Lazard Ltd

NYSE:LAZ

Earnings Call Analysis

Lazard Reports Strong Revenue Growth Amid Improved Market Conditions

Lazard achieved a remarkable third quarter, with adjusted net revenue reaching $646 million, a 21% increase year-over-year, driven primarily by a 41% surge in Financial Advisory revenue. The firm is seeing a resurgence in M&A activity, with volumes up over 20% this year. They also reported asset management revenues of $272 million, up 4%, despite a significant outflow brought on by a single client. Looking ahead, Lazard anticipates continued demand for its investment strategies and projects a favorable operating environment, contributing to growth in private equity and emerging markets equity investments.

Robust Financial Performance in Q3 2024

Lazard has reported significant growth in its financial performance, with firm-wide adjusted net revenue reaching $646 million in Q3 2024, marking a 21% increase compared to the same period last year. This performance is primarily fueled by the Financial Advisory segment, which saw a remarkable 41% growth year-over-year, achieving an adjusted net revenue of $369 million. For the first nine months of 2024, total revenue reached $2.1 billion, a 24% rise from 2023, reflecting an impressive execution of its Lazard 2030 strategy aimed at delivering differentiated advice and investment solutions.

Strength in M&A Advisory Services

The M&A market is witnessing a rebound, with Lazard's proactive engagement in various marquee transactions. The firm participated in significant deals including Air Products and Chemicals' sale of its LNG business to Honeywell and KPS Capital's acquisition of Intermodix from Siemens AG. M&A activity is reported to have increased by over 20% in the first three quarters of 2024 compared to the same period in 2023, thanks in part to an alignment in buyer and seller expectations. This uptick in M&A activity presents an ongoing opportunity for Lazard to leverage its advisory strengths.

Asset Management Segment On a Stable Path

In the Asset Management division, adjusted net revenue was $272 million, reflecting a 4% increase year-over-year. Management fees increased by 3%, contributing to a significant Assets Under Management (AUM) of $248 billion, which is an 8% rise from September 2023. Though there were net outflows of $12 billion due to a major client's restructuring, the firm managed to sustain stability with a focus on core and specialty products such as global listed infrastructure and emerging market equities.

Strategic Moves to Capture Market Opportunities

Lazard's leadership highlighted the strategic hires and initiatives aimed at strengthening its Asset Management platform. The firm announced the appointment of a new Global Head of ETF Strategy, demonstrating its commitment to adapting to the evolving investment landscape. Interest in emerging markets has been noted as growing, attributed to rate cuts and improving market conditions, foreseeing a beneficial shift towards risk-oriented active management over time.

Focus on Cost Management and Productivity Enhancements

In Q3, Lazard effectively managed its expenses with adjusted compensation expense at $426 million, resulting in a compensation ratio of 66%, down from 68.4% a year ago. This focus on cost management is expected to continue, alongside investments in talent that support future growth initiatives. Moreover, Lazard is committed to maintaining a balanced approach of returning capital to shareholders while targeting an improved compensation ratio of 60% or below by 2025, depending on market conditions.

Encouraging Outlook Amidst Geopolitical Uncertainties

Despite prevailing geopolitical risks, Lazard's management expressed optimism about the underlying business conditions. The recent Federal Reserve rate cut and anticipated further cuts are likely to create a conducive environment for both the Asset Management and Financial Advisory sectors. The firm's prospective target segments, such as private equity and restructuring advisory, are projected to gain traction as market participants seek supportive liquidity solutions.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, and welcome to Lazard's Third Quarter and First 9 Months 2024 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations, Treasury and Corporate Sustainability. Please go ahead.

[Alexandra Deignan, executive]

Thank you, Todd. Good morning, everyone, and welcome to Lazard's earnings call for the third quarter and first 9 months of 2024. I'm Alexandra Deignan, Head of Investor Relations, Treasury and Corporate Sustainability. In addition to today's audio comments, we've posted our earnings release on our website. 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, 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 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 them.

