Earnings Call Transcript
Lazard, Inc. (LAZ)
Earnings Call Transcript - LAZ Q3 2023
Operator, Operator
Good morning, and welcome to Lazard's Third Quarter and First 9 Months of 2023 Earnings Conference Call. This call is being recorded. Currently all participants are in a listen-only mode. Following their remarks we will conduct the question and answer session, instructions will be provided at that time. At this time, I'll turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations, Treasury and Corporate Sustainability. Please go ahead.
Alexandra Deignan, Head of Investor Relations, Treasury and Corporate Sustainability
Thank you, David. Good morning, and welcome to Lazard's earnings call for the third quarter and first 9 months of 2023. I'm Alexandra Deignan, Head of Investor Relations, Treasury and Corporate Sustainability. In addition to today's audio comments, we have 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 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 measures is provided in our earnings release and investor presentation. Hosting our call today are Peter Orszag, Lazard's Chief Executive Officer; and Mary Ann Betsch, Lazard's Chief Financial Officer. Peter will begin with some brief remarks before turning the call over to Mary Ann, who will provide an overview of our financial results. Peter will then provide his perspective on current market conditions and the outlook for our business. 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, CEO
Thanks, Ale, and good morning, everyone. I'd like to begin my first earnings call as CEO of Lazard by expressing my thanks to my predecessor, Ken Jacobs. We are thrilled that Ken, one of the world's premier bankers, is now our Executive Chairman and has shifted his focus to advising clients. I also want to thank our Board of Directors for entrusting me with this role. It is a privilege to work with such exceptionally talented colleagues across the firm, and I look forward to serving and supporting them, our clients, and our shareholders. Lazard is one of the world's preeminent financial advisory and asset management firms with one of the most powerful brands in the financial services industry, and I am excited about our prospects to further elevate our relevance, revenue, and returns. I'll provide more on our outlook and plans for Lazard later, but now let's turn the call over to Mary Ann to discuss our third quarter and 9-month results.
Mary Ann Betsch, CFO
Thanks, Peter, and good morning, everyone. Today, we reported operating revenue of $532 million for the third quarter of 2023, a 27% decrease from the third quarter of 2022. Operating revenue for the first 9 months was $1.7 billion compared to $2.1 billion in the first 9 months of the prior year. In Financial Advisory, we reported third quarter revenue of $261 million and $879 million for the first 9 months of the year. Advisory operating revenue continues to be impacted by the ongoing slowdown in M&A, and this quarter's results reflect the lagged state of M&A announcements from several quarters ago. Looking ahead, we believe the M&A cycle is turning, and we are well positioned as the market recovers to advise on a variety of transactions, including those associated with private capital as well as large cross-border and complex transactions. Outside of M&A, we see continued momentum in several areas of the advisory business. Private Capital Advisory, our primary and secondary capital raising group, continues to see significant demand for its services, especially in the secondaries business, building on its strong second quarter and year-to-date results. Lazard's Global Restructuring and Liability Management Group also had a strong quarter, with operating revenue increasing both sequentially and year-over-year. The pickup in restructuring activity is accelerating, and the team is currently advising on a number of significant transactions for a wide range of debtor and creditor clients. Our Software and Advisory business also continues to perform well and advised a number of governments during the quarter, including prominent assignments for Sri Lanka and Greece. Lastly, one year after its launch, client demand continues to increase for our geopolitical advisory services amid the growing demand from corporate leaders for advice concerning global risks. In Asset Management, third quarter operating revenue was $262 million, flat compared to the third quarter last year, and down 2% sequentially. The management fees and other revenue for the third quarter were up 8% compared to the third quarter of 2022 and flat compared to the second quarter of 2023. For the first 9 months of the year, management fees and other revenue declined 1% compared to the same period in 2022. Asset Management revenue was $794 million in the first 9 months of 2023, 5% lower than the prior year period, reflecting lower incentive fees. As of September 30, we reported AUM of $228 billion, 5% lower than June 30, 2023, and 15% higher than September 30, 2022. The sequential decrease was driven by market depreciation of $5.8 billion, foreign exchange depreciation of $3.3 billion, and net outflows of $2 billion. Average AUM for the third quarter was $236 billion, increasing 11% from a year earlier, and flat on a sequential basis. Average AUM for the first 9 months of 2023 was $233 billion, level with the first 9 months of the prior year. Now turning to expenses. For the third quarter, adjusted compensation expense was $364 million. This equates