Q1 2021 AllianceBernstein Holding LP Earnings Call
Thank you for standing by and welcome to the Alliance Bernstein first quarter 2021 earnings review.
At this time all participants are in a listen only mode.
After their remarks, there will be a question and answer session and I will give you instructions on how to ask a question 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 the host for this call head of Investor Relations for Amy Mr. Marc Griffin. Please go ahead.
Thank you operator, good morning, everyone and welcome to our first quarter 2021 earnings review this.
This conference call is being webcast and accompanied by a slide presentation. That's posted on the Investor Relations section of our website Www Dot Alliance Bernstein Dot com.
With us today to discuss the company's results for the quarter or Seth Bernstein, our president and CEO and Alita badge CFO. Additionally, not pass head of private alternatives will join us to discuss our private alternatives business and Keith Burke CFO will join us for questions. After our prepared remarks.
Some of the information we'll present today is forward looking and subject to certain SEC rules and regulations regarding disclosure so I'd like to point out the safe Harbor language on slide two of our presentation. You can also find our safe Harbor language in the MD&A of our first quarter 10-Q filed earlier this morning.
On the regulation FD management may only address questions of material nature from the investment community in a public forum.
So please.
<unk> during this call.
Now I'll turn it over to Seth.
Good morning, and thank you for joining us today in the first quarter, we drove balanced growth across all three channels geographic diversification and differentiated client focused offerings, specifically across ESG active equities alternatives and municipal west away near.
Near term investment performance rebounded strongly in fixed income while sound long term performance across other asset classes.
Our institutional pipeline grew to a record annualized fee base led by alternatives.
For the quarter, we posted active organic growth from 4%, while expanding our operating margin to 31, 7%, we delivered 27% growth from both earnings and distributions to unitholders, let's get into the specifics starting with a firm wide overview on slide four.
Gross sales were $33 3 billion, our second highest quarter since pre financial crisis 14 years ago sales were up $1 7 billion or 5% from a year ago went up 6% from the prior quarter.
Firm wide active net inflows were $6 5 billion or 4% annualized organic growth rate.
Quarter end assets under management of 697 billion were the highest since pre financial crisis, increasing 29% year over year and 2% from the prior quarter and.
An average AUM of 689 billion increased 14% year over year and 6% sequentially.
Slide five shows our quarterly flow trend by channel.
First quarter net inflows were positive in each channel.
Retail generated its second strongest growth sales amber with net inflows of $2 7 billion as strength in active equities immediate needs more than offset outflows in taxable fixed income showing the balance we've built in our retail business.
Institutional sales from $4 9 billion led to net inflows of $800 million driven by growth in taxable fixed income.
In private wealth gross sales growth sales increased 54% year over year and were up 46% sequentially with continued advisor productivity gains net inflows of $1 7 billion, reflecting improved investment performance and heightened client risk appetite.
Now, let's turn to investment performance beginning on slide six.
In the first quarter yields rose meaningfully and nearly all developed interest income line, reflecting deflationary concerns missed expectations for strong global economic rebound.
With the exception of high yield bonds returns were negative in credit sectors outperformed governments <unk>.
Despite the first quarter's yield driven price declines global credit sectors have rebounded strongly over the past 12 months. Following the COVID-19, driven sell off in March of last year.
Our strategies with global and multi sector credit positioning, including global high yield on American income have benefited during this risk on period.
Furthermore, each of the five income strategies on our retail income platform U S. Retail income platform ranked in the top quartile of their respective morningstar categories over the one year period.
For the one year period ended in March 91% up on fixed income assets outperformed a strong rebound versus prior periods, 55% of our assets have outperformed over the three year period and 65% over the five year period.
On municipal lineup continues to outperform but nine out of 10 funds from the top quartile across each time period. We saw strong inflows. This quarter's income was in demand for example, our municipal bond inflation from which we believe is the only fund in the industry. The combined muni bonds and 100 percentage to inflation to attacks.
Patient CPI swaps, so solid inflows Bennett billing from deflationary concerns, which were otherwise the negative free yield products.
In equities on a long term performance remains solid as 57% of baskets outperformed on the three year period, and 67 outperformed over the five year period.
Our one year equity performance with 38% of assets on our performance, reflecting our lower weightings relative to heavy benchmark concentration of Mega Mega cap stocks with abnormally high exposures risks risk factors like beta and momentum is.