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 measures is provided in our earnings release and investor presentation. Hosting our call today are Peter Orszag, He's our Chief Executive Officer; and Mary Ann Betsch, she's our Chief Financial Officer. After our prepared remarks, Peter and Mary Ann will be joined by Evan Russo, Chief Executive Officer of Asset Management as they open the call for questions.

I'll now turn the call over to Peter.

[Peter Orszag, executive]

Thank you, Ali. We are pleased to report another quarter of strong results with total firm-wide adjusted net revenue of $2.1 billion for the first 9 months of 2024, up 24% from 2023. These results demonstrate the ongoing execution of our Lazard 2030 strategy and our focus on delivering differentiated advice and investment solutions for clients.

In Financial Advisory, we achieved strong year-over-year performance in Europe in the third quarter and record revenue in Americas year-to-date. Restructuring and 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 side. 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 10-year average, narrowing the gap between buyer and seller expectations. For the market as a whole, M&A announced volume is up over 20% for the first 3 quarters of 2024, compared to the same period last year. Private equity is becoming increasingly active with a significant uptick in sponsor take private activity. Holding periods for PE-backed portfolio companies have been at an all-time high, and we believe many of these companies will be brought to market.

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

Year-to-date, revenue associated with our overall interactions with private capital, which span strategic advisory, restructuring and liability management, along with capital raising, is up more than 50% compared to the same period last year. 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.

Turning to Asset Management. We delivered another solid quarter of results while pursuing our strategy of strengthening our platform. The third quarter ended on a strong note for equity and bond markets with U.S. equity markets posting all-time closing highs. 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 Lazard's investment strategies going forward.

During the third quarter, we announced a senior leadership hire for asset management to serve as our Global Head of ETF. 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. For example, last quarter, we launched the Lazard global listed infrastructure, active ETF to investors in Australia, which builds on the success of one of our specialty strategies while capturing new business opportunities. Across both of our businesses, excellence in serving clients is predicated on our culture and our people.

Periodically, we conduct employee engagement surveys to evaluate and enhance our workplace. 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. Our colleagues commitment to Lazard's future is evident in our latest study and in our successful performance this year.

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

[Mary Betsch, executive]

Thank you, Peter. Today, we reported third quarter firm-wide adjusted net revenue of $646 million, up 21% from the same time last year. The increase in firm-wide revenue was primarily driven by our Financial Advisory business. Financial Advisory adjusted net revenue was $369 million for the third quarter, up 41% from 1 year ago and $1.2 billion for the first 9 months of 2024, up 39%.

Our M&A teams performed well across the firm. Restructuring and Liability management also delivered another strong quarter. as client demand persists for the bespoke capital structure solutions we provide. Lazard participated in a number of marquee transactions in the third quarter. Completed transactions include Air Products and Chemicals sale of its LNG business to Honeywell, KPS Capital Partners acquisition of Intermodix from Siemens AG, Cupertino Electric's acquisition by Quanta Services and the Tesco Technologies merger with Sheplers.

Recently announced transactions include TeleNova's acquisition by Mars, [indiscernible] sale of Cogentrix to Quantum Capital and CSA Foods acquisition by PepsiCo. We also advised on several capital markets assignments, including Altamont Capital Partners successful continuation fund vehicle with [indiscernible], Wolberg & Company's closing of its fund for Colberg Investors 10, Inwit Capital Management's closing of its Fund III, Phoenix Equity Partners continuation fund, Health Catalyst new term loan provided by Silver Point Finance and Ocado's capital raise.

Turning to Asset Management. Third quarter adjusted net revenue was $272 million, up 4% compared to the third quarter last year. Management fees for the third quarter of $269 million increased 3% compared to the third quarter last year. As of September 30, we reported AUM of $248 billion. 8% higher than September 2023 and 1% higher than June 2024.

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 passive strategies. Average AUM for the third quarter was $246 billion, 4% higher than the third quarter of 2023 and in line with the second quarter of 2024. Asset Management continued to provide a durable source of revenue during the third quarter. We saw strong performance and ongoing demand across several of our core and specialty products, including global listed infrastructure, Japanese equities and emerging market equities and across our quantitative platform.

