Q2 2021 AllianceBernstein Holding LP Earnings Call
Thank you for standing by and welcome to the Alliance Bernstein second quarter 2021 earnings would be them.
At this time, all participants are in listen only mode.
After the remarks, there will be the question and answer session.
And I will give instructions to you on how to ask the question at that time.
As a reminder, this conference is being recorded and will be available for replay for 1 week.
And I'd like to turn the conference over.
Of which of the host of this call head of Investor Relations for a b Mr. Marc Griffin. Please go ahead Sir.
Thank you Angie good morning, everyone and welcome to our second quarter 2021 earnings review.
This conference call is being webcast and accompanying slide presentation, that's posted and the Investor Relations section of our website.
Www dot and the lines Bernstein Dot com with us today to discuss the company's results for the quarter are Seth Bernstein, our president and CEO and Allie the badge CFO and head of strategy.
<unk> 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 and SEC rules.
And regulations regarding disclosure.
And I'd like to point out of the Safe Harbor language on slide 2 of our presentation.
You can also find our safe Harbor language and the M. DNA of our second quarter, 2021, and 10-Q, which we filed earlier this morning.
Under regulation FD management may only address questions of material nature from the investment community and a public forum.
So please ask all such questions during this call.
Now I'll turn it over to Seth.
Thank you Mark good morning, and thank you for joining us today.
And the second quarter, we continued to grow organically across all 3 channels for the third time and the last 4 quarters.
Geographic diversification and.
And differentiated client focused offerings across active equities, including ESG multi asset and municipals and alternatives led the way.
Our short and long term investment performance improved across both equities and fixed income while on a record institutional pipeline maintained and annualized fee base above $50 million.
And the quarter, we posted active organic growth of 4%, while expanding our adjusted operating margin to 31, 7%, we delivered 49% growth and both adjusted earnings per unit and distributions per unit holder, let's get into the specifics starting with the firm wide overview on slide 4.
Gross sales were 45 billion or $36.3 billion net of sales associated with the Venerable transaction.
Once again the quarter sales were second only to pre financial crisis levels 14 years ago ex <unk> sales were up $4.5 billion or 14% from a year ago and up 9% from the prior quarter.
<unk> firm wide active net flows were $6.7 billion of 4% annualized organic growth rate and were up 5% income excluding axis redemptions and the venerable transaction.
Quarter and assets under management of 738 billion rose, 23% year over year and 6% from the prior quarter.
And the average AUM of 723 billion increased 25% year over year and 5% sequentially.
Slide 5 shows our quarterly flow trend by channel.
Firm wide second quarter net inflows of $6.2 billion represented a 4% annualized organic growth rate.
Net flows were positive in each channel for the third quarter of the last 4.
Retail generated second strongest growth sales ever with net inflows of $5.2 billion as growth in active equities and the lease more than offset moderating sequential outflows and taxable fixed income once again highlighting the balance.
And our retail business.
Institutional sales of $8.9 billion, excluding the Venerable transaction led to net inflows of $900 million driven by our multi asset retirement solutions and the active equity and.
And private wealth gross sales increased 4% year over year, while declining 33% sequentially.
Net inflows of $100 million reflected continued client engagement and what has historically been the seasonally lower slower quarter sequentially.
Now, let's turn to investment performance beginning on slide 6.
Starting with fixed income and the second quarter yields to burst amongst developed markets rising.
And Europe is growth expectations lifted with vaccine rollouts, while on the U S. The 10 year yield fell by 27 basis points to 147%.
The us bond returns were positive and in developed markets credit outperform governments as investors look through near term transitory inflationary searches.
<unk>, our fixed income performance continued to strength and there is 91% of our fixed income assets outperformed over the 1 year period, 69% of assets outperformed over the 3 year period and 68% over the 5 year period.
Our offerings generally benefited from an underweight, the duration and and overweight to credit.
Strategies of global and multi sector of credit positioning and included global high yield, which ranked 8% talent and the quarter and American income, which ranked 28.
Tax exempts continued to post outstanding relative performance with 6 of our 10 retail mutual municipal funds and the top decile of their Morningstar.
Earnings to our peer group across all periods, and all 10, and the top quartile across all periods.
Our tax aware of vehicles, including SMA continued to drive double digit annualized organic growth rates.
Turning to equities equity markets continued to rise in parallel of earnings expectations.
With the S&P 500 up 8.6% and the MSCI World up 7.7% and the second quarter.
Through June and the S&P 500 was up 15% year to date, while the S&P 500 earnings expectations had risen by 13% over that same period.
Interestingly factoring out dividends the return.
The share has almost exactly matched the rise and earnings expectations.