It's worth noting that year to date a portfolio. These five stocks held in proportion to the market their market wage would have underperformed the S&P 500 by nearly 800 basis points.
We've positioned our bulk portfolios to participate in greater market breath as the economy started to reopen in the first quarter, 62% of our equity composite is outperforming their benchmarks led by our value on core strategies growth strategies and held our ground.
Our sustainable U S thematic equities fund one city Wise U S offshore awards, beating over 2000 funds available to U S offshore investors for providing the most value add over three year period.
Additionally, our concentrated growth on large cap growth funds were both upgraded the bronze medallist rent bonds by Morningstar designation received by only 5% of funds with assets over $100 million.
Moving on to our client channels, beginning with retail on slide seven.
Gross sales on the second strongest on record, 5% below our record first quarter 2020, and up 30% sequentially.
Net inflows were $2 7 billion driven by a 17% annualized organic growth in equity active equities, our 16th straight quarter of active equity inflows U S. Retail SMA sales accelerated and we had a strong quarter in Japan.
Municipals grew by 18% annualized helping to offset higher taxable fixed income redemptions in our high income suite.
As shown on the upper left chart, our balanced and diverse product offering has led to consistent organic growth with retail channel generating positive net inflows nine of the last 11 quarters.
Geographic balance continues with the U S, 36% of sales, Japan, EMEA and Latin America, 34% of sales in the Asia ex Japan, 30%. We now have 61 products with more than 1 billion each balance across asset classes. Our equity funds ranked 12 of 454 managed.
So several of our largest from posting strong flow rankings as shown on the bottom right. Muni is ranked 14th out of 110 managers.
Now I'll discuss institutional on slide eight.
First quarter gross sales of $4 9 billion were up 26% year over year, driven by diverse fixed income sales and were down 51% sequentially fixed income sales were robust up 300% driven by credit U S investment grade corporates securitize debt CLO.
And emerging market debt.
Actual active equity sales of $900 million growth strong growth in ESG and our active equities unfunded pipeline were purported but third strongest asb's since we began tracking this back in 2011.
Speaking of BSG yesterday, we announced the groundbreaking commitment as founding member of the corporate affiliate program and the newly launched Columbia Climate School. This is the second phase of our relationship that began in 2019, facilitating ongoing interaction between ABS investors and Columbia University scientists and XP.
Bert on climate issues as they arise in the investment process on cross portfolio sectors asset classes and regions.
Our institutional pipeline grew to $15 2 billion at quarter end up 25% sequentially driven by growth in alternatives.
<unk> of well over $50 million is a record and represents a 20% compound annual growth since we began tracking in 2011.
As shown on the bottom right. Notable pipeline additions include $1 5 billion of lower fees Crs $1 1 billion in our fourth U S. Commercial real estate debt funds supported by equitable 1 billion in Euro Cred also supported by equitable and $750 million in U S investment grade corporates.
Moving to private wealth management on slide on me.
Gross sales of $5 4 billion increased by 54% year over year, and 46% sequentially with strong continued improvements in advisor productivity.
Combined with lower redemptions, we generated net inflows of $1 7 billion, reflecting improved investment performance and heightened client risk appetite.
Increasingly clients actively deployed cash into long term allocation and we also saw a notable increase in pre IPO planning versus the prior year, which bodes well for future fundings.
<unk> $106 million in private credit and $75 million first close of our private equity fund of funds.
As shown on the bottom right. We continue to experience strong growth in Muni impact ESG and our proprietary separately managed equity tax loss harvesting product.
We're planning for a significant acceleration in new product launches in 2021 across a diverse array of funds, including alternative ESG and SMA platforms.
I'll finish our business overview with the sell side on slide 10.
Bernstein research revenues increased 1% sequentially and were down 8% versus last year's extraordinarily volatile first quarter.
Growth in Asia continues to be strong with trailing commissions up 50% compounding similar prior year gains.
India continues to show outsized growth stemming from focused investments.
Strong increases in U S market trading volume as shown on the bottom left graph were driven by higher mix of retail investors as you know our business remains an institutionally focused that said, we saw generally healthy trading volumes across our desks despite volatility declining from prior year periods. We.
We experienced good momentum for our sell side offerings from research checks up 15% in the quarter.
Progress toward our strategy in the first quarter as shown on slide 11.
57% of our equity assets from 55% of our fixed income assets are outperforming over three years and 67% of equities and 65% on fixed income are outperforming over five years.