During the third quarter, new business across our priority strategies and products included funding a Japanese large-cap equities custom mandates for a Swiss Pension Fund and launching a tax transparent funds for global equity franchise for an Asian Pension Fund. Interest in emerging markets equity is also growing, highlighted by a large new mandate from a U.S. Public Fund and the launch of a tailored emerging markets fund for Scandinavian client. During the third quarter, we were pleased to be selected as a sub-adviser to an active/passive international equity ETF series, utilizing our international quality growth strategy.

Now turning to expenses. For the third quarter, our adjusted compensation expense was $426 million, resulting in a ratio of 66%, compared to 68.4% for the third quarter 1 year ago. For the third quarter, our adjusted noncompensation expense was $138 million, down 7% from the second quarter and in line with the prior year quarter. This equated to a ratio of 21.4% compared to 25.9% 1 year ago. 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.

Shifting to taxes. Our adjusted effective tax rate for the third quarter was 32.5%, compared to 14% last quarter. Given the global nature of our business, our adjusted effective tax rate 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. Despite these quarterly fluctuations, we continue to expect our full year 2024 effective tax rate to be in the mid- to high 20% range.

Turning to capital allocation. In the third quarter of 2024, we returned $51 million to shareholders, including a quarterly dividend of $45 million. Year-to-date, we repurchased 1.1 million shares and we currently have share repurchase authorization of $356 million outstanding. We remain committed to balancing investments in growth with returning capital to our shareholders with a quarterly dividend of $0.50 per share declared yesterday.

Now I'll turn the call back to Peter.

[Peter Orszag, executive]

Thank you, Marry Ann. Geopolitical risks remain a key consideration for business decisions with increasing client demand for our geopolitical advisory group as a result. Despite uncertainty in the broader landscape, however, we see ongoing improvement in the underlying conditions relevant to our business. Inflation continues to head in the right direction as we had predicted earlier in the year.

With the Fed's rate cut last month and additional cuts expected in the future, we anticipate that our asset management business will benefit over time as investors shift towards 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. As a result, we see an increasingly constructive operating environment for both businesses moving forward.

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 Lazard 2030 plan, we currently believe our comp ratio will be at or below 60% in 2025. Our ability to achieve this is sensitive to both factors. First, the market environment substantially affects the operating leverage we can deliver. Second, expansion of advisory MDs at a rate of [ 10 to 15 ] net per year is a core component of our long-term strategy.

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

Year-to-date, in Financial Advisory, we have hired 16 new managing directors, all consistent with our Lazard 2030 plan. These new hires include senior leaders in restructuring and liability management and Capital Solutions, along with financial sponsors and sovereign and pension fund coverage. In addition, senior hires in targeted sectors include expanding our leading global health care group, and building our consumer retail and leisure group along with our media entertainment and sports practice.

Our ability to attract new talent to join our existing team of exceptional bankers helps us build Lazard for the future, by combining institutional knowledge, networks and relationships with new ideas, perspectives and areas of expertise. We are increasingly focused on developing and deploying AI tools across the firm. Over the past 12 months, we have implemented tailored instances of Chat GPT and other related tools, including a custom Gen AI platform designed to support activities such as research compilation content creation and benchmarking analysis.

We see Gen AI as a transformative technology that will help us evolve the way we work by freeing colleagues to 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. Overall, this quarter's results demonstrate the ongoing successful execution of our long-term growth strategy against an improving economic and market backdrop.

Over the past year, the sense that Lazard is experiencing an inflection point has become palpable with tangible results in revenue, productivity and profitability. As I've reflected on my first 12 months as CEO, what I found most satisfying is how quickly Lazard colleagues worldwide have embraced aiming hire and a winning together mentality and how that combination has resulted in substantial momentum behind our ambition for the future.

Now we'll open the call to questions.

[Operator]

[Operator Instructions] Our first question will come from Brendan O'Brien with Wolfe Research.

[Brendan O'Brien, analyst]

I guess -- question. I just want to drill [Technical Difficulty]

[Peter Orszag, executive]

You're breaking up slightly. Could we try one more time?