And equities, our percentage of assets outperforming strength and each time periods shown improving the 44% for the 1 year period, 66% for the 3 year period, and 71% for the 5 year period.
Both stocks regained.
Return on the burn in the second quarter after lagging in prior quarters with much of the outperformance of growth stocks occurring later in the quarter as longer term interest rates retraced or large cap growth global core and concentrated U S and global growth strategies.
Outperformed the aided by stock selection and sectors, including healthcare.
<unk> <unk> technology.
Our equities platform continues to benefit from broad and global distribution relationships and countries like Japan as well as expanded services to existing clients, which will focus on and the next section of the clients on client channels.
Beginning with retail on slide 7.
And once again gross sales were the second strongest on record of 22% year over year and up 4% sequentially.
Net inflows were $5.2 billion, driven by an 18% annualized organic growth and the active equities, our 17th straight quarter of active equity inflows, we continue to drive.
The positive flows and U S retail and Japan.
Municipals grew by 23% annualized helping to offset taxable fixed income outflows, which moderated sequentially as American income redemptions improved by $1.6 billion versus the prior quarter.
As shown on the upper left chart of balanced and diversified.
Product offering continues to drive consistent organic growth with the retail channel generating positive net inflows 10 of the last 12 quarters.
We remain globally diversified with the U S, 39% of sales, Japan, and EMEA Latam, 33% of sales in the Asia ex Japan 28.
First of premise of sales.
We now have 62 products of more than the $1 billion each balanced across asset classes. The prepared to with 48, just a year ago.
On a net flows basis, our U S equity funds ranked ninth at 453 managers International equity funds ranked 21st.
And $8.253 managers and Muni is ranked 14 of 111 managers. Several notable individual funds of shown on the bottom right.
Turning the institutional on slide 8 <unk>.
First quarter gross sales of $8.9 billion, excluding the venerable related sales.
We're up 1% year over year and up 82% sequentially.
Active the equity sales of $2.8 billion more than tripled sequentially driven by European value U S. Smid cap growth and U S concentrated growth. This was the 12 of the last 14 quarters in which active equity posted net inflows.
A $4 billion 4 billion of Crs customized retirement solutions and the <unk> lifetime income solutions funded and the quarter.
And I ask past the 5 billion.
AUM milestone this quarter ending above 6 billion of solid achievement for this growing platform.
Also on the quarter ex.
We ended the $50 million.
Merger arbitrage vehicle of strategy for which we are seeing active interest given the strong 3 year track record.
Fixed income sales slowed in the second quarter with outflows driven by the Venerable transaction and the last of the Axa related redemptions.
We have now incurred.
Overall, $13.1 billion and lower feed the Axa redemptions since we announced them in early 2020 and net redemption program is now essentially complete.
The institutional channel has grown organically inclusive of these redemptions highlighting the strength of our globally diversified differentiated solutions broad.
Kurt the relationships and talented teams.
Our ESG portfolios with purpose grew to 25 billion.
Up 17% sequentially, driven by our U S and global sustainable thematic platform from which Rfps were up 3 times and the first half of the year versus the prior year period.
We launched the <unk> sustainable income portfolio and also concluded <unk> climate change and the investment in canopy of first of its kind collaboration with Columbia University, which enrolled over 1000 clients around the world.
The Academy integrated scientific and academic analysis of how climate change from the effect investment.
Investment risks and opportunities from macroeconomic to issuer levels.
Our institutional pipeline grew to a record $17.8 billion at quarter end up 17% sequentially driven principally by a large 8 billion dollar of Crs mandate.
The annualized fee base exceeded 50 million.
And or 18% compound annual growth since we began tracking and 2011 of alternatives over half the fee base.
Yeah.
Moving to private wealth management on slide 9.
Gross sales of $3.6 billion increased 4% year over year and declined 33%.
Initially.
Combined with lower redemptions, we generated net inflows of over $100 million, reflecting a sequential seasonal slowdown.
We built on our successful cash campaign earlier and the year with the new tax aware campaign, which is highly relevant in today's environment.
We raised 58.
And so quaintly qualified opportunity fund focused on tax efficient and investing and $103 million and the second close of our private equity fund of funds.
We also launched 2 new products sustainable intermediate duration bond fund and the ESG offering and global Disruptors of technology and innovation focused fund.
Our proprietary separately managed equity loss tax loss harvesting product now stands at over $1 billion up 41% sequentially.
Our muni impact and the ESG portfolios continued to grow strongly as shown on the bottom right.
I'll finish our business review with the sell side items.
On slide 10.
Bernstein research revenues decreased by 7% year over year and were down 11% sequentially, reflecting more normalized institutional trading volumes as compared with more volatile prior periods.