Near term performance in fixed income from proved at 91% of assets outperforming.
Our geographic and product balance stroke, consistent organic growth across all channels with retail positive nine of the last 11 quarters in institutional positive seven out of the last eight quarters.
Our institutional pipeline now has a record fee based well over $50 million with alternatives accounting for over half of the total we closed on our 900 $900 million on our fourth U S commercial real estate debt fund and closed on $400 million on our second CLO.
Wealth had strong sales in net inflows and we're executing on the diverse product pipeline for 2021.
Differentiated product continues to amplify growth, including our ESG portfolios with purpose now 21 billion in AUM up 27% sequentially.
We are committed to managing our business to deliver strong incremental operating margins. Our first quarter. Adjusted operating margin of 31, 7% was up 410 basis points year over year with earnings and unit holder distributions up 27% versus the prior year period.
From time to time going forward I'll be inviting key members of our operating committee to participate in our earnings calls to highlight established and emerging areas of our business today I'm delighted to introduce Matt past, who was our growing private alternatives platform.
I will share some comments followed by OE to barge will wrap up with our financials Matt.
Thanks, Seth and good morning, everyone I'm going to discuss our private alternatives business at eight day history. The current platform our growth strategy and why we believe <unk> is well positioned to continue to attract great investment talent to meet our clients' needs.
Before we dive in I want to provide some context behind the growth of alternatives at 18 more broadly.
This financial crisis, we've invested significantly in diversifying the firm growing our fixed income franchise growing and diversifying our equity franchise to building out our multi asset and alternative capabilities. We accomplish this through a combination of organic growth from product development as well as targeted inorganic growth acquisitions.
Team lift out team build out.
As you can see on slide 13 since 2010, we've added 10, diversifying alternative investment capabilities to the firm across both private and public markets.
Turning to slide 14 and price.
But alternatives our focus has been on credit oriented strategies core competency that aligns with the firm's long tenured liquid credit business, which as you know is a key component of our DNA.
I'm showing this to you as many who cover off our alternative peers can appreciate on an apples to apples basis, a b has built a $125 billion credit business of which private alternatives representing approximately $20 billion.
This sits alongside our private placement business, which manages nearly 12 billion in AUM on our CLO business, which was launched in 2020 with backing from equitable and it's a direct extension of our fully integrated with <unk> leverage finance platform.
Collectively these strategies represent more than 25% of our total credit AUR.
On Slide 15, I'll review, our current platform before we get into the growth strategy.
Today, Abb's private alternatives business has scaled capabilities across private credit and real estate, including U S. Direct lending business, we call private credit investors U S commercial real estate debt European commercial real estate debt as well as energy.
Business currently has committed capital 20 billion, let's talk a bit about some of these businesses.
Our direct lending business, a private credit investors, which started in 2014 via a team lift out from Barclays, where we hired a core team of five with an established track record in initial backing from equitable over the past seven years, we've grown from five to more than 60 professionals focusing on the U S middle market.
Since inception businesses deployed approximately $13 billion investing over 200 middle market companies with approximately $11 billion in committed capital, we manage both pooled vehicles and separate accounts targeted at multiple client segments.
Our commercial real estate debt business includes the U S and European lending businesses. Our U S business was started in 2012 via a team built out since its launch we've deployed nearly $6 billion financing more than 100 properties across property types. The business currently has $6 7 billion in committed capital.
We manageable pooled vehicles and separate accounts on behalf of our global institutional Investor base and we are currently in the market with her fourth transitional lending fund having announced initial closing earlier this year.
We entered the European commercial real estate debt market late last year again. This falls the same strategy, we have deployed in the past targeting a specific investment opportunity meeting with various teams and aligning on the rates that based in London. The team currently overseas to mandate focused on transitional and opportunistic lending across Europe and the U.
Okay.
As with our direct lending business. This launch was backed by equity with $1 billion commitment representing another example of the important strategic relationship we share with equitable.
Lastly, our energy offering was launched in 2016 includes two vintages with $600 million in committed capital and Additionally, we have other alternative strategies that we gradually.
Broadly speaking across the private alternatives platform performance targets of dairy.
Depending upon strategy and vehicle type we have generated investment performance that's in line with our client commitments.
Turning to slide 16 lets talk about our growth strategy.
Looking forward the growth backdrop for the private business is very promising.
