Q4 2019 Earnings Call
Thank you for standing by and welcome to the Alliance Grinstein fourth quarter 2019 earnings review.
This time, all participants are any listen only mode. After their remarks, there will be a question and answer session and it will give you instructions on how to ask questions at that time.
As a reminder, this conference is being recorded and will be available for replay for one week.
I would now like to turn the conference over to your host for this call head of Investor Relations for AB Mr. Mark Griffin. Please go ahead.
Thank you Jody good morning, everyone welcome to a fourth quarter 2019 earnings review.
This conference calls me webcast and accompanied by slide presentation is posted in the Investor Relations section of our website www dot likes Bernstein dotcom.
Except Bernstein, our president and CEO, John Watson seal, our CFO, Jim Gingrich, our COO will present, our results, we'll take questions after our prepared remarks.
Some of the information will present today is forward looking.
Subject to certain FCC rules regulations regarding disclosure, so I'd like to point out the safe Harbor language on slide one of our presentation.
You can also find are safe Harbor language and the Mdna over 2019, Tuncay, which we felt earlier this morning.
Under regulation FD management may only address questions of material nature from the investment community in a public forum. So please ask all such questions. During this call now I'll turn it over to stuff.
Good morning, Thank you for joining us today I'm pleased to report our 2019 results reflected broad based strength across they'd be.
Worldwide active net inflows were 8.1 billion in the fourth quarter, bringing full year active net inflows to $29.7 billion, which translates to a 6.5% active annualized organic growth rate, our best year in more than a decade.
Flows were driven by a very strong year in fixed income and continuing success with back to back with these which were well diversified across channels and regions.
And in an environment of declining fee rate EBITA overall portfolio fee rate remained fairly stable, thanks to a favorable mix change.
Let's get into the specifics starting with the firm wide overview on slide three.
Annual gross sales of 103.7 billion in 2019 were up 10 billion or 11% from 2018.
The retail channel was robust reflecting high demand for global fixed income products throughout 2019.
Total Firmwide net inflows were 25.2 billion for the year comprised 29.7 billion and acted net inflows and 4.5 billion in passive net outflows.
Combined with strong markets and strong and solid investment performance our year end assets under management of 623 billion increased 21% from the prior year.
We also reported strong net inflows for January this morning, a continuation of trends we saw in 2019.
Slide four shows quarterly flow trend by channel.
Some wide that impose a 6.5 billion consisted of 8.1 billion in acted net inflows, partially offset by 1.6 billion of passive net outflows.
Net inflows were positive for the sixth consecutive quarter driven by healthy we tell them solid institutional results, while private wealth flows were essentially flat.
In retail gross sales of 18.9 billion or the second highest in our retail history eclipsed only by the prior quarter and retail net inflows of 5.2 billion exceeded 5 billion for the fourth consecutive quarter.
In the bottom left chart you can see institutional gross sales of 5.4 billion increase sequentially.
Resulting in net inflows of 1.4 billion as active equity inflows of 2.6 billion grew at an annualized rate of 27%.
In private wealth gross sales and redemptions, both improved relative to sequential and prior year periods.
Slide five is an annual flows view.
Firmwide net inflows of 25.2 billion, where the best we produced since before the global financial crisis and were led by retail which had net inflows of $23.8 billion.
Institutional had net inflows of 2.4 billion and private wealth flows contracted by a billion following three years of growth.
Now, let's turn to investment performance beginning on slide six.
In fixed income our global diversified approach continued to drive highly competitive risk adjusted returns with 81% of assets outperforming over three years and 92% about such outperforming over five years.
Our one year performance improved 86% of assets outperforming led by our global high yield fun easy income and global bond funds, a barbell approach in our Multisector funds, which includes exposure to high yield combined with the outperformance of risk assets in the fourth quarter contributed to these results.
In equities, our long term investment performance also remained strong 62% of asset outperforming over three years and 84% over five years.