to a 68.4% adjusted ratio during the third quarter, which reflects our current best estimate for the remainder of the year. Our non-compensation expense was $137 million in the third quarter, 7% higher than the third quarter last year related to increased occupancy costs as well as higher technology and professional services expenses. We are progressing on our cost-saving initiatives announced in April to reduce our headcount by 10% by the first quarter of 2024. Our goal to reduce overall costs includes a reduction in reprioritization of long-term projects. These changes reflect our commitment to return to our target expense ratios as revenues normalize. Our effective tax rate for the third quarter as adjusted was 8.4%, which compares to 25.1% in the prior year quarter. Our current estimate for the full year tax rate is projected to be in the low to mid-teens. Our estimate, as always, is dependent on the level and location of earnings as well as the impact of discrete items in the fourth quarter. Turning to capital allocation. In the third quarter of 2023, we returned $52 million to shareholders, primarily reflecting our quarterly dividend. During the first 9 months of the year, we returned $285 million to shareholders, including $129 million in dividends, $102 million in share repurchases, and $54 million in satisfaction of employee tax obligations. Additionally, yesterday, we declared a quarterly dividend of $0.50 per share. I will now turn it back over to Peter for comments on the outlook.
Peter Orszag, CEO
Thank you, Mary Ann. Today's results underscore the lagged effect of the slowdown in M&A announcements from several quarters ago. However, our Asset Management business and part of our Advisory business, including restructuring and private capital secondaries fundraising, are offsetting some of the overall market weakness in M&A. Looking forward, and as we have previously stated, we believe that the worst of the M&A slowdown is behind us. We continue to see signs that the market is bottoming out and stabilizing, with the quarters ahead poised for a rebound in deal activity. We are already seeing significant M&A activity in financial institutions, health care, and energy transition among other sectors. We are also seeing early signs of an increase in cross-border M&A activity, which, with our global presence and expertise, we are well positioned to capture. This bottoming out reflects the interplay between the catalyst of activity, including ongoing technological innovation, shifts in global supply chains, the life sciences revolution, and the energy transition, and the headwinds, which include a divergence in expectations between buyers and sellers because of the impact on valuations from the sharp increase in interest rates, the uncertainty in financing markets, and regulatory concerns. As higher interest rates remain in place for a longer period, as monetary policy tightening likely nears its end, and as some companies have won court victories on regulatory matters, the headwinds have generally been easing in recent months. One of the strong indications of this changing balance between catalyst and headwinds comes from the tenor of our client discussions, which are growing more constructive. There are two important lags between such a constructive shift in client discussions and revenue, though. First, there is a lag between active discussions and an increase in announcements, which, for the market as a whole, have now stabilized, but are not yet increasing meaningfully. After a pickup in announcements, another lag then occurs to completions, at which time the revenue impact of the rebound in activity begins to be felt. In addition, as the M&A market begins to rebound, we are also seeing non-M&A revenue opportunities within our capital solutions and restructuring businesses, both of which are seeing client activity accelerate. In Asset Management, despite volatility in the market, the challenging interest rate environment, and another surge in growth mainly attributable to a select group of technology companies, we saw strong performance across many of our investment strategies and groups, including emerging markets, thematic, and local strategies. While new money is being put to work, the appeal of short-term investments, T-bills and money market funds remain significant. As such, investor appetite to allocate cash to equities and risk assets remain subdued. Nonetheless, institutional investors are showing interest in our global quant and thematic strategies. Let's now turn to our future outlook for Lazard. In addition to our world-class brand, Lazard today has the potential to combine high-return future growth with a significant underlying degree of stability. Our growth will be built on a foundation of a resilient model that spans across businesses, products, and regions and a structure that is more secure than one focused solely on M&A in a specific geography. Last month, I outlined our objectives between now and 2030. Our growth will come from proactively leveraging our brand into new and expanded areas through talent development, lateral hires, and inorganic additions, while concurrently managing our existing business even more efficiently. One important step on this path involves elevating our relevance through more involvement in top deals in Advisory, winning important mandates in Asset Management, and leveraging our global insights with increased thought leadership and content-rich convening. Our Lazard 2030 