Pivot market strategies are growing at two to four times the rate of traditional public market strategies with a favorable supply and demand backdrop.
On the supply side. There is a continued share shift from bank and capital markets financing to private financing owing to speed flexibility scale that private capital offers among other advantages on.
On the demand side clients are increasingly allocating to private markets searched income diversification and to take advantage of illiquidity premiums.
With this as a backdrop our vision for private alternatives at a day is to create an industry leading platform in terms of breadth of credit oriented private market solutions and our client engagement.
Our growth strategy features both organic and inorganic growth bolt supported by the firms access to strategic capital sources, notably permanent capital through our relationship with equitable a private wealth business as well as our global institutional and retail footprint.
Organic growth has historically been driven by scaling our existing platforms within their core strategies as well as extending into adjacent strategies. This is expected to continue going forward across all of our existing businesses think of this as both growing the tree trunk and adding branches to the tree growth.
The Trump by scaling existing funds and launching new funds targeting new client segments, adding branches by leveraging our existing teams our investment capabilities to extend into adjacent asset classes or strategies. Let me give you a few examples on the real estate side, our U S business has historically focused on lending against transitional.
Assets were ending this into stabilized lending leveraging our origination network and credit process. We're also launching higher yielding income oriented strategy leveraging the same team and process simultaneously, allowing us to extend the high net worth investor market.
On the private credit side, our direct lending business has a strong presence in growth industries, such as technology enabled services and it infrastructure and we've leveraged this industry expertise as well as company and financial sponsor relationships to build a growth stage capital business, which provides debt and equity capital to growth companies.
In addition to organic growth we have platform gaps that we will continue to fill through targeted acquisitions and team lift outs were not going to be everything to everyone. Our growth will be focused towards large growing end markets, where we have an edge geographically. Our platform is currently weighted towards the U S from an investment perspective expand.
One of our real estate credit business into Europe was the first step of geographic expansion in both Europe and Asia represent opportunities that were considering across investment segments.
We also have platform gaps, including private asset backed as a complement to our existing direct lending business infrastructure and renewables as well as special such a special situations.
Yes.
These large scalable end markets are also aligned with our clients' needs, notably equitable strategy to improve yield and its general accounts by reallocating assets to higher quality liquid opportunities.
This has led to a virtuous cycle with the ability to deliver additional yield to our partners balance sheet and at the same time seed new strategies with permanent capital, enabling <unk> to continue to expand our business.
Equitable's permanent capital has provided the necessary scale to broaden the commercialization of our strategies to avs global institutional and retail distribution channels, including our private wealth management channel <unk> Bernstein.
Collectively across these channels, we've been successful in raising third party capital equal to four times the amount from the initial founders seed.
On slide 17, we answered a question why a day since two.
Ted a b has completed 14 team lift outs and acquisitions of which 10 had been within alternatives as I previously mentioned one of the questions. We often get is why a b how do you attract patients in a competitive market. This slide is an excerpt from our presentation that we used to proactively face the market to source opportunities and engage with team.
The market for talent is competitive and the teams and companies. We are engaging with multiple options I think we differentiate ourselves in terms of <unk> commitment to building this business as well as the strategic capital sources that I just discussed.
One key factor on our model is the desire to maintain a particular teams investment process and autonomy, we want to facilitate consistency and the team's approach. So that they are best positioned to continue to deliver attractive returns for our clients, we get comfortable with providing this autonomy through our detailed upfront diligence on both the market.
<unk> and the target investment team. However were also strategic about thoughtfully connecting these teams the broader firm, including technology operations and distribution.
Through this we believe we are able to offer our clients. The focus that comes from a dedicated investment team combined with the institutional resources of a global firm.
Lastly, another important value proposition is how we engage with our teams throughout the process from initial contact through acquisition and commercialization, we where.
Where we have a dedicated business development team that works in partnership with the acquired team and the broader firm to drive growth.
With that I'll now turn it from all over to Ali.
Thanks, Matt a great look into a key part of our business and strategy.
Let's start with the GAAP income statement on slide 19.
First quarter GAAP net revenues of $1 billion increased 15% on the prior year period operating income of $260 million increased 46% on.
Operating margin of 25, 9% increased by 260 basis points.
GAAP EPS of <unk> 81 in the quarter increased by 29% year over year.
As always I'll focus my remarks from here on our adjusted results, which remove.