In the most recent one year period, 43% about that's outperformed our large cap ons quality by its combined with its higher cash position led to underperformance in our strategic equities portfolio lower beta caused us to trailed the market as it did as did and under exposure to more cyclical sectors such as.
Semiconductors.
Slide seven and eight provide more insight on retail fixed income in equity investment performance.
The fixed income table on slide seven reflects that our track records are compelling across the near mid and long term horizons.
Formats in our income portfolios have been particularly strong both American income and European income are well within the top cortile for each of the one three and five year periods.
The income fund is top decile for the one three and five year period, and our municipal strategy show consistent outperformance with municipal bond inflation and intermediate diversified muni strategies in the top decile for each of their comparable period and the high income portfolio on the top cortile for the one three and five year periods.
Moving to equities on slide eight.
Among offshore offerings are concentrated global global core and select U.S. long short strategy continue to place in the top or or tile, an all time periods and global low ball was in the top decile for the three and five year time period.
Of our U.S. retail funds are concentrated U.S. international growth portfolios were both in the top decile over the one year period, while maintaining strong performance over the three and five year periods.
And our large cap growth by maintain top quartile performance over the three and five year periods.
We've been our value offerings, we continued to underperform, while emerging markets growth service experience to rebound in one year performance.
Let's move onto our client channels, beginning with retail on slide nine.
We enjoyed tremendous success this year following years of investment in our retail platform.
Our overall sales of 75.3 billion were up 39% year over year and surpassed our prior record by 19 billion or 34%.
At the top left chart shows while exhibiting particular strength in Asia sales grew in all regions versus the prior period and net flows were positive in each region as well.
Full year active net inflows were 27.2 billion exceeding 5 billion in each quarter of 2019.
These results were led by our fixed income platform, which saw acted net inflows of 23.6 billion or 31% organic growth.
We ranked third out of 412 peers in cross border retail net fixed income flows.
Turning to equities are active equity platform grew its net flows 3.4 billion the third consecutive year of organic growth.
We demonstrate consistency with act would acted equity net inflows in 11 of the past 12 quarters.
We continued to show significant diversity in flows is 33 funds attracted net inflows of 100 million or more in the in the year 17 of them equities 14 fixed income and two multi asset.
Yearend AB retail assets under management were 239 billion, an all time high up 32% versus the prior year.
And 55 retail offerings at more than 1 billion in assets under management.
Our U.S., we tell active equity net inflows are in year were excellent AB rank six out of 455 asset managers, our international equity and taxable fixed income platforms. Both ranked in the top that's Iowa flows and our municipal bond to liquid alts strategies placed in the mid teen percentiles for net.
Flows versus peers.
These are distinguished results.
We also continued to see success in our multi asset strategies, particularly those oriented towards income as exemplified by our all market Lux fun.
Which had was approved for 15 platforms in 2019, and just surpassed over 1 billion anyway.
With that with over 700 million in gross sales during the year.
Now I'll discuss institutional on slide 10.
Gross sales for the year were 17.1 billion with net inflows of 2.4 billion comprised of 3.8 billion enacted net inflows, partially offset by 1.4 billion a passive outflows so.
Sales continued to be led by our active equity platform, which is 9.2 billion.
Were up 25% versus the prior year, our best year since 2008.
It's worth noting that gross sales of exceeded 1 billion for none of the past 10 quarters.
Net inflows of 2.9 billion in active equities translated into a 9% organic growth rate led by our global core and global concentrated growth strategies.
Over the past two years, our institutional equities business has grown at an average organic growth rate up 11%.
Very strong results given the landscape.
Our institutional pipeline grew to 15.1 billion at year end with 9.2 billion in pipeline additions in the fourth quarter, that's up 30% sequentially, 56% year on year.
This is the second quarter in a row that our pipelines annual fee base has exceeded 40 million and shows diversification across asset classes and geography.
New additions in the fourth quarter 9.2 billion included a 5 billion dollar LOPI passive strategy.
Excluding that the average fee rate remains more than twice the channel average.