vision also includes two specific and concrete goals for the firm to accomplish by the end of this decade. The first is to double revenue firm-wide by 2030, with the increases split roughly evenly between Asset Management and Financial Advisory, implying double-digit revenue growth annually on average. The second goal is for Lazard's total shareholder return to average 10% to 15% per year through 2030. Let me share a few more details on some of the specific actions we will take to reach these goals. Looking first at the Asset Management business, we have opportunities in both the core business and in adjacencies, and we intend to pursue these opportunities aggressively through both organic and targeted inorganic growth. Private asset managers with some degree of established track record, but that are still relatively early in their AUM progression are of particular interest in any programmatic M&A for us over the coming years. We believe opportunities of this kind will combine the strength of our brand and distribution with the benefits from a fund manager's established investment performance, while optimizing shareholder value relative to the acquisition costs. We also see potential for Asset Management growth by investing in and expanding our distribution capabilities. Evan has been implementing a strategic plan to maximize the value of our global distribution platform, which includes increasing our client reach worldwide with a particular focus on financial intermediaries in the U.S. and Europe and regional expansion in Asia as well as engaging more effectively with our clients. Additionally, we have continued to develop a group of recently launched strategies with strong investment track records that are poised for growth, and we will continue to launch new ancillary products and vehicles to build upon our current investment capabilities and offerings. Turning to Financial Advisory, multiple pathways will contribute to doubling our revenue over the next 7 years, including an expanded private capital efforts spanning our capital raising business, our new Lazard Capital Solutions practice, and more expensive M&A fees from private equity. Among our M&A clients, we see potential for growth in both the United States and Europe. One key differentiator is that Lazard has long been known for its exceptional insight into geopolitical events, and our ability to combine our business advice with an awareness of the geopolitical forces that could affect outcomes. That's all the more valuable to clients today, and our capabilities in this area have been reinforced by our outstanding geopolitical advisory team. Turning to specific sectors, opportunities for us exist across many areas in North America, with particular growth potential in technology, industrials, power and energy, and health care, while we continue to build on our historically strong positions in sectors such as financial institutions and real estate. We also see significant additional revenue opportunities in Europe, which would be accentuated by an expansion of U.S.-Europe M&A trade given our uniquely strong position in both continents. We are seeing increased interest among European companies seeking to acquire U.S. assets, and Lazard is well positioned to advise these clients. All of this will require Lazard to expand its ranks of managing directors. Some will come from internal promotions. We are unique among the independent advisory firms in having an established track record of being able to develop our own productive bankers. Part of the expansion will also come from more aggressive lateral hiring than Lazard has historically done in the past. One question may naturally be whether we can maintain our historical margin target as the market normalizes, which we expect to do if we are also going to undertake a significant increase in our number of managing directors? The answer lies partially in our potential to raise productivity per MD. More specifically, if each of our Advisory MDs generates an additional $1 million in revenue, the effect is to free up more than $50 million in total each year to invest in new lateral hires without any adverse impact on our compensation margin. We are confident that with increased intensity, targeting of market opportunities, being paid appropriately for the exceptional work we do, expanded use of cutting-edge technology, and more significant annual trimming of less productive MDs, we can substantially raise productivity over time. We also expect to benefit from the embedded growth in the disproportionately high share of our current MDs who are newly hired or newly promoted. Such a high productivity growth path is the best way to combine our traditional emphasis on excellence with our expanded revenue opportunities and ambitions. None of this will occur overnight, but with consistent effort, we are confident that we can achieve our 2030 goals. As we expand our business across asset management and financial advisory in the years ahead, I look forward to updating you on our progress over time. We will also find the right moment to provide you with more detailed plans and targets for between now and 2030 to help you measure how we are doing along the way. Over recent months, I've been traveling extensively to meet with Lazard investors and hear their thoughts about the firm. One of the clearest messages that has come through during this listening exercise is a widespread desire to see our corporate structure simplify. For that reason, we