average AUM for the third quarter was $234 billion, down 3% from a year ago. On a sequential basis, average AUM was down 1% from the second quarter of this year.

We finished the third quarter with AUM at $231 billion, reflecting negative foreign exchange movement of $4.4 billion and net outflows of $4.4 billion, offset by market appreciation of $2.2 billion. The net outflows were primarily from our emerging market strategies in both equity and fixed income. The outflows were partially offset by net inflows in global equity strategies and in global and multiregional fixed income. As of October 25, AUM increased to $235 billion, driven by market appreciation of $2.2 billion and positive foreign exchange movement of $2.1 billion, partially offset by net outflows of $400 million.

Looking ahead across our franchise. In Financial Advisory, we continue to expect the second half of 2019 to be stronger than the first half. Our current level of activity is higher than at this time last year, which bodes well as we enter 2020.

In Asset Management, relative performance continues to be strong across most of our platforms, but we expect to see ongoing pressure on equity flows in the near term.

Turning to expenses. We are maintaining our cost discipline. In the third quarter, we conducted a review of our business that resulted in a realignment, including employee reductions and the closing of subscale offices and investment strategies. The employee reductions involved approximately 200 people across Financial Advisory, Asset Management and corporate functions. Most of the realignment occurred in the third quarter, and we expect it to be completed in the fourth quarter. These actions resulted in an expense of $51.5 million in the third quarter, which is excluded from our adjusted results.

Regarding compensation expense, we continue to accrue at a 57.5% adjusted compensation ratio in the third quarter. Non-compensation expense for the third quarter was $125 million, reflecting business development expenses and continued investments in our technology platforms.

Our effective tax rate in the third quarter as adjusted was 16.6%. This rate reflects a benefit from discrete items in the quarter on lower income levels. Our effective tax rate for the first nine months of the year was 21.7%. We continue to expect an annual effective tax rate for this year in the mid-20% range.

Turning now to capital allocation. In the third quarter, we've returned $130 million of capital to shareholders, which included $79 million in share repurchases. For the first nine months, we returned $733 million to shareholders, which included $430 million in share repurchases.

During the first nine months of 2019, we repurchased 11.9 million shares, which included 2.2 million shares in the third quarter. This led to an 11% year-over-year decline in our third quarter diluted weighted average share count from 130 million shares to 116 million shares.

We expect to continue our share repurchase program utilizing our cash flow from operations. Our total outstanding share repurchase authorization is now $437 million, following yesterday's additional authorization by our Board of Directors.

Ken will now conclude our remarks.

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [5]

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Thank you, Evan. Overall, the global macroeconomic environment remains constructive despite continuing trade and geopolitical uncertainties. In the U.S., the economy remains reasonably strong and consumer spending is healthy. In the Eurozone, growth is expected to be modest this year and into 2020. Fundamentals for global equity markets are steady, and credit conditions remain favorable.

The forces driving strategic activity remain in place. Technology-driven disruption continues to be a catalyst for M&A across industries. Shareholder activism continues to evolve globally and more than half of the capital deployed in activist campaigns this year has an M&A thesis.

In Europe, our conversations with clients indicate some pent-up demand that could accelerate strategic activity over the next year. Lazard's strong presence in Europe positions us well for this. In Asset Management, our investment platforms are broadly diversified across asset classes, styles and regions. The longer-term outlook remains positive as our franchise continues to serve clients with innovative investment solutions that position the business well for the future.

In both our businesses, we have taken actions to align our operations with the growth opportunities we see. We continue to invest in our people, capabilities and technology infrastructure. We remain focused on serving our clients well while we manage the firm for profitable growth and shareholder value over the long term.

Let's open it up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll now take our first question from Richard Ramsden from Goldman Sachs.

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Richard Nigel Ramsden, Goldman Sachs Group Inc., Research Division - MD [2]

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Could you just expand a little bit more on the deal environment in Europe? You just said that the environment was pretty positive, but in the release, you talked about a weakness in the region. Activity does seem to be up a lot in the last couple of months. So should we just think about this as a timing issue in Q3 with activity picking up in Q4? Or are there some other dynamics we should be aware of?