One additional note as stated in our earnings release and 10-K, we were sorry recently received notification from Axa a bit intend to terminate approximately 14 billing in the fixed income investment mandate during the first half of 2020.
However, the fees we earned from managing these assets are low and the revenue impact is not significant.
Moving to private wealth management on slide 11.
Full year full year sales of 11.3 billion reflected some softness due to the broader geopolitical environment.
Some cases inflows from clients expecting seller businesses did not materialize one small business transactions were put on hold due to grow economic uncertainty and some clients with cash to best churn cautious awaiting resolution of the China trade situation and clarification of fed interest rate policy.
Redemptions in 2019 were below our long term average, resulting in full year net outflows of $1 billion.
An important element of our strategy is to continue to grow the high end portion of our business in 2019 client accounts of assets greater than 20 million grew by 1.1%.
Alternatives committed and deployed now comprised $11.2 billion, having grown by 1.9 billion or 20% versus the prior year.
These products are supportive of continued growth in our targeted affluent and more highly complex client base.
We grew our advisor base by 6%, which is at the high end of our target due to lower than expected adviser turnover.
We also saw strong growth in E.S.G. strategies, which grew to 2.7 billion up 80% from the prior year.
A few comments regarding our firm's yes GE strategy.
That's a fiduciary responsible investor and research firm, we believe the being responsible company investing responsibly go hand in hand, a theme noted in our corporate responsibility report published this past quarter.
We've invested in several tools to extend and integrator SG capabilities into our investing platforms, including a proprietary digital platform called each site help teams formalized SG evaluations and share insights from company engagement, our fixed income Prism research platform includes proprietary.
SG scores that directly impacts analyst ratings for each issuer and our cell site research team to integrate SG factors into their stock in company analyses.
I'll finish our business overview with the sell side on slide 12.
Bernstein research continues to feel the effects of a difficult environment as customer activity remained depressed in most geographies.
Fourth quarter and full year revenues declined by 4% in 7%, respectively as compared with the prior year periods.
2019, we continued to focus on our efforts on a few select growth opportunities, while taking appropriate steps to manage the business to ensure that continues to contribute to aid these profitability.
Complements in 2019 included we remained unplanned libre integration of autonomous achieving our cost savings targets, while our cross selling efforts are on track with more than 100 potential new clients on trial.
Launch of both meat Indian trading and build out of an Indian research and sales team in Mumbai.
Focused Asian research investments, including seven sector launches and increased pre IPO research.
Certainly we had another strong showing in the institutional investor a Archie survey with 18 top rank sectors.
I'll close by highlighting some of our 2019 accomplishments on slide 13.
We continue delivering strong differentiated investment returns for clients across fixed income equities, multi asset and alternatives, which combined with our global distribution capabilities drove 6.5% active organic growth for the full year.
Retail had record results with active organic growth of 20% for the full year achieved to diversify bit inflows across a diverse number products.
Institutional saw strength in active equity flows and growing pipeline of higher fee business.
New alternative offerings in 2019 included a fund to funds JV as well as our third commercial real estate funds.
We built a CLL management business, leveraging our existing high yield middle market direct lending platforms.
All of this was done while simultaneously relocating key functions to Nashville, where we now expect to employ 1200 50 people, resulting in meaningful expense savings.
In summary, we had a strong your across our global platform and we're well positioned for 10, new growth in 2020, now I'll turn it over to John to review the financials.
Thank you sat let's start with the GAAP income statement on slide 15 fourth quarter GAAP net revenues of 987 million increased 23% from the prior year period operating income of 268 million increased 35% and the 26.4% operating margin increased by 100.
40 basis points, Kathy GPU 84 cents compared to 63 cents and the fourth quarter 2018.
As always I'll focus my remarks from here on our adjusted results, which removes the impact of certain items are not considered part of our core operating business.
Based on our distributions to unit holders upon our adjusted results, which we provide an addition to and not as substitutes for our GAAP results are standing GAAP reporting and a reconciliation of GAAP to adjusted results our presentations Appendix press release and 10-K.