[Brendan O'Brien, analyst]

Can you hear me now?

[Peter Orszag, executive]

Better, yes.

[Brendan O'Brien, analyst]

Okay. Sorry about that. So I just want to drill down on the comp ratio commentary a bit. It was encouraging to hear the commitment to getting back [indiscernible]. the 24% year-on-year growth rate that you see year-to-date? Or is there a lot of productivity to be looking at -- any context you can provide there helpful.

[Peter Orszag, executive]

Sure. Again, you broke up slightly, but I will do my best at guessing what the question was and answer that. As I said, and I'll just -- I'll just reinforce, if we have seen significant momentum building, frankly, on both sides of the business. The M&A and advisory side 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. That's part of the cycle developing. That's part one of the preconditions for getting back to 60%. And the second is that we have been doing very well at lateral hiring, as I mentioned before, 16 managing directors added this year, fully consistent with hitting the 10 to 15 net add that is under our Lazard 2030 plan and in areas that we are most excited about capturing additional wallet share.

Okay -- anyway, 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 hire additional really talented bankers, even above and beyond the baseline for building up the Lazard 2030 plan, we would grab that opportunity. And I would say that in the marketplace, the sense that Lazard is at an inflection point, is growing. And so we are being presented with lots of interesting opportunities for bringing additional bankers on board.

If there were a match between where the talent were available and where we see the the most opportunity, we would take advantage of that, even if it meant that our comp ratio came down a bit less than anticipated. So bottom line is, if the market develops as it looks like it will and as it has been, and this year has largely played out as we expected. And if we remain on the kind of baseline path for Lazard 2030 in terms of hiring, 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 comp ratio.

[Operator]

Our next question will come from Brennan Hawken with UBS.

[Brennan Hawken, analyst]

Peter. So I'd love to follow up on that. So it really gets you on the revenue side and what you're thinking about plus the recruiting side for that 60%. 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 comp leverage because 600 basis points is rather substantial in a year. So have you guys been looking at maybe accelerating some of the deferred or making any other changes to drive greater flex?

[Peter Orszag, executive]

Well, I'll say a couple of things, and then Mary Ann may weigh in here also. What I would say is the following: that there is substantial operating leverage that we see in the business from extended 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.

This is a very important vector for us to again obtain that operating leverage and bringing the comp ratio down because basically the non-MD resources that each MD requires 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, not that non-MD expense 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 obtaining additional reductions in the comp ratio. In addition, obviously, since we're talking about GAAP comp here, that is affected by deferral rates and by many other factors.

And so I'll let Mary Ann comment on that.

[Mary Betsch, executive]

Yes. So I think the -- I mean bringing the deferral rate down this year, as we've said in past calls, is definitely part of our plan, and that's good for our employees and also good for the 2025 ratio. How much we'll be able to do that is going to depend on where we land for -- in terms of revenue for the year.

I would also just add on the productivity point, some of the new hires that we've made this year. I would expect, and Peter hopefully agree with us that, they're going to ramp up a lot faster than the typical that 3-year period that we've generally seen with new hires. And ...

[Peter Orszag, executive]

We're actually already seeing that.

[Mary Betsch, executive]

Right. So 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 the full year impact of the head count reductions, that we did last year.

[Operator]

Our next question will come from Ryan Kenny with Morgan Stanley.

[Ryan Kenny, analyst]

So on the Asset Management business, it came up that interest in emerging market equities is growing. Can you give us some color on what's driving that? Is that purely a function of rate cuts on the weaker dollar? Is it sustainable? Any color there would be helpful.

[Peter Orszag, executive]

Yes, I'll be very brief, and then I'll let Evan comment more. I think the combination of ongoing rate cuts in the future will help to boost demand for emerging market equities. I'd also note that our performance has been strong. And so that over time, that also attracts attention.

But Evan, do you want to...