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [3]

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A lot packed into that question. So let's just talk about our own experience so far, and then we can talk a little bit about the market. Our own experience is we've had a pretty significant pick up activity across the board on announcements in the second half of the second quarter into the third quarter and now into the fourth quarter, in both, North America and in Europe. In Europe, in particular, we saw a real slowdown in activity and on our part, in the second half of 2018, really beginning in June and throughout the rest of the year. And that actually accounts for some of the softness in the advisory performance in the first half of this year and even into the third quarter. We've had very strong performance in North America during the same period of time.

The actual environment in Europe for deals is kind of mixed right now. And I don't know which statistics to really focus on. But I think overall, I'd say our volume on announcement seems to be significantly higher than the market. But it has improved a bit. Conversations, I'd say, are ongoing. And there's a little bit, as I described, pent-up demand because there was a halt in acquisitions and activity in the second half of last year. But again, it's kind of a mixed environment because of the macroeconomic situation.

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Richard Nigel Ramsden, Goldman Sachs Group Inc., Research Division - MD [4]

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Okay, that's very helpful. The second thing is, you've had a number of senior management departures over the last few months. Can you just talk a little bit about that? Is that part of the Restructuring? Is that just part of the ordinary course of the business? And would you expect any near-term disruptions as a result of those departures in the business.

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [5]

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I think this is normal course. I mean the beauty of the Lazard franchise is it's greater than any one person. This is a franchise which has gone through a change in generations on multiple times and comes out of each one of those in a stronger position, and I expect it'll be the same this time.

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Operator [6]

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Our next question comes from Devin Ryan from JMP Securities.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [7]

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First question here, just on the Asset Management business and the Restructuring that, I guess, was announced over the quarter. How should we think about the financial impact on revenues and expenses? And then is there a point where you would do more in that segment as some of the industry headwinds don't abate? Or do you feel like where you kind of are post some of those actions in the quarter, or even kind of [year] where you want to be in the business?

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [8]

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Evan, you want to take the first part and I'll touch on the second?

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Evan L. Russo, Lazard Ltd - CFO [9]

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So let's start. With the business realignment that we've been talking about that occurred over the quarter, we really started a couple of months back where we started to take a hard look at our business, given the current environment and the results and the revenues and really want to identify underperforming businesses, strategies, subscale areas and offices and individuals. We took a hard look at our business, top-down both sides of the business, not just Asset Management, but really across the entire business and decided really where we wanted to have opportunities for growth. So part of this was cost discipline being prudent in the environment. But the probably more important piece was to create flexibility to continue investing in the areas where we see significant opportunities. So we've spent a lot of time in the past couple of quarters talking about where we've already started to focus our energies and our efforts and our resources around some of the quant strategies to build out there around some ESG, as Ken pointed out this morning as well, and other alternatives platform buildout. So areas where we see greater opportunity for the future. And this part of what we are doing now is just really creating some flexibility to continue to make stronger investments in that. I'd say from a revenue perspective, to your question about the assets under management, the subscale strategies we're talking about, most of them were pretty small. We would expect there to be approximately $300 million to $400 million of AUM associated with all the strategies that were being closed down, somewhere in that range, likely to be occurring mostly in Q4. But again, a lot of this is about self-funding and thinking about how we can continue to invest for growth.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [10]

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Okay, great. And then just a follow-up on the prior question, some of the commentary around just the advisory backdrop, I'm just trying to get maybe a little bit more flavor for kind of the cadence of activity and how that's been evolving. Clearly, the tone sounds better today than it did 6 months ago or a year ago and I'm just trying to get a sense of, are we kind of back to something that feels more normal to you?

Is this a better backdrop than we've been in, in some time, just as you're kind of getting the pent-up activity in Europe? With the U.S. maybe getting back on a more normal footing here kind of post the fourth quarter disruption last year. Just trying to get a little bit more flavor for the cadence there.

And then if you can, just maybe touch on some of the non M&A businesses like Restructuring, and it sounds like activism defense is quite active. So just a little bit more detail there as well.

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [11]

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Sure, okay. So let me just speak to our individual performance. I mean, it just sort of feels like we've hit one of those moments in time where we're probably outperforming the market a bit. Certainly, when we look at our announcements in the second half of the second quarter into the third quarter now. It feels like we had a little bit better momentum than the markets. That's kind of nice. That was not the case last fall when we saw things start to fall off. So that's nice. And that's kind of the ups and downs of the business. I think overall, I think the market for M&A is okay. It's not great. It's not awful. It's okay. It's an okay period. And the factors that are driving it we think are the following, first, this underlying catalyst that is disruption from technological change is really evident in almost everything that is going on in the M&A environment today and is very pervasive throughout boardrooms and very much on CEO's minds.