Our adjusted financial highlights are included on slide 16.
Fourth quarter revenues of 817 million operating income of 264 million and our margin of 32.3% all increase year on year, we arent able distributor our unit holders 85 cents per unit compared to 64 cents for last year's fourth quarter higher base in performance fees come.
Slide with flat promotion servicing expenses, primarily drove the stronger results.
For the year revenues decreased by 10 million to 2.9 billion operating income decreased by 50 million to 802 million and operating margin decreased by 160 basis points at 27.5% adjusted GPU decreased to $2.52 from the prior years $2 and 67.
Lower performance fees Bernstein Research service revenues combined with higher gene expenses were the primary drivers and the weaker results.
We delve into these items in more detail on our adjusted income statement on slide 17.
Getting with revenues net revenues increased 17% for the fourth quarter or relatively flat for the full year versus the same prior year periods.
Based fees increased 15% for the fourth quarter and 5% for the full year due to higher average AUM across all three distribution channels and a stable portfolio fee rate of approximately 41 basis points.
Fourth quarter performance fees increased by 39 million to 74 million as result of higher performance fees earned on our US concentrated growth 14 million securitized assets 11 million and ARIA 8 million strategies.
Full year performance fees of 97 million compared to 196 million for the same prior year period as discussed on our prior earnings call 2018 performance fees included approximately 129 million of fees related to two funds financial service opportunity Fund, one and real estate equity fund one.
What's your either liquidated or mostly liquidated in 2018.
Fourth quarter and full year revenues from Bernstein Research services decreased 4% and 7% respectively from the same prior year period. The current year period includes revenue from the autonomous acquisition, which closed on April 1st excluding autonomous Firstly in research revenues decreased 19% for the fourth quarter and fifth.
10% for the full year due to lower global client activity and trading commissions.
Fourth quarter and full year net distribution expenses increased 8 million, an 18 million respectively. As a result of higher Asia retail fund sales I know you lap.
Fourth quarter and full year investment gains of 3 million and $16 million, respectively result from higher seed investment gains and compared to investment losses in the same prior year period, which included a 6 million dollar realized loss on the sale of a seed capital investment and a private equity fund in the fourth quarter 2018.
Moving to adjusted expenses.
All in our total fourth quarter operating expenses of $553 million increased 12%.
Full year operating expenses of 2.1 billion increased 2% for the prior year.
Total compensation of benefits expense increased 15% in the fourth quarter due to higher based incentive compensation and increased 1% for the full here due to higher base compensation and fringe benefits, which were mostly offset by lower incentive compensation.
Compensation was 44.8% of adjusted net revenues for the fourth quarter versus 45.2% and the prior year period.
The full year 2019 comp ratio was 47.9% up 40 basis points for the prior year.
Going forward, we expect to continue to managed with comp ratio will not exceed 50% in any given year.
Given current market conditions, we plan to accrue compensation at a 48.5% ratio in the first quarter of 2020 with the option to adjust accordingly throughout the year if market conditions change.
Promotion and servicing was down slightly versus the same prior year period due to lower marketing expenses, which were partially offset by higher teeny lower trade execution expenses also contributed to the full year decline.
Seeing expenses increased 10% in the fourth quarter and 7% for the full year first at the same prior year period due to higher technology expenses related to our business initiatives increased occupancy primarily related to our headquarters relocation and unfavorable foreign exchange translation.
Higher error is also contributed to the full year increase excluding the headquarters relocation and unfavorable foreign exchange effects seen a increased by 5% in the fourth quarter and 4% for the full here when they increased ours are excluded as well.
Fourth quarter operating income of 264 million increased 29% versus the prior year period as revenue growth outpaced expense growth.
Full year 2019 operating income of 802 million decreased 6% from the prior year, primarily as a result of lower performance fees and Bernstein research revenues.
Fourth quarter operating margin of 32.3% was up 300 basis points year on year, reflecting the operating leverage of our business.