[Evan Russo, executive]

Yes. Look, I think we've talked about this for a little bit. I mean, clients have been under-allocated and are becoming more under-allocated, especially as U.S. markets to continue to strengthen relative to global markets and especially emerging markets over the past several years. And so I think you are seeing the beginnings, and I think it is early stages, we've seen the beginning of some of the allocators larger institutional clients thinking about where there's potential upside of the future relative to current levels and seeing a little bit more balance in the way that they want to manage their portfolios.

I caution it's early, but for several years, we weren't seeing a whole lot of interest. Earlier this year, we talked about the conversation levels picking 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 2. And I think, as Peter mentioned, some of that has to do with rate cuts a little bit relating to allocation decisions around where opportunity 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.

[Operator]

Our next question will come from James Yaro with Goldman Sachs.

[James Yaro, analyst]

I think we've started to see a bit of a divergence in macro trends across the U.S. and Europe. How is this weighing on the M&A environment in Europe relative to the U.S.?

[Peter Orszag, executive]

Yes, it's really interesting. Thanks for the question. I actually just returned from 1.5 weeks in Europe. And so at a very high level of interaction with both corporate and government leaders across the continent. 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 drag report exacerbated by higher energy prices associated with the Russian invasion of Ukraine. And challenge to whether exporting to China remains a viable economic strategy going forward.

That having been said, the macro environment is only one of the inputs into our businesses. There are many activity levels across sectors can vary for lots of different reasons, whether you're growing at 0.5%. I mean the delta here is growing at 0.5% versus 2% or 3% on the macro level, and that can be swamped by sectoral trends. And one of the interesting things that we've seen is we actually saw in 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 been making. We also anticipate that our deep local roots in Europe and in the United States, which are, as you know, the 2 largest markets, will be beneficial as the geopolitical environment evolves as one example. One response if there were hypothetically additional tariffs imposed in the United States, one incentive that creates is to try to invest further in the U.S.

And so there are many European companies that are looking at that potential and we are very well positioned to help them sort through the various scenarios and identify potential targets, et cetera, because, again, we are really the only independent advisory firm that has deep local roots both in Europe and in the United States.

[Operator]

Our next question will come from Devin Ryan with Citizens JMP.

[Devin Ryan, analyst]

So question just on Advisory and really kind of think the potential. So the first 9 months, obviously, your second best ever for Advisory, you seem to be performing a number of firms we track as when we look at kind of where you are in your recovery. Your revenue is up 40% year-to-date in Advisory. So just wanted to get a little bit of a flavor for what you would attribute the difference to?

And then also how you would frame what a normalization for Lazard looks like, whether it's level of upside from here to more normal or productivity per MD? And I appreciate I know it's hard to say what a baseline is and it's moving targets to add bankers. But just trying to get a sense of kind of that order of magnitude because I know there's a cyclical aspect but your Advisory revenues have recovered quite a bit and you're sitting closer to record. So I just love to think about where we can get to from here.

[Peter Orszag, executive]

Sure. So I mean, 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 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 deep local routes, both in the United States and Europe. We have significant potential, which is embodied -- we had embodied in the Lazard 2030 plan on a sector-by-sector basis in terms of where opportunities are.

So lots of upside from that perspective. Other big component that I would just highlight is, historically, at least in the United States, Lazard had less exposure to private capital than others may have. we have now built out an infrastructure and ecosystem in which we can touch alternative asset managers and private capital in multiple different ways from restructuring liability management to fundraising to Lazard Capital Solutions, sponsor coverage to traditional private equity M&A and that feeds on itself and is another source of growth for us as that part of the marketplace expands.

In addition to the more traditional large-cap M&A that we also see lots of upside in. So in terms of then capturing that, that's a combination of hiring, which we've mentioned other measures to make sure that we are collaborating and working very effectively as teams across the platform. New norms around the fees that we charge, new norms around mandate selection, all of that is contributing to contributing to the momentum that we've been experiencing, and we see lots of additional upside potential as we continue to execute in these ways.

And in fact, I think, again, I used the phrase inflection point on purpose because as these pieces come together, it's not -- they increasingly build on and reinforce one another. And I think, again, the reason we mentioned the [indiscernible] survey results are the internal result is you can sense that internally. People can feel that we are on the move and that they like the direction that we are moving.