Growth in Asia remains healthy with trading commissions up 20% and then be a continues to ramp strongly.
We are successfully engaging clients as evidenced by our 37th annual strategic decisions conference executives attended from 173 of the world's largest and most influential companies of upper 2600 investors up 30% year over year.
Once again research checks increased year over year.
And then we ranked highly in the most recent Greenwich U S portfolio manager surveys as exemplified by the.
And ranked number 1 and best high quality written research and first and most intense sales coverage.
I'll close of our business overview with progress toward our strategy and in the second quarter of.
Out of 11.
Our investment performance improved in the quarter with 2 thirds of more of equity and fixed income assets now outperforming both the 3 and 5 year period.
Near term performance and fixed income continued strong at 91% of assets outperforming while equity.
On slide sequentially to 44%.
Our geographic and product balance is now driven organic growth across all channels and 3 of the last 4 quarters. We've retailed positive 10 of the last 12 quarters and institutional positive 8 out of the last 9 quarters.
<unk> grew for the third of the last 4 quarters.
Improved client engagement across our growing inflation and tax where sweet suite.
Our ESG portfolios of purpose stand at 25 billion and the assets under management up 17% sequentially.
And we're growing at double digit annualized rates and alternatives multi asset and municipals.
We are committed to managing our business to deliver strong incremental operating margins our second quarter. Adjusted operating margin of 31, 7% was up 380 basis points year over year with adjusted earnings and unit holder distributions of 49%.
Versus the prior year period.
I will turn it over to Ali the barge to review the financials, followed by an update on our strategic relationship with the equitable.
Ali.
Thanks Seth.
Start with the GAAP income statement on slide 13.
Second quarter GAAP net revenues of $1.1 billion increased 24%.
Seth on the prior year period.
Operating income of $284 million increased 35% and operating margin of 26 point of zero percent increased by 430 basis points GAAP.
With the use of 91 and the quarter increased by 54% 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 the base our distribution to unitholders on our adjusted results, which we provide and addition to and not as a substitute for our GAAP results are centered GAAP reporting and a reconciliation of GAAP to adjusted results and in our presentation appendix.
<unk> press release and 10-Q.
Our adjusted financial highlights are shown on slide 14, which I'll touch on as we talked through the P&L show on slide 15.
On slide 15, beginning with revenue.
Net revenues of $881 million increased 26% for the second quarter versus the same.
Period.
The increased 26% from the second quarter versus the prior year period, reflecting 25% higher average AUM, which grew across all 3 distribution channels and of 1% higher fee rates.
The second quarter of fee rate of $38.7 basis points was marginally higher.
And part of yourself.
Continue to believe that although our fee rate may be volatile from time to time, given large mandates such as the $8 billion Crs mandate added this quarter that may skew. The average is the long term kind of should be grinding higher.
Second quarter performance fees of $54 million increased by 45 million.
Versus the prior year period, due primarily to our U S select equity and long short fund and our private middle market lending business.
Second quarter revenues for Bernstein research services decreased by 7% from the second quarter of 2020, reflecting higher client trading activity a year ago, driven by outsized market volatility and the onset of.
Of the COVID-19 pandemic.
Moving to adjusted expenses all in our total second quarter operating expenses of $602 million increased 20% and go over here.
Total compensation and benefits expense increased 26% and the second quarter, due primarily to higher incentive compensation and secondarily.
And the higher base compensation, both of which were driven by higher revenues.
How does he guided to compensation was 48, 5% of adjusted net revenues for the second quarter flat with the prior year period.
If the current revenue trends continue we may accrue compensation at a 48 points of zero.
The percent ratio for the second half of the year with the option to adjusted Accordingly, if market conditions change.
As stated previously.
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 previously mentioned we expect.
Fringe benefits should wrap up this year of post COVID-19.
Promotion and servicing costs increased 12% and the second quarter due to higher transport and marketing related expenses as well as modestly higher teen.
Looking forward, we expect the promotion and servicing spend levels to begin to return closer to more normalized level.
And the second half of 2020, 1 is travel and meetings resume so the.
Pace at which these pickup remains uncertain.
All in G&A expenses increased by 8% and the second quarter versus the same prior year period, or 6% from putting Nashville relocation related occupancy expenses.
For the second quarter.
Our portfolio of service cost due to fund launches and platform build outs, including our European commercial real estate debt platform as well as higher professional fees and trading errors and foreign exchange translation drove the increase.
We continue to expect full year G&A expenses, excluding the Nashville relocation to be aligned with inflation, but no.
Note that we do expect and inflation will likely be higher going forward.
Within other expenses intangible amortization expenses declined by $5 million from a year ago. Once again, reflecting the absence of the historical quarterly amortization