Our full year 2019 operating margin of 27.5% was down 160 basis points for 2018.
Of the 160 basis point declined 80 basis points is due to the lower performance fees discussed earlier 25 basis points is due to the headquarters relocation and the remaining 55 basis points is primarily attributed to the autonomous acquisition increased trading ours and unfavorable foreign exchange translation.
You may have noticed our fourth quarter adjusted EPU was once that higher than our GAAP GPU, while our adjusted operating income was 4 million lower than our GAAP operating income. This is due to the exclusion of the falling three items, which are not part of our core business operations first we recorded $3 million.
Just a charge for gap sporting most of which plus a write off a floor, which we had vacated and our white Plains office as a result of our Nashville relocation.
Going forward. This charge will also be deducted from our adjusted earnings on a straight line basis over the remaining two year lease term and has been included in our headquarters relocation guidance.
Second we recorded a 3 million dollar GAAP penal credit to reduce the contingent payment liability and a 3 million GAAP TNL intangible asset impairment charge related to a previous acquisition.
Finally, we deconsolidated certain seed investments in our adjusted results that we've consolidated for GAAP reporting consolidating these investments increased operating income by 8 million, but did not affect net income or EPA.
For the year, our adjusted EPU was three cents higher than our GAAP IPU, while adjusted operating income was 21 million lower than our GAAP operating income here. In addition to the real estate charge and contingent payment liability reduction discussed earlier, we excluded 7 million and acquisition costs, which includes intangible asset impairment.
Charge recorded in the fourth quarter, and a $30 million and consolidated variable interest entities operating income.
These non-GAAP adjustments are outlined in the appendix of this presentation.
The full year 2019 effective tax rate for lies Bernstein LP was 5.1% about as expected.
Going forward, we expect an effective tax rate of approximately 5.5% for 2020 based upon our current asset mix of domestic versus foreign pretax earnings.
Also in 2020, the intangible assets, resulting from alliance Capitol acquisition of Bernstein 20 years ago are about to be fully amortized. We have had an annual amortization charge or approximately $21 million for these assets primarily investment contracts.
16 million remains to be advertised in the first three quarters of 2020, and then the charge blend.
I'll finish with an update on our plan corporate headquarters relocation to Nashville.
I relocation is going very well last month, we announced that we plan to relocate 200 additional positions to Nashville, increasing the total planned relocated positions to 1250 at year end, we had over 600 Nashville based employees.
For the fourth quarter transition costs related to our Nashville, corporate headquarters relocation totaled $8 million compared to estimate expense savings of 4 million, resulting in a net 4 million reduction in operating income and about a net to set reduction as you.
The net 4 million approximately 1 million as compensation related and the remaining 3 million representing increased occupancy costs.
For the full year 2019 transition costs totaled 33 million compared to estimate expense savings of 16 million, resulting in a net 17 million reduction in operating income.
That is about a net six cents reduction in NPU, which is two cents less than we had expected.
Okay, and that 17 million approximately 9 million as compensation related but substantially all included in the comp ratio calculation and the remaining 8 million representing increased occupancy costs.
We expect a similar six cents reduction and full year 2020, EPA you due to the relocation breakeven to slightly positive IPU accretion in 2021, and then NPU accretion for each year thereafter.
We now estimate estimate that our ongoing annual expense savings beginning in 2025 once the transition period is over to be approximately $5 million higher than we previously discussed and we'll be in a range of $75 million to $80 million per year.
There's currently no change to our estimates of ranges for cumulative transition costs 155 to 165 million or expense savings 180 to 190 million to be realized over the transition period 2018 through 2024, when our New York City building lease expires.
Our estimates for both the transition costs and the corresponding expense savings are based upon our best current assumptions of employee relocation costs severance recruitment and overlapping compensation and occupancy costs. Our estimates for the timing of both incurring transition costs and realizing the related expense savings are based on our current relocate.