Second is, you obviously have this very strong activity around activism, probably more than half of the activist campaigns today are driven around an M&A theme so that's another catalyst for activity.

A third one, which is early, I'd say it's emerging, I don't think it's quite there yet in terms of driving activity, but something to keep an eye on is ESG. This has become a factor which is very important in Europe, in investors' minds. And, it is increasingly becoming more pervasive in the U.S., obviously, we're seeing it in our Asset Management business, and you can see the investments we've made there. I think increasingly, this is becoming a topic for board room discussions. And ultimately, it's probably going to become a topic around portfolio alignment in terms of businesses, where to invest, where not to invest. I don't think it's a factor yet, but it's something that I think we all should keep an eye on with regard to M&A.

And then you have the three traditional factors of CEO confidence, credit and equity valuations. And I think in terms of CEO confidence, frankly, kind of mixed, I think the geopolitical environment, the macro environment is -- it gives one a little bit of pause. The trade wars have really made people think very carefully around investment and also supply chain. Ultimately, that probably will have some implications from an M&A perspective, but it does give people some pause. Overall, though, this technology disruption, the underlying pressure from shareholders and activists around M&A, those are probably still positive catalysts from a confidence perspective.

When you think about credit, credit conditions are as positive as I think they've been. Credit is still widely available. Rates are very, very low, negative in some cases. Financing for investment-grade companies is almost limitless at the moment, and for non investment grade, still strong. Private capital, private debt is still widely available. And sponsor activity is still very high as a result of that.

And then finally, on equity valuations, it's kind of a mixed picture. There are some sectors that look really overvalued or fully valued, and then there are other sectors that seem a bit undervalued. But of course, that's all relative to what people expect in the macroeconomic cycle. So my takeaway from all this is that the M&A environment remains reasonable, constructive. It's okay. I think there's going to continue to be a reasonable amount of activity. And just from our own standpoint, I think our general feeling is we feel much better or better today about the first half of next year than we did probably this time last year.

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Operator [12]

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We'll now take our next question from Steven Chubak from Wolfe Research.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [13]

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So I wanted to start off with a question for Evan. Appreciate you quantifying the $300 million to $400 million of AUM strategies that will be impacted by the realignment. I was hoping you could speak to the cost savings or maybe resource free up associated with the collective headcount actions. And in that same vein, given that the non-comps were a little bit higher than we had expected. I know you had talked about higher investment?

And how should we think about the pace of non-comp growth as you try to balance some of those efforts to realign the businesses with the need to continue to reinvest to continue to drive growth?

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Evan L. Russo, Lazard Ltd - CFO [14]

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Sure. So let's start the non-comp piece for a second. So look non-comp, the run rate non-comp we've been having probably for the last 4 quarters, approximately $125 million. We had about $125 million in this quarter. That elevated spend that we've been talking about is the continued rolling in, a lot of it is technology-related -- technology cost as they can start to continue to amortize down some of that cost comes into our financials.

Additionally, we had marketing and business development expenses this quarter as we're continuing to drive the client marketing, client pipeline ahead, especially in Financial Advisory.

Look, as we've said, we expect the non-comp range to be at approximately that level, perhaps even going a little higher due to the technology that's coming on board for the next several quarters and I'd say that the focus on the business realignment that we announced this morning, I think, that won't have significant impact on the non-comp side. It's a possibility as we close a couple of small-scale offices. Those don't have significant non-comp against it but there should be a little bit of savings as you get further into 2020 on that basis. But again, overriding it, the big piece of that is more the savings or the ability for us to continue to invest with the proceeds with the net available from the reduction in the headcount. So the headcount is the bigger piece of it, the non-comp is a much smaller piece of it I'd say with regards to the Financial Advisory business. You mentioned Asset Management, yes $300 million to $400 million of AUM flows. I think the way we're thinking about this is more of where can we create flexibility to continue investing for growth. So it's not really about run rate savings to us, it's sort of counterbalancing that is the recent continued expected growth and hiring that we're doing. And just to put that in perspective, we expect year-end to be, I would say, approximately or within 1% of last year's ending headcount. So we've been continuously hiring over the past year and frankly, over the last several years, but it's all about making sure that we have the right people in the right spaces, focused on the right efforts where we see the greatest opportunity.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [15]