are announcing today that Lazard intends to convert its current structure to a new status as a U.S. corporation or C-Corp. We believe conversion to a C-Corp will simplify tax reporting, may act as a catalyst for enhanced shareholder ownership, and therefore, provide liquidity benefits for our stock. One significant change relative to our previous evaluations of such a conversion is that the tax benefit of our current structure is declining materially due to changes in global tax laws. Given the smaller tax impact than in the past, we believe that the benefits of conversion now outweigh those costs. We expect the conversion to take place on January 1, 2024, subject to compliance with global regulatory requirements. Lastly, as our 175th anniversary enters its final months, we are proud of our history and confident in our future. For the better part of 2 centuries, we have served as trusted advisers for our clients, providing an unparalleled level of expertise, insight, and global reach. We have attracted and developed extraordinary talent, and we have evolved and adapted into a stronger and more resilient institution. It is our heritage, resilience, and commitment to excellence that make the Lazard brand so extraordinary, and we now have an opportunity to combine that resilience in excellence with significant growth going forward. In the years ahead, we will leverage our brand, our global business model, the investments we are making and expect to make, and the extraordinary caliber and commitment of our people to expand our business and take Lazard to new heights. Now let's open the call to questions.
Operator, Operator
We'll take our first question from Brennan Hawken with UBS. Please go ahead. Your line is open.
Brennan Hawken, Analyst
Peter, you shared a lot there, and I want to focus on a few points. Since you've announced your goal to double revenue by 2030, which is about seven years away, I've noticed that the Asset Management side faces the most skepticism. In the industry, there’s a lot of pressure, and a common reference when discussing your plans, which seem to involve both organic and inorganic growth opportunities, is Invesco. In the last seven years, Invesco has nearly doubled its assets under management, with AUM increasing by 90%, aligning closely with your goal. However, the translation to revenue hasn't followed suit, as revenue has only risen by 30% during that same period. How do you plan to achieve doubling the revenue within that timeframe, considering the ongoing pressure on fee rates in this business?
Peter Orszag, CEO
Sure. I would say we are not focused on growth just for the sake of it, nor are we interested in accumulating assets under management for that reason. Our aim is to grow in a way that yields high returns and enhances shareholder value. Our objectives align with the ones you've mentioned. That being said, we recognize significant opportunities within our current business to improve our distribution performance, which will help sustain our revenue and earnings. For instance, we are conducting this call from the U.K., where we recently held our Board meeting. Under Evan's leadership, the investment teams and distribution in the U.K. have seen positive changes that will enhance both distribution and performance. There's plenty of potential for improvement there. Additionally, on the inorganic side, we are exploring adjacent areas where we believe there is potential for revenue and earnings growth over time. We see private credit, real estate, and infrastructure as attractive sectors that will continue to draw capital and, due to their lower liquidity, maintain a healthy fee structure.
Brennan Hawken, Analyst
The valuation delta is somewhat challenging in this context. If you are specifically looking to acquire and add teams and capabilities within private credit and alternative structures, how do you plan to finance that? In your comments, you mentioned lift-outs and smaller teams that possess strong investment capabilities but lack additional capabilities such as distribution and scale. This is clear, but will these primarily be cash deals with earn-outs, leading to a change in your capital return structure to focus more on allocating capital for the growth of these businesses? Or will you be incorporating leverage? What is your plan for financing these lift-outs?
Peter Orszag, CEO
Sure. I believe you have the target zone correct, as we are aiming for acquisition candidates with strong track records but earlier in their asset under management progression. This approach will allow us to enhance shareholder value even after accounting for acquisition costs because we see this as the optimal phase of growth to leverage our brand and distribution, while also benefiting from the historical performance of the target. Regarding financing options, it will vary from deal to deal. However, in normal conditions, we operate two highly cash-generative businesses. An indicator of our financial strength is the fact that we have conducted $1 billion of stock buybacks over the past four years, beyond our regular requirements, after accounting for dividends and dilution from deferred compensation. This demonstrates our financial capability. We also have equity and other options like earn-outs. While I cannot specify exactly how we will finance these acquisitions, I want to emphasize that we have two very strong cash-generative businesses, and we can use our cash flow to support value-enhancing growth initiatives.