The effect of certain items that are not considered part of our core operating business, we base our distribution to unit holders on our adjusted results, which we provide in addition to and not as a substitute for our GAAP results are centered on GAAP reporting and reconciliation of GAAP to adjusted results on our presentation Appendix press release and 10-Q.
Our adjusted financial highlights are shown on slide 20, which I'll touch on as we walk through the P&L show on slide 21.
On slide 21, beginning with revenues net revenues increased 10% for the first quarter versus the same prior year period.
These increased 11% from the first quarter versus the prior year period, reflecting 14% higher average AUM, which grew across all three distribution channels, partially offset by slightly lower fee rate.
The first quarter from your rate of $38 six basis points was essentially flat sequentially.
Continue to believe that although our P rate may be volatile from time to time, given large mandates in our pipeline that makes keep average is the long term trend should be grinding higher.
First quarter performance fees of $16 million increased by 10 million versus the prior year period.
Primarily to higher fees earned on our private middle market lending business.
First quarter revenue has kept Bernstein research services decreased by 8% from the first quarter of 2020, reflecting higher client trading activity a year ago, driven by outsized market volatility, but missed the onset of the COVID-19 pandemic.
We incurred investment gains of $2 million in the first quarter, primarily seed capital related as compared to losses of 7 million from the prior year period.
Moving to adjusted expenses.
All in our total first quarter operating expenses of $560 million increased 4% year over year.
Total compensation and benefits expense increased 10% in the first quarter due to higher incentive compensation driven by higher revenues.
As expected.
Sensation was 48, 5% of adjusted net revenues for the fourth quarter flat with the prior year period.
Given current market conditions.
Plan to accrue compensation at a 48, 5% ratio in the second quarter of 2021 with the option to adjust accordingly throughout the year if market conditions change.
As we stated last quarter expectations for our full year comp ratio should consider that performance fees have become a bigger piece of our mix, which may drive the comp ratio up.
Moreover, as we previously mentioned fringe benefits may ramp up this year post COVID-19.
Net.
Good luck on the servicing costs declined 21% from the first quarter due to lower <unk> and lower meeting costs, owing to the COVID-19 pandemic looking forward, we expect promotion and servicing spend levels should begin to return closer to more normalized levels in the second half of 2021, that's travel and meetings I assume that the pace at which these.
Pickup range.
On certain.
G&A expenses increased by 2% from the first quarter versus the same prior year period for the first quarter higher occupancy costs related to the Nashville relocation ancillary taxes portfolio servicing and unfavorable foreign exchange translation, partially offset by lower errors.
Interest expense declined by $1 5 million and tangible expenses declined by $5 million from a year ago.
Peter reflecting the absence of the quarterly amortization charges associated with the Bernstein acquisition, which ended in the third quarter of 2020.
First quarter operating income of $260 million increased 26% versus the prior year period as revenue growth outpaced expense increases.
Quarter operating margin of 31, 7% was up 410 basis points year on year, reflecting the operating leverage of our business.
Incremental first quarter market was over 70% as compared to the prior year period.
We continue to manage that business to an incremental margin of 45% to 50% not necessarily every year, but on average over time.
The first quarter effective tax rate for lights person LP was six 4%, reflecting discrete items. We continue to expect an effective tax rate for 2021 of approximately five 5% to 6%.
I'll finish with an update on our planned corporate headquarters relocation to Nashville.
Our relocation continues to proceed very well at quarter end, we had 850 Nashville based employees two thirds of the way to our target of 1250.
Our major offices in the U S and India, we plan to begin returning to the office early in the third quarter, which includes moving into our new National headquarters building.
For the first quarter estimated expense savings related to our Nashville, corporate headquarters relocation totaled $10 million and Petro transition costs of $7 million, resulting in a net $3 million increase in operating income for a net <unk> accretion.
Of the net Greenville, and approximately $7 million as compensation related savings offset by $4 million increased occupancy costs.
2021, we continue to expect accretion of around two cents per unit, increasing each year thereafter.
So you'd expect ongoing annual expense savings beginning in 2025 once the transition is over to be towards the upper end of the range of $75 million to $80 million.
With that I'll turn the call over to Seth.
Thank you Ali turning to slide 23.
In the first quarter, we continued to make progress on the dimensions, we've previously outlined.
We drove 4% active annualized organic growth with growth across channels. Each channel led by active equities alternatives municipals, we expanded our suite of higher fee alternatives of our strategic partner <unk>, leading multiple offerings.