[Operator]

Our next question will come from Mike Brown with Wells Fargo Securities.

[Michael Brown, analyst]

To ask a question about the ownership base here. So earlier this year, you converted from a publicly traded partnership to C corp, now we're 10 months in. So I just out hear how that conversion has gone compared relative to your expectations in terms of investor interest, engagement and overall the ownership base? And then how could it evolve from here? What are some of the index implications that could actually continue to help that ownership base evolve from here?

[Peter Orszag, executive]

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 turnover, and we've seen that. But perhaps more fundamentally and more importantly, to open up the idea of owning Lazard to investors that had previously not considered it because of our previous structure.

So we have been oversubscribed at every IR conference that we've been going to, which is fantastic. We've had multiple meetings with lots of different [indiscernible] investors. And we've seen a variety of new investors take a hard look at Lazard and decide that there was a lot of upside potential. I'd call out, for example, Capital Group as one new shareholder that is 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, that was -- that's just the sort of additional upside potential from the conversion. And if it were to occur great, but we're not -- we see lots of upside even outside of that. And fundamentally, the C corp 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 index inclusion as -- or any index inclusion has potential upside beyond that.

[Operator]

I'll take a follow-up question from Brennan Hawken with UBS.

[Brennan Hawken, analyst]

Just one more question on the sub-60%, Peter, and thanks in advance for your patients. But, could you maybe -- you gave a lot of color on the Advisory rev. Could you -- maybe what are the baseline assumptions on the Asset Management side of the business for revenue?

[Peter Orszag, executive]

I think I said if the next 12 months develop basically as the previous 12 months half, so you can more or less take that as the basis on the asset side.

[Brennan Hawken, analyst]

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. Could you maybe help us walk through some of the fee rate impact from that and what we should be expecting for the next quarter because it ...

[Peter Orszag, executive]

I'll start and then I'll let Evan comment on that. Look, anytime this was one large -- one mandate. And so any time you have an AUM from a particular client that is larger, you'd expect the fee rate to be lower. And then in addition, the particular strategy or fund that it was in also tends to have somewhat lower rates than other strategies. So you put the 2 together and that outflow mechanically would raise the average fee rate because it was -- because of where it was located and because it was relatively large. But we do view it as idiosyncratic and not reflective of kind of the underlying steady state.

Evan, do you want to add anything?

[Evan Russo, executive]

Yes. Sure, Brennan. So on the sort of average fee rates for the quarter. As 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 quarter-to-quarter. We did have some outflows in the U.S. versus some inflows and some of the specialty products that we have, such as Japanese equities and others.

So that mix also worked in our favor this month and a little bit more funds versus SMAs I wouldn't call that significant. But usage funds were a little bit higher relative to SMAs this quarter. So a few things sort of contributed to keeping that flat year-over-year and up on a sequential basis.

I'd say going forward, look, I think the trends are probably in line with where we've been in the past. I think you can expect a little bit more compression just because U.S. 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 drift a little bit lower in the fee rate. So those are some of the puts and takes there, hopefully, that helps you give you some context of how to think about the average bets.

[Operator]

Our next question will come from Aidan Hall with KBW.

[Aidan Hall, analyst]

Maybe one just for Mary Ann. I heard your comments about the expectation to potentially based on the environment to take care of maybe some more deferred comp in the fourth quarter, but just curious how you're thinking about how we should be thinking about the comp ratio. Like is there a chance that that actually ticks up in 4Q 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 comp ratio. Any color how to be thinking about that?

[Mary Betsch, executive]

Sure. Thanks for the follow-up. So I would think about it as sort of -- 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 -- but based on our best estimate today, that is our ratio. And so 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 deferrals, frankly.

[Aidan Hall, analyst]

Appreciate that. Maybe just a quick one for Evan. I hear a lot of the optimism around the asset management business. last day of the month. Any kind of color on how organic growth trends have fared so far? And any visibility for kind of the -- through year-end?