Operator, Operator
We'll take our next question from Steven Chubak with Wolfe Research. Please go ahead. Your line is open.
Steven Chubak, Analyst
So wanted to start off with a question on the C-Corp conversion. Peter, as you noted, prior management was reluctant to convert to a C-Corp, citing a significant potential increase in the tax rate. You noted some upcoming changes in the tax code would result in a more modest increase. I was hoping you could unpack what some of those changes were in the tax code that resulted in a more modest impact? How you determine that the benefits might outweigh the cost here? And what's the pro forma tax rate for the company following conversion?
Peter Orszag, CEO
Sure. I will start with part of this and then Mary Ann will address another part. Looking at the overall situation, the advantage we see is that investors and potential investors often mention that this structure could enhance our current position and that the conversion may be a significant reason to invest in us. Therefore, this could lead to increased interest and higher liquidity in our shares. The costs, while including some minor legal, administrative, and other changes, mainly involve an adjustment to the effective tax rate. Fortunately, this cost has decreased, and the impact on the effective tax rate is now in the low single digits as we transition into a more normalized environment. Before I hand it over to Mary Ann for more details, I want to emphasize that we believe the benefits now exceed the costs, and we hope this demonstrates our commitment to listening to our shareholders. This topic came up frequently in my conversations with them, and we are taking decisive actions to enhance shareholder value over time. Now, I will turn it over to Mary Ann for any additional insights.
Mary Ann Betsch, CFO
Sure. So I mean as you can imagine, this stuff is incredibly complicated. So I'll try to sort of keep it high-level. But generally, one of the things that's changed since we put the structure in place is that the U.S. tax rate has come down. And so if you think about sort of the incremental costs of becoming a U.S. corporation, the U.S. tax rate is one of the factors. Additionally, the sort of global alignment of tax regimes and the global minimum tax that's going to be coming online in various places over the next couple of years makes that delta even smaller. And so as we looked at that and we did sort of a range of scenario analyses, looking at different earnings mix and levels of pretax earnings over the next few years, we were able to determine that that estimated range was really in the low single digits. And as Peter said, that's where we determined that it was the time to act.
Steven Chubak, Analyst
And it looks like I have a similar problem to Brent in. I have a load of questions I want to ask to limit it to just one on the comment you made, Peter, regarding milestones or checkpoints that you're going to offer along the way ahead of the 2030 bogey or targets that you had outlined. I was hoping you can give us some context in terms of what are some of the milestones that you're hoping to lay out that we can hold management accountable to?
Peter Orszag, CEO
Well, we'll find the right time to do that. We want to do that when there are some stepping stones and proof points already in hand. And so it's not just plans, but you're starting to see the beginning of action also. But I think you should expect the normal things that one would look to in terms of monitoring how the business is operating. So beyond revenue and earnings things like how we're expanding in the growth areas that we see, and on the Asset Management side of the business, how we're doing on improving performance within the existing business and moving into adjacencies.
Steven Chubak, Analyst
Any numbers you can put behind it, Peter?
Peter Orszag, CEO
At the right moment, yes, and now is not the right moment.
Operator, Operator
We'll take our next question from Jim Mitchell with Seaport Global. Please go ahead. Your line is open.
Jim Mitchell, Analyst
Peter, just on your comments around funding future MD headcount growth with improved productivity, can you kind of discuss kind of what your analysis was to kind of feel comfortable that whether it's $1 million or more in terms of per MD improvement? You feel comfortable that's achievable relative to whether it's competitor analysis or how you're thinking about it?