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Thanks, Evan, that's very helpful color. And Ken, probably the most detailed feedback we've gotten in terms of the M&A landscape. So I really appreciate it. All the helpful insight you provided. There are two areas I really want to dig into further that you didn't touch on maybe to the same extent. One is Restructuring, given some of your competitors are citing a better Restructuring backdrop. I wanted to see whether you're seeing something similar, recognizing that credit, as you noted, is still widely available.

And the second piece is the election impact, it feels like that's an area where investors are concerned about the election uncertainty, weighing on CEO confidence, you did note that, that was waning somewhat, but didn't speak to that specifically. I didn't know if that was coming up in any of your conversations at all?

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [16]

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Sure. Let me just touch on three areas quickly, Restructuring and also on Shareholder Advisory and capital raising. Restructuring, look, credit conditions remain strong so we haven't really seen a shift yet in the restructuring cycle. But we have seen as a result of technology disruption, quite a bit of change in different industries. I mean, look, we had an enormous restructuring surge in 2015 that was really the shale revolution, which is really technological in nature. We've seen enormous amount of activity in the retail sector, which, again, is technology-driven. And I think we're going to see that in other sectors as time goes on. It's just something to keep an eye on.

Again, my point on ESG before on sustainability, you think about the impact of droughts and the impact of fires on the West Coast that has actually led to a major restructuring in PSEG, where we're quite active. And my guess is that will be a theme going forward. But overall, the environment continues to be active, but we haven't seen credit conditions shift yet, so I don't think you're going to see the pickup until you really see that happen.

In terms of Shareholder Advisory, that's just gone from strength to strength with us. For us, it's become a very important way to distinguish ourselves and distinguish our advice. And it's also been a way to really build new client relationships. And so we really see that as an important growth vector for us and one we've really spent a lot of effort to build out and really distinguish.

And then capital raising, our Private Capital Advisory business has been very active and that just reflects the amount of focus there is on the alternative sector and ways to raise money for those kinds of activities. And we're at -- I think, in the center of that. So those are three really great businesses for us right now, two of which are really active, and the other, which I think is extremely well positioned in the event we get a shift in credit cycle.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [17]

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And the U.S. election? [Specifically, how that take and legislations].

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [18]

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I know you're not going to let me off with that one. Well, look, honestly, I think it's too early to tell. I'm not going to pick a candidate, but I think you can make arguments on any side of that one to think about how it could be disruptive to the geopolitical or the macro environment. I think, generally speaking, the market prices elections pretty well and pretty early. So we'll see what happens.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [19]

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Except for the most recent one, of course. Notwithstanding, but I (inaudible) Ken.

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [20]

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Yes. Sort of. Look, I think I'll dodge the politics.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [21]

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Fine. Fair enough. Okay. Just one more from me, I wanted to just get a sense, given -- I recognize, Evan, you seem reluctant to at least quantify some of the direct expense savings, but you did note it's about a 7.5% headcount reduction. Should we assume average comp per employee when conducting that type of analysis or because the headcount number is roughly the same versus the start of the year that we shouldn't see any like meaningful direct dollar expense savings actually fall to the bottom line?

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Evan L. Russo, Lazard Ltd - CFO [22]

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Yes. I think that's the right way to look at it. I mean, I think we're looking at headcount staying basically flat year-over-year. Again, a lot of this is really us just putting our chips in the areas that we want to continue to focus on. So we've continued to hire. This is us just creating room, creating flexibility to continue investing for that growth. We're not seeing this as a net investment savings. You quoted about 7%. It's going to be approximately 200 employees off of our base. So somewhere in that range. And again, it's across all 3 businesses. And most of those headcount cuts really come from the savings we have from closing of the subscale offices as well as some of the strategies. So very directly related to the areas at which we're cutting back.

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Operator [23]

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We will now take our next question from Jim Mitchell from Buckingham Research.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [24]

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Maybe just a question on flows. I appreciate sort of the color that in the near-term still EM under pressure, but you're trying to grow some of your other products. How do you see -- when do you see that crossing over where maybe the outflows start to slow and the growth from the other investments start to impact the flows? Any kind of sense or help on that.