[Evan Russo, executive]

Yes. So look, I'd say Peter mentioned this in his remarks earlier, we believe that it's going to take some time as the rate environment as higher rates come down to get some of that money off the cash flow. So we are seeing slower gross inflows this year. And I think that trend is going to continue as you get towards year-end. Also some of the comments we made earlier, look, there's certainly a big focus in the market right now on the U.S. market and specifically in style for growth, so growth style in the U.S. market, relative to international, global and emerging markets, which is predominance of our business and also the style that we manage to relative value and quality.

And so you put all that together, and so we would expect it to remain a little bit more lumpier and choppier till year-end because you're not going to see that new inflows, the gross inflow sort of rebound, which we would expect more into the end of this year. So I would expect the October 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 as those allocations start to broaden as we start to see yields start to fall and the money market rates and that cash coming off the sidelines, I think you'll see gross inflows rebound and hopefully move more towards a balance level as we get into next year.

[Operator]

We'll take a follow-up question from James Yaro with Goldman Sachs.

[James Yaro, analyst]

Just quickly on the non-comps. I think your noncomp system was quite strong in the quarter. Maybe you can just speak to the noncomp growth trajectory from here. Anything that we should read into the lower noncomp level? Did you find perhaps some additional non-comp cost saves versus previous expectations?

[Mary Betsch, executive]

Yes, I'll take that one. So remember, there's seasonality here in the non-comp line. Third quarter is typically our lightest quarter, and the fourth quarter is typically our heaviest quarter. And so I would expect that pattern to hold this year. We have been disciplined in finding cuts to offset the increases that would normally go along with 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 more discipline in other areas. If you're looking at the full year, I would think we'll probably end up a tick or 2 on a full year basis in dollar terms. So that's how I think about the remainder of the year.

[Operator]

And we also have a follow-up from Devin Ryan with Citizens JMP.

[Devin Ryan, analyst]

Just a philosophical question on Asset Management, given some of the headwinds in that industry more broadly. So Obviously, with that, people are very focused on incremental investment and returns on investments that are being made in -- you guys spoke about some newer areas of focus, obviously, actively manage EPS and some others. And so appreciate that there's a level of scale that's necessary before new businesses start contributing positively. And so I just want to think about kind of how you guys are framing the need to grow and perhaps invest in the long term without diluting current earnings power in either that segment or just from wide?

[Peter Orszag, executive]

I can start and then maybe Evan will 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 historically have been the focus of Lazard Asset Management. These are -- these are the base of many investors' portfolios in particular areas. And in that category, it's very important to be investing in research in distribution and in new ways of delivering the product, for example, at active ETF.

So we're doing all of that and then making those investments. There's also been 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 market, is very strong, and we're making additional investments there, too. So examples would include systematic quant 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 and assets. We are looking at all 3 categories. I would say with regard to organic growth, that will be disproportionately in the first 2 and the inorganic activity that we continue to evaluate would be disproportionately in the third category.

If you have any want to add anything.

[Evan Russo, executive]

I think it's a great summary. Look, I think we're taking steps in all of those areas. We mentioned active ETF. It's 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, growing vehicle for clients, certainly gaining a lot of traction. We're excited that, as we announced, we've hired a head of global ETFs help us build out that plan, the infrastructure to launch that 2025, everything is underway now.

And we think our investment strategies are well positioned to do well in this space if it's happening. So this is an exciting vector of opportunity growth for us, if it is built. Obviously, it's a build strategy. So it's going to take time to get off and running, but it's going to create a vector of growth for us that we didn't have previously.

And then on the other 2 areas, we're also laying some of the groundwork, recently the announcement that we did in Europe with Elaia Partners, Elaia Capital, the Premier Venture Capital for our focus on technology, where we're launching a JV to launch a private growth equity fund in 2025. We're very excited about the team and the opportunity set and reaction that we've gotten from our client base as we started to discuss with them the opportunities for them to take part and invest in those areas, that's tremendous.

And then the work we've done earlier this year to integrate an acquisition we did in Wealth Management in the U.S. continues on. 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.

[Operator]

Thank you. This now concludes Lazard's Third Quarter 2024 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.