Peter Orszag, CEO
Sure. I want to highlight an important point that I've mentioned briefly. We have a substantial amount of embedded growth and productivity enhancement coming from the increased share of Managing Directors who are currently ramping up their productivity. Historically, about 30% of our managing directors have been in a new category, whether lateral or newly promoted. Today, that number is 40%, which is a significant change. These newer managing directors are primarily in areas that we consider exciting opportunities, such as our Lazard Capital Solutions group, our revamped efforts in Germany, expanded private capital coverage, significant investments in biotech and energy, our new team in the Middle East, and our best-in-class geopolitical team, which reinforces Lazard's historical strengths for firms seeking a blend of business and geopolitical insight. In the current landscape, that is highly valuable. The first aspect is related to the growth and productivity that we anticipate as these new members advance. The second includes various strategies, from the fees we charge to a more selective approach to managing less productive tenured directors. As I mentioned earlier, one reason for the different mix today is due to investments in those new lateral hires and newly promoted managing directors. Additionally, we've started this year to be very disciplined about identifying and reducing lower productivity managing directors annually. If, after a sufficient period, a banker isn't meeting our standards of being both commercial and collegial, Lazard won't be the right fit for them. We have multiple pathways to success, but fundamentally, we're excited about our investment areas, the embedded growth that may not be immediately visible, and our commitment to enhancing productivity, which will create a reinforcing cycle that allows us to invest further.
Jim Mitchell, Analyst
I understand this is a complex question and one that doesn't have a straightforward answer. Many are trying to gauge when we might see a revenue rebound, if it happens, and how it affects compensation ratios, especially with your decision to reduce headcount by 10%. Can you provide some guidance for next year regarding the total compensation amount that we should be setting aside or how we might approach understanding the compensation ratio?
Peter Orszag, CEO
Let me provide some insights on our outlook, and then maybe Mary Ann can address the compensation ratio. As you noted, you asked a challenging question, so I appreciate you recognizing that. We anticipate that 2024 will be an improvement over 2023, based on the positive discussions we're having with clients. The difficulty lies in quantifying how much better it will be. We believe Lazard has certain advantages compared to the broader market. Regardless of how the market performs, there are several factors that could allow Lazard to excel. First, we have significantly invested in our coverage of private capital, particularly through Lazard Capital Solutions, which is experiencing strong demand and driving the intended positive momentum. Second, our expertise in geopolitical matters is crucial; it's increasingly evident that making significant business decisions now requires an understanding of geopolitics. Lazard is well-positioned in this area, thanks to our top-tier geopolitical advisory team. Third, if M&A activity in Europe and the U.S. increases, Lazard is well-placed to benefit due to our strong presence on both continents. Lastly, I mentioned the notable share of newer managing directors, which contributes to our strength. These are some reasons why you might observe Lazard performing differently than the market. However, predicting the overall market remains extremely challenging. I would reiterate that there has been a noticeable shift towards more constructive client discussions compared to six or nine months ago. Mary Ann, would you like to add anything?
Mary Ann Betsch, CFO
I'll address the comp ratio. This year, we are experiencing the effects of lower revenues and the delayed deferrals from 2021 and 2022, with 2021 being a record revenue year. Consequently, we have elevated compensation deferred into this year, and we expect to see some of this continue into 2024. However, I believe the key factor will be the revenues. As Peter mentioned, we are optimistic, but there is some uncertainty. The cuts made earlier this year were designed to create space not just for investment in growth areas, but also to help us return to our target ranges once revenues normalize. This remains our perspective, and we will monitor how quickly revenues recover.
Operator, Operator
We'll take our next question from Ryan Kenny with Morgan Stanley. Please go ahead. Your line is open.
Ryan Kenny, Analyst
Thanks for all the detail in the prepared remarks. Just wanted to follow up on that comp ratio commentary. So you mentioned that a component of the revenue growth plan is to expand MD count partially from promotions, partially from lateral hires. Can you just give us an update on what the recruiting environment is like? I know earlier in the year, we've been hearing from the peer group that it was a strong recruiting environment. Does recent optimism on M&A rebound may get harder to recruit? And could that put more pressure on the comp ratio near term?