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Evan L. Russo, Lazard Ltd - CFO [25]

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Yes, sure. Jim, it's Evan. Let me start with that. Look, we called out the EM platform was a big part of the net outflows in the quarter, specifically in the value part of our platform. We've talked in the past quarters about value being out of favor relative to growth and quality. And I think we're continuing to see that trend. So value is certainly under pressure, out of favor. That said, we like to point to the positive performance.

I'd say that this quarter, specifically, [our flows were] pretty lumpy. We had a few larger accounts that pulled out, two larger accounts made some changes in the quarter that had a bigger impact on the net flows. So I think we're starting to see getting close there. But again, it's lumpy, and it's kind of continuing to trend. And so it's a real question for us, the value part versus growth has been a big player, that's shifting and derisking and rebalancing. We just sense that on the institutional side will continue for some period of time.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [26]

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Okay. Can you help us in anyway, whether it's gross or net flows on sort of the other strategies that have been doing well? Like have they been into billions, hundreds of millions in terms of net flows?

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Evan L. Russo, Lazard Ltd - CFO [27]

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Look, on the net flows basis, it's hundreds of millions, it's not billions on some of the other strategies where we saw some of the net inflows.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [28]

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Okay, that's helpful. And just maybe one question on the advisory side, you've restructured to reinvest, I guess, one, do you see net MD headcount starting to turn positive next year? And where, I guess, you mentioned North America, any thoughts of where you're seeing most opportunity there?

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [29]

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So the short answer to that is yes. On the net MD count turning positive. And then with regard to where I think you're going to see it in two areas. One is some of the product efforts. So again, Shareholder Advisory, PCA, some of the Capital Advisory businesses because these have been just really powerhouses for us to drive client relationships.

And then second, there's probably some incremental investment in the U.S. And then also some places in Europe as well, where we see opportunity. There's a lot of white space for Lazard. We see it in the large-cap space, which is our real sweet spot, but we also see it in some of the mid cap. And obviously, the private equity or the sponsor space as well. So there's a lot of white space for us right now.

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Operator [30]

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Our next question comes from Michael Brown from KBW.

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Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [31]

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So, I wanted to ask about capital return. So the buying back activity was a little below our expectations this quarter, but obviously, we saw the increase in the authorization from the board. So one, kind of why hold back on the buyback this quarter? And then, I guess, how should we think about the pace going forward? And if I could just tag on one more there. Is there any chance that the special could kind of come in at near last year's level, which was around $0.50?

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Evan L. Russo, Lazard Ltd - CFO [32]

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Mike, it's Evan. Let me take that. Yes. So Q3, we repurchased, as we said, 2.2 million shares in the quarter. Year-to-date, as we said, we bought back almost 12 million shares. So certainly, the pace fell off, we were at a much higher elevated pace as you know, due to refinancing and excess proceeds we had that we put to work. So we've basically, at this point, pulled forward and put to work all the excess proceeds from the recent issuance we had, the excess cash that we raised during that refinancing period.

So yes, we expect it to slow down, as we've said. We're focusing on continuing the buyback with excess cash flow generation through the year. I'd say with regards to the special versus share repurchases, as you know, every year, we sit down at the end of the year, and we look at what excess cash flow looks like. I think as we've been calling out the last couple of quarters, given the significant value we see in the stock, we've been utilizing a lot more of that excess cash flow generation through the year for share repurchases. And so I think our plan is to continue to do that with the cash flow generation.

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Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [33]

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Okay, very helpful. And then just switching to advisory, were there any deals that kind of slipped this quarter into the fourth quarter? And then I appreciate all the color on the environment right now, but I'd really appreciate some additional color on maybe how the fourth quarter is shaping up and what's your view as to how the year will end?