And implementation plan and the timing for the execution of each phase the actual total charges, especially recorded and the related expense savings realized and the timing of the IPU impact are likely to defer more current estimates as we implement each phase of our headquarters relocation.
And with that said, Jim and I are please ask your question.
Thanks.
To ask a question you want me to press Star one on your telephone to withdraw your question press the pound or hash key.
Please limit your initial questions to chew in order to provide all callers an opportunity to ask questions. No welcome to return to the Q ash follow up questions. Please standby well, we compiled acuity roster.
Our first question comes from the line of Dan Fannon of Jefferies. Please go ahead. Your line is open.
Hi, Good morning, this is actually James steel filling in for Dan.
So my question is on the comp ratio.
I'm, just curious as to what might drag this kind of toward the high end or above your range. I guess, we would've expected might have coming a bit higher just given where orbitz fees were this quarter.
This is John in terms of where we came in for the fourth quarter.
We were able to to leverage that down with the increased rise in the market.
And then also as we caught us the fourth quarter be true up our compensation requirements on an individual by individual basis for each ASP. So that allowed us to actually bring the ratio down starting off for the year again, we're going to start at 48.5%, which is actually a full percentage point lower than where we had started a year.
Oracle and it's really a function of where we're starting off with a landmark eelam starting this year as about a 110 billion higher than where we had ended the prior year and that's translating into much higher base fees, much higher revenue and allowing us to leverage that comp ratio down.
Got it and then secondly, just on Axa mandate termination just curious.
On on I guess, where those assets are going if you know why it was terminated and then if you just kind of help us.
Where are those assets currently stood at the.
Taxable fixed income or somewhere else.
Yes, as you may or May not know Acs has its own in house money manager acts investment managers and our understanding they will move that in house I. It was all taxable fixed income.
Yes.
Operator, we can move to the next question. Please. Your next question comes from the line of my carrier of Bank of America. Please go ahead. Your line is open.
Hi, good morning, Thanks for taking the questions.
Overall, just from the flow side, you guys pointed out like the flows are strong both on the retail institutional side in the pipeline looks good.
I guess, one one follow up on on the actually just given maybe either relationship are you guys relationship with them in what remains I.
Like is there like more of the assets that potentially go like in house or was this sort of like a one off I know the fees are low, but just so we kind of can gauge what that relationship is going forward.
Well look as I, Mike's et cetera. Thanks for the question a ads.
We've discussed in the past ultimately actually having sold out its ownership stake would over time, we thought move to more of an arm's length business partnership and we while we have continued to enjoy inflows and specific strategies with them in 2019.
We knew that it was a potential.
Possibility that they would begin to bring assets in house, what shape decided to do a we don't know what their long term plans will be.
But as I said, you earlier I think it'll move to be more of an arm's length relationship. So they're they're pleased with the overall level in service.
Performance that we are providing today.
And Mike It's John just to add suspects comments, we've looked at the total combined axa, an equitable relationship and we've disclosed that it's roughly 25% of are totally you about 5% of our fees, but when you break that down the equitable piece now is much larger.
And the the Axa piece, both in terms of assets under management as well as the the revenues that are derived from those assets.
Got it okay. That's helpful.
And then maybe just just one more on expenses and and margins I think this is this is a while back but you guys any kind of like 2020.
You know margin kind of range any was around that 30%.
And then you guys dependent in Nashville efficiencies that will come in over the next couple of years.
Just maybe bigger picture just given what you're seeing in terms of the momentum on the flows and even the fee rates and where you're investing and where you think you can get some incremental operating leverage how are you thinking about maybe the margin over the next few years based on like the core business plus you know what the natural synergies coming.
Coming into play.
So so Mike as John again, and kind of way, we're still committed to the 30% margin and we're going to definitely got there. We just don't think it's likely in 2020, unless we get markets like we had last year I'm. If we had markets like we had last year well, we'll definitely be there.
But you know the market's a much more of a driver than the flows in terms of bringing up the lam and the base fees and the performance fees as well so.