Peter Orszag, CEO
We are currently engaged in active discussions regarding new lateral hires, especially in key areas that are showing growth. For instance, we recently welcomed a new managing director in restructuring in Europe, and we expect more to come. We are being selective to ensure that our lateral hires align well with our culture and contribute to areas where we want to expand. We also need to balance their compensation expectations. While I won't comment on other firms, we feel positive about the discussions we are having and the appeal of the Lazard platform to potential candidates. There is considerable interest in joining us, and we aim to be selective to ensure a good fit, which we believe will be beneficial for shareholders and growth. Additionally, I want to emphasize our strong ability to develop talent internally and produce effective bankers through promotions. Moving forward, you can expect us to maintain our focus on internal talent development while also pursuing more aggressive lateral hiring compared to some past periods.
Ryan Kenny, Analyst
And just on the comment of eventually getting back to target range on the comp ratio once revenue environment normalizes. Is that still mid to high 50s?
Mary Ann Betsch, CFO
Yes, it is.
Operator, Operator
We'll take our next question from James Yaro with Goldman Sachs. Please go ahead. Your line is open.
James Yaro, Analyst
I just want to start first with the impact of the U.S. elections next year, and what that could mean for both of your businesses?
Peter Orszag, CEO
Look, I'd say the U.S. election at this point is something that comes up in the first 5 minutes of client discussions before you turn to the actual matter that you're discussing. I expect that as we move into 2024 more fully, the time allocated to that topic will increase a bit. But again, when I said the tone of client discussions have turned more constructive, that's the dominant factor. And obviously, as we move into 2024, the U.S. election, I think, will be another thing that generates demand for our geopolitical insights, but we don't see it right now having a massive effect on the trajectory that we're looking at in either business.
James Yaro, Analyst
That's very constructive. Maybe just turning to the asset management business again. I just wanted to touch on the financing for potential acquisitions once more. How are you thinking about your leverage levels today? And would you contemplate adding to these to fund any potential deals?
Peter Orszag, CEO
Well, we're comfortable that we have two very cash-generative businesses. The number I gave you, for example, on the amount of buybacks that we've done above the dilution offset over the past 4 years is indicative of that. And so that provides some perspective on the cash flow that we have available. That having been said, I don't want to rule out any options. It will depend on the particular target. If we were to hypothetically finance part of an acquisition through additional debt, obviously, we would be motivated to reduce that leverage quickly over time as one would expect in any M&A transaction. But I think we've got lots of options available to us moving forward.
Operator, Operator
We'll take our next question from Devin Ryan with JMP Securities. Please go ahead. Your line is open.
Devin Ryan, Analyst
Just want to start kind of first big picture question. Lazard, founded in 1848. Most of your independent peers were founded over the past couple of decades. I think many of them would argue that they built their firms off of a blank piece of paper and so that allows for a much more efficient cost structure just as you go. And so I just want to talk a little bit about kind of the expense structure. So obviously, you have expense initiatives underway, and I hear you on kind of getting back to more normalized margins. But when you think about the overall infrastructure of Lazard today, the whole global footprint, or even mix of kind of where you have offices, do you see, over time, kind of more opportunity to get more efficient around the expense structure or even maybe more dynamic on expenses as you move forward here?
Peter Orszag, CEO
Let me mention a few points. Firstly, we have made substantial adjustments, some of which are still being implemented because closing offices in other countries can take time. We conducted a thorough evaluation of locations that we believe may not meet our productivity standards, and we will keep doing this. At its essence, Lazard has historical roots in Europe and the U.S., which define our identity and will continue to do so. However, we are committed to ensuring we operate only in areas where we can achieve high productivity and expansion, as this contributes to a sustainable model for our bankers and shareholders and enables us to provide the excellent service our clients expect. Regarding expenses, we plan to focus on being as lean as possible through aggressive cost management and by reducing layers in our organizational structure. This is partly why I chose not to appoint a successor as Head of Advisory. We see opportunities for lower cost ratios through streamlined teams, leading to better experiences for our employees. We have a highly skilled workforce, and we believe that giving each team member more autonomy on a project enhances talent development and client service. We will continue to closely examine each office and location. Lazard has always been robust in Europe and the U.S., and we intend to maintain that while prioritizing efficiency moving forward.