As Matt discussed our future offerings align with their strong mutual interest in growing our yield enhancing alternative strategies.
Closely managing spending as well as continued COVID-19 related travel and meeting restrictions enabled us to leverage double digit top line growth driving strong incremental margins well above targeted levels.
Partnership we have a durably low tax rate and we will pay a distribution of <unk> 81 per unit for the first quarter, a robust annualized yield of 8% and a low rate environment with that we're pleased to take your questions.
Thank you the floor is now open for questions.
Just to ask a question at this time simply press Star then the number one on your telephone keypad.
If at any point. Your question has been answered and you wish to remove yourself from the queue press the pound key.
Please limit yourself to one or two questions initially to provide all callers an opportunity to ask their questions you're on more than welcome to return on the Qdoba ask any follow up questions.
Our first question comes from the line of Dan Fannon.
Thanks. Good morning. My question is on the pipeline and kind of the momentum in the business.
It seems like Theres, a bit of a shift more towards fixed income and alternatives versus the equity that we've heard from you in the past can you maybe talk just a bit about the dynamics and also in the context of what's happening broadly in the market and the kind of growth to value rotation.
Thanks for the question that Seth.
On the pipeline.
Remains quite strong.
As we indicated.
At $15 2 billion there has been a change in the mix of our pipeline part of that is a function of.
The lumpiness in some respects, it's some big mandates and fixed income and in Crs, which is our customized retirement solution.
So those do have a way from a size perspective, but have much less of an impact from a revenue perspective, if you look with hidden the pipe line.
We had about 6 billion on incremental.
Sure.
We had about $6 billion to $2 4 billion of incremental adds in the quarter and the pipeline is about 15% equities 20%.
Fixed income, 40% of <unk> and the rest is on our multi asset area, which would include our interest my retirement solutions.
Kidney level, we are seeing with consultants from up large institution hasn't abated at all.
But the mix is changing and we are seeing more interest in value.
As a general statement, but we're still seeing a number of equity mandates. So I guess I would say to you the size of the underlying mandate doesn't necessarily reflect the actual amount of activity and the revenue and the.
The revenue and the average earnings rate that we see on the assets, we're actually winning.
Okay. That's helpful. And then just as a follow up just wanted to come true.
Clarify on the normalization of kind of promotion and servicing is that we were going back to 2019 or kind of what's the right kind of framework I understand the ramp could be as dependent on a lot of factors, but when you when you characterize kind of normal.
What would that be.
Yeah. Thanks for the question so.
As you said, it's hard to tell.
It depends on client needs will depend on.
What competitors do we certainly would like to have some savings versus historical normalized level.
It will be higher than 2020, we all hope given given what's going on right now and we continue to believe in that.
Probably not 2019 level on a normalized basis, but it's hard to tell how much how much we think we can save.
First of all Thats, a 2021 should be higher than 2020 for sure maybe not as high as 2019 as how we'd think about it at this point.
Great. Thank you.
Again, ladies and gentlemen in order to ask a question simply press Star then the number one on your telephone keypad.
Our next question comes from the line of Mike carrier.
Hi, guys. This is actually Shaun calnan on for Mike.
So you mentioned infrastructure and renewables are the areas that you're looking to grow in alternatives can you discuss your current offering if any and how quickly you can build that offering given the increased interest in these products.
Sure Sean happy to answer that this is Matt.
So I mentioned as I mentioned earlier the growth strategy on the private outside has two pillars organic growth scaling core strategies extending those teams in inorganic growth.
Inorganic side, we're certainly being led by our client demand global client demand, notably equitable and within that the infrastructure and renewable space is an area of focus. So don't currently have an offering there but that is one of the large scalable end markets that we're looking at with equitable regarding potential expansion on the.
Future.
Okay. Thanks.
Our next question comes from the line of John Dunn.
Thanks, guys.
Could you maybe give us a kind of a check in on the temperature of what youre seeing as far as M&A and team lift outs with the markets being up a bunch, but secular pressures not going anywhere.
Okay.
Sure happy to do that on so.
There's a lot of M&A activity in the sector at large and small and in our view is that it will likely continue precisely to the pressures you've seen them in that youre describing.
Look we see all the flow.
We remain quite selective.
And true to our strategy, what we're not going to be come in tight spot buy it by the next shiny object.
Look we believe in the market has spoken and things that we said before which is that M&A mainly to cut cost has a very low probability of success.
