Advice for the adviser: Professional investors say Lazard should consider breaking itself up

(Photo by Michael Nagle / Getty Images)
  • There’s a level of “frustration” among professional investors, who think investment bank Lazard is undervalued.
  • An anonymous survey of more than 50 investment funds found many thought the bank should consider a shift in strategy.
  • Recommendations included more share buybacks and a potential split of its two main operating divisions.

Boutique investment bank Lazard has a 170-year history of providing expert financial advice to clients.

But according to the results of an industry survey, many professional investors think the bank should consider a shift in its own strategy to boost shareholder returns.

The anonymous survey was carried out by Devin Ryan at JMP Securities, who said he received more than 50 formal responses from various hedge funds and mutual funds.

In line with their view that Lazard can pursue alternate strategies to boost returns, the vast majority (84%) of respondents thought the business was currently undervalued.

Source: JPM Securities

Among the key findings:

  • Most respondents (85%) said Lazard should follow the recent lead of KKR and convert from a publicly traded partnership (PTP) to a C-Corp structure to attract more investment
  • More than three quarters (76%) of those surveyed would like to see the company increase share buybacks;
  • The majority (67%) of respondents said Lazard should consider splitting its asset management business from the corporate advisory business.

Ryan said respondents believed both the asset management and corporate advisory business would trade on higher multiples if they were split out.

He said in discussions with investors, JPM had noted a level of “frustration” about Lazard’s current valuation relative to market peers.

Source: JPM Securities

The mix of respondents in the survey was comprised of around 63% hedge funds and 37% mutual funds. Over half of the funds surveyed managed between $US10-$US100 billion.

In an interview last week, Lazard CEO Ken Jacobs defended the company’s two-tier approach, arguing that it helps stabilize earnings.

According to Bloomberg, Jacobs said Lazard’s share price can often appear to under-perform peers. However, he said the share valuations of competitors are often just coming off a small base, and are subject to more volatility.

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