Devin Ryan, Analyst
And Peter, I guess another one for you. So you've been CEO here for just a few weeks now, but already some pretty marked changes around, I think, both communications, but also shareholder matters like the C-Corp structure announced today and something that many of us have been talking to our clients about and running about for years. So obviously, in a few weeks, a lot changing. From a cultural perspective, what do you want your legacy to be both kind of inside and outside Lazard? And what, if anything, do you see changing around the brand or culture as you implement some of these changes? Clearly, you have a firm that has effectively hundreds of years of history, but at the same time, these are big changes and things that are relatively dynamic. So just want to get a sense from you how you're thinking about kind of your legacy as well.
Peter Orszag, CEO
Appreciate the question. I would say, look, what we are trying to do here as we pursue these Lazard 2030 goals is pursue growth in an ambitious and aggressive way, but also in a way that is high return and high productivity and to act decisively when it's clear that something is shareholder enhancing. So that's really what we hope we're starting to demonstrate, but it's obviously early days, and we plan to continue to demonstrate that. With regard to internal culture, I've really emphasized the combination of being commercial and collegial. Both parts of that are super important to the pathway forward. And that means being aggressive on behalf of our clients and ambitious on behalf of our clients, but it also means acting like a team and treating one another with respect. And I think that's what I would hope the legacy will be.
Operator, Operator
And our next questions will come from Brennan Hawken with UBS. Please go ahead. Your line is open.
Brennan Hawken, Analyst
I am really eager to ask my follow-up questions. So, how should we consider the headcount of Advisory Managing Directors by the end of the year? You have announced some plans for reductions, but currently, the filings show that there were 212 at the end of last year, and now for the second quarter, it's 227. Can you update us on the current status of advisory Managing Directors? What do you anticipate for year-end? Additionally, how should we view the future trajectory of that Managing Director count in light of your plans for productivity improvement?
Peter Orszag, CEO
Sure. First, let me say we are on target to hit our goal of reducing headcount by 10% measured from the first quarter of 2020 to the first quarter of 2020. Overall, that's not specific to MD. Second, just to provide some context, we are really focused on the year-end process, maintaining high standards for commercial and collegial behavior. Following the pandemic, there may have been a more lenient approach regarding retention at Lazard. We are very focused on increasing productivity and ensuring that people collaborate effectively moving forward. Regarding your specific question, you'll see in the Q for this quarter a number of 15, which will decrease, as that includes some individuals who will be departing but are still counted in the Q. By year-end, that number will be lower, consistent with our overall goal of a 10% headcount adjustment.
Brennan Hawken, Analyst
Part of your plans includes internal development and enhancing productivity. I’m curious, have you analyzed the MD count, which is just over 200, by different groups? For example, what percentage produces over $8 million or more? Then there are the middle and lower groups. I assume the 10% reduction will primarily focus on that lower group. Also, have you examined how many of the promotions can rise to the top tier? What insights can you gain from their journeys to ensure promotions are as effective as possible?
Peter Orszag, CEO
That's a great question. I want to highlight that about 40% of our team is still ramping up, which includes roughly 20 managing directors who are ahead in terms of productivity. We conduct thorough analysis of individual productivity across various groups, but I cannot disclose those figures here. As is typical in any organization, we see a distribution skew. We're focused on allowing our team members time to reach their full productivity, acknowledging that everyone can have an off year occasionally. However, if a managing director fails to demonstrate sufficient collegiality or productivity over several years, we will have to part ways. This was an essential criterion for the adjustments we made earlier this year, and it will continue to guide us moving forward. In terms of productivity ramp-up and insights from previous promotions and lateral hires, we have invested significantly in analyzing those factors. We believe we're improving, though there will always be some uncertainty until a person actually takes on their role. Nevertheless, we are confident that we have identified key indicators that influence productivity on our platform.
Operator, Operator
Thank you. And this now concludes Lazard's third quarter 2023 earnings conference call. You may now disconnect.