A matter of the size.
Probability is much higher for M&A, it's not perfect, but it's much higher for M&A. If you can.
Can bring together complementary trade, whether that'd be prada.
Product panels skills geographies, some combination of those ideally.
And that's where we continue to look and I got on the flow we are.
We believe coming from a position of strength, how can I hopefully the past few quarters suggest that in and so well.
Well, we'll stay on top of them on activity. That's out there we will be in the mix, but we're only going to do anything that again fits our criteria of bringing together complementary skill sets.
Of course as you heard from Matt alternatives is a big part of that focus for us and so that's where we're going to be very very focused on that fits our strategy on our clubs true that Korean and so in particular, that's where we're going to be lumpy.
Makes sense.
And then as my follow up maybe just if you could.
Here on update on the main investment areas on the distribution side, maybe despite different for different parts of the channel.
Channels and geographically.
Sure Seth let me start.
Institutional I mentioned, it a bit earlier, when renters, saying around our backlog.
We are seeing pretty strong activity.
In both Europe and the U S.
A lot of that interest is around what we call responsible investing or portfolios from purpose, where we're seeing.
Real interest, particularly in Europe, but also growing interest here in the U S and that crosses equities and fixed income.
As Matt was alluding to weak.
There is a continuing appetite for private credit so as we have new capabilities to launch we see pretty receptive audiences for it moving into retail.
In Asia, we're seeing which as you know is a very important market for us there is continuing.
Concern about interest rates and rising interest rates and inflation.
There so that has.
Packed at us from the perspective of our American income on global high yield products.
On the other hand, frankly, given the extreme moves in treasury yields over the quarter on over the last sort of four or five months.
Say theyre actually rather muted relative to historical.
Experiences that we've had.
Conversely, we're seeing quite a lot of demand for equities and multi asset in Asia.
Equities, notably in Japan.
And so we've seen a much better mix at least for ourselves in the Asian marketplace in retail.
On the United States Big demand from Munis, Muni Sma's have really been driving.
A lot of interest for us on equities continue to be pretty strong here as you can see.
And in Europe are slower.
From our perspective, but equity is certainly there and fixed income to a lesser degree and finally private clients had a very robust.
First quarter.
And demanded.
Really I think a function of people, taking cash and investing we had a significant cash build up over the course of the year with our clients and putting it to work both on alternatives and elsewhere.
So I'd see continuing interest in more appetite than we've seen in a while.
Got it thanks very much.
Okay.
Our next question comes from the line of Korean Athene fee.
Good morning, everyone. This is karim filling in for Craig.
My first question is on the private wealth channel. So there was a 23% sequential improvement in redemptions could.
Could you talk a little bit about what the drivers behind this improvement and if we should expect disc.
Decelerating redemption activity in this channel in the future.
Thank you.
Hi, Thanks for the question, it's Kate for occur, Yes, we didn't have a strong quarter.
Net flows of the $1 7 billion look I think that's attributable to a number of factors over the course of the pandemic and really the commitment on putting clients at the front and center of everything we do.
On whether it's true that the investment offerings that we've added to the platform and that thought leading wealth advisors as well as the strength of the overall just an advisor on service team really putting putting the clients at the forefront.
Based on the wealth model on an allocation advice. They did begin that Seth just mentioned at the beginning of the year.
Encouraging clients to redeploy cash into higher earning asset classes and the success of this campaign did move cash from the sidelines, thus federated cash and holding cash down about $300 million each.
So we you know we continue we do continue to see movement, there profit planning significant product launches in 2021 and alternatives again.
As well as around ESG and that's also had mentioned the strength on the SMA platform to.
To meet the evolving client preferences again, Malawi on there.
Their outcomes. So so we are you know we can't predict flow that we're pleased with the success. We've seen so far this year and are very focused on on a continuing.
The business in the coming quarters.
I would think you'd add.
Yes, I would just add to that I think we also had improved investment performance, which helped describe the bank with respect to retention.
And I think that's continuing.
Yeah.
Thank you.
Again, ladies and gentlemen in order to ask a question simply press Star then the number one on your telephone keypad.
Yeah.
There are no further questions at this time, Mr. Griffin I'll turn the call back over to you.
Okay. Thank you operator, and thank you everyone for participating on our conference call today feel free to reach out to Investor relations with any further questions and have a great day. Thank you.
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Yes.
Yes.
Yes.
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Our next day.
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