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Evan L. Russo, Lazard Ltd - CFO [34]

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Sure. So look, with regards to the third quarter, I'd say, there's always deals that come and go. Deals close earlier or faster than expected. Always hard to predict, it's always been that way in our business, and I suspect that will continue. I don't think anything specifically pushed out this quarter. I'd say, relative to some of the other quarters, we've probably pulled into Q2 from Q3 more than we pulled in from Q4 into Q3. So a little bit of that happened in the quarter. But with regards to Q4, I think our view is we continue to think that the second half of this year will be stronger than the first half, understanding that we're starting from a lower base in the first half of this year. I think we're talking about momentum, as we talked about, as Ken talked about, the deal announcements for us specifically started to pick up more significantly at the end of the second quarter into the beginning of the third quarter. How Q4 turns out, will largely depend on whether or not those deals hit in Q4 or more likely in 2020. So that's what we're talking about, really, the momentum going into 2020 being stronger at this point in time.

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Operator [35]

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Our next question comes from Brennan Hawken from UBS.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [36]

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Most of mine have been answered at this point. I just have one follow-up. You guys have spoken a little about the realignment here. And certainly appreciate that you want to sort of shift around and self-fund for growth. And that makes a lot of sense. I guess what I would say is, do you really think that you're doing enough, right, to paraphrase, Ken, I think you had said basically that you guys lagged earlier this year. Now you feel better, you feel like you've sort of outperformed, so maybe you've [brought it] back up to sort of net neutral and the environment is okay.

We all can see the magnitude of the pressure on the Asset Management business, which is certainly significant. And when we look at the blended margins versus your business mix, it certainly feels as though you're lagging peers. So why not press harder? Why just stop at what's happening with looking at strategies that have underperformed or aren't looking as good for growth, why not try to realign the real estate footprint, reduce some complexity on the corporate side, adjust incentive targets, do something to drive margins higher. Why stop with just what you've done so far? A bit provocative, but figured why not throw it out there.

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Evan L. Russo, Lazard Ltd - CFO [37]

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Brennan, it's Evan. Look, it's a great question. Look, we've spent a lot of time, as we said, and I think you're right. We were focusing on is the areas where we thought that we didn't have as much opportunity to create more value through those smaller subscale strategies and funds. And so it's sort of taking off. We're continuously, especially on the Asset Management side, looking at new strategies, creating new opportunities. And at some point in time, it's an evolution. You have to keep thinking about which ones do we not see as much opportunity in where do we think the opportunity should be in the future. And I think we did a hard look across the business decided which ones we still think have good opportunity in there. And the other ones that we just didn't think were strong enough we took the opportunity to cut it back. So I think, look, we kind of went down that path. I think it was a fairly substantial move in our part at this point in time. We have a lot of great opportunities within the platform, a lot of even some of the smaller ones here, we think have great opportunities in the future. And so for us, it's just about where we're going to put the chips.

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Kenneth Marc Jacobs, Lazard Ltd - Chairman & CEO [38]

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Yes, Brennan, let me just add to that. Look, I think one of the things which is always tough is saying what are your true comps on, whether it's advisory and the Asset Management side. And it's pretty simple. I mean, on the advisory side, we're the only independent global platform. That comes with an enormous number of benefits for our clients. And in terms of our ability to generate the kind of returns we do in this particular business.

But being global also means that not every market is going to perform well at the same time. And so what you're trying constantly to do is to balance decisions between wanting to maintain global, which is absolutely essential and really differentiating in terms of our franchise. Certainly, as the only independent that is global, with making sure that you can also balance activity levels, which may be booming in one place, North America, and may be slow in another, parts of Asia or Europe, at different points in time. What you want to be sure of though, is everywhere you do have chips you have an adequate expectation that there's going to be people and/or it's really critical to the infrastructure of the system. That's our positioning. That's who we are.

On the Asset Management side of the business, we have positioned ourselves, I think, extraordinarily well in strategies which are better positioned for the change in the secular environment than virtually any other long-only active equity asset manager. That's the positioning that we have. And investing in those strategies and growing them out is something that we want to do, and that takes investment.

You don't launch your strategy and have success in a year, it usually takes five years, and not every strategy is successful. And we have a really good history of growing these businesses internally. And as we've said before, half our strategy, investment or half our AUM, is AUM that came from things that didn't exist ten years ago, and that's something that is very special about Lazard.

So it's a global platform, comes with some additional costs perhaps, but at the same time, makes it unique in the marketplace, gives it tremendous durability. It's larger than any one individual. And that's very special. And on the Asset Management side of the business, it gives us the ability to invest in scale in areas where we really can make a difference. That's where we are.

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Operator [39]

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This now concludes the Lazard conference call.