We're still targeting that 33%, we're going to get there.
Again, if we get really strong markets.
In in 2020, we could potentially got there, but we just don't think is likely I guess, what I would say also as it look.
Nobody is happy with 27.5% margin, we think the margins can be higher.
And we've always talked about a 50% incremental margin as we can drive revenue and we remain committed to that so as John it saying.
To the extent that we can see higher revenues that the easiest path to get to a higher margin level be at 30 or higher.
Hi, Thanks, a lot.
Our next question comes on line of Alex Blostein of Goldman Sachs. Please go ahead. Your line is open.
Hey, good morning, Thanks, guys for taking the question.
[noise] sounds a little bit of the bigger picture question for you. So one would take a step back.
Lines Bernstein has been one of the best flowing asset managers in the space with pretty attractive fee rate. So one could argue the your organic fee growth is.
That's helpful.
Yeah. When you look at evaluation it stocks been sort of stuck here at around 11 times earnings. So anything you guys could do to help unlock shareholder value given the strong topline growth.
Got I thought we were already trying to do [laughter] results were generating look.
I don't think there obviously levers for us to pull that we aren't polling today, we have been proactive in in addressing what we think it's a structural costs challenge and be a long only industry.
Bye.
Trying to utilize technology to automate lots of processes and am I think more importantly in the short term.
Relocating our headquarters to National I think those were important steps that are still in execution and.
And people are working very hard to achieve our objectives there.
But out from our perspective, we think we're doing what we're supposed to do we're we're focusing on blocking and tackling focusing on finding a new teams that can help supplement the suite of strategies. We currently field.
And continuing to retain and attract really talented people beyond that.
I think.
There's not a lot we can do.
Yeah, you did that was kind of the point sorry, if the question doesn't come off that way you guys are executing on initiatives that you're outline is just not resonating and much of a multiple improvement and it feels like a lot of it ultimately has to deal with the structure when it came on and obviously the ownership so.
Any updated thoughts around I guess on the on that front would be helpful. Alex. This is John I think.
In terms of when you look at the folks that have converted you all managers and you look at us where we're very different alright. So you know our trading market cap is about 3 billion and of that 3 billion roughly a third of that is held with employees and directors. So.
Just doesn't trade that much somebody other folks that have converted their their trading.
Market caps are going from 12 billion up 80 billion, they're trading several million.
Sure as a day were trading 300000, so and we also have were control we have a controlling parents that has an economic interest of 65% so much different than the other folks and so it's not clear to me that a conversion actually helps our unit holders from that perspective, and you know this incredible tax leakage in involved in some.
Nothing like that.
And then also to with an election coming up once you convert you can't go back and last time I checked I think it's all a Democrat Democratic candidates have caused increased corporate taxes. So I. Just don't think this is something that makes sense for us.
Got it alright fair enough.
My second question is around the expenses I think you guys talked about the margins overall, but help maybe dissect what's going on in June a I gave you gave a couple of ballpoints on kind of core Janet girls I think it was around 4% for 2019, when you accelerate some of the ours on the FX dynamics, but as you looking out into 2020, what sort of a reasonable.
Hey, girls and all of what base should be I guess considering that.
No I think again off the off the current pace.
You know when you strip out those those items I mentioned, we would be looking to grow it around the rate of inflation. So I think we're talking about 2% to 3% and that that growth in the gene I think going forward is primarily driven by.
Many of our technology initiatives and we're investing in technology.
Across multiple business lines that we have both.
For the client experience as well as for the portfolio manager.
To give them better tools to do their jobs.
Great. Thanks very much.
Our next question comes from the line.
Of Citi. Please go ahead your line open.
Okay. Thanks, So most of my question, but actually I guess, maybe just on performance fees I just want to can you give a sense of where you are in terms of performance fee eligible and use them. How the name change year on year and how to think about any of the seasonal locks that as we think about 2020.
Yes, so I think it's just over 5% of our total assets now our performance fee base.
The biggest part of that is in the private wealth, that's which is about about 9% and then institutional about 8% in retail it's very small.
But that's where we are it's been slowly creeping up we are seeing some of the on the institutional side. Some of the recent equity mandates are coming in.
With perhaps a bit lower.
And then pass but off selling include a performance fee as well. So we are seeing on the institutional side more interest in.
And performance fees were also seeing more interest as well as on the private wealth side as well, but it's slowly creeping up.
Okay, and just as a follow up just within within the other bucket.
Can you maybe talk a little bit about your new opportunity sort of see for growth in the alternative segments as we look out between 20 and beyond.
We continue to.
To focus on private alternatives in particular, bill and so we are in.
Continuing to uncovered teams, where we think they have really compelling investment proposition and the proven track record, who we think we can get to scale fairly quickly. That's our appeal to them and we have nothing to report at the moment, but there are ongoing discussions.
And our goal is to add additional teams this year and each year going forward.
I would just add within our existing suite of services the flows remain.
Quite quite robust bill.
Great.
Okay. Thank you.
And our next question comes from the line of Robert Lee of KBW. Please go ahead. Your line is open.
Great. Thank you good morning, everyone up maybe following a bill question a little bit on the alternative I'm just kind of curious the I guess.
A lot of the alternative.
As you point out comes from the private wealth.
Segment, but can you talk a little bit about.
Maybe what success and what you're seeing and in broadening your your alternative distribution in the institutional channels, you know kind of what.
What proportion of kind of your new business is coming from outside private wealth and kind of some of your initiatives there.
Let me start, but now I'm going to actually defer to Jim.
Later on he may have something to add here, but.
For the.
Private credit strategies, whether its commercial real estate debt or our middle market lending I believe the preponderance of their flows are coming now from institutional clients and we've seen particular interest among insurers both here in the United States, but also outside the U.S. for those out.
Assets and they continued be interested in different strategies that were developing within those groups. Jim do you want to do you have anything that Oh.
Yeah, I guess I would take.
A couple of things one is is that in our wealth management business, our clients remain under exposed to alternatives. So.
It is it remains an essential part of our strategy to.
Expand our.
Our wealth management business as well as in terms of attracting new clients as well as as additional penetration within the client base that exist today assess said, whether or not we're talking about ARIA, which is our multi pm.
Long short strategy.
Our securitized.
Fund, our our Rob.
Our middle market lending.
Capabilities or our commercial lending capabilities.
In the real estate space all of those are experiencing very nice growth in institutional and I guess I would add.
We also think theres opportunity in traditional retail space for those types of strategies as well.
So.
As I indicated earlier were.
We're pretty excited about the opportunities we have within a set of services that we have today as well as our ability to add new services and scale them overtime.
Thanks, maybe sticking with the private wealth channel.
You mentioned, 6% with cuts as the high end of your.
Expectations for advisor headcount, but can you maybe update us some kind of what you're thinking of that channel or advisor growth.
Growth over the coming years, and maybe any current plans to go back to expanding the twin somewhat or is it kind of just stolen within the existing footprint.
We think we have enormous opportunity within our existing footprint to expand beyond where we currently stand today. So we think we're underpenetrated a in a number of cities outside of New York that Weve grown in a we just opened in Nashville as you know when we continued to see wheel.
Interesting activity, there as well as in our other offices.
But with respect to be head count. We're looking for we were hoping to see five odd percent kind of growth rate year over year. There, we think thats about as fast as we can manage to grow organically just given the commitment to education, a we make it on each new climbed by financial.
As we bring in.
I guess I.
I'd also say, we remain very focused on growing the productivity of of the advisors that we have in place and as outlined in the presentation our track record.
It is pretty strong there and and Weve, but we still think we have real opportunity for that to continue.
Okay.
Great. Thanks, taking my questions.
There are no further questions at this time, Mr. Griffin I turn the call back over to you.
Thank you thank everyone for participating in our conference call feel free to contact Investor relations with any further questions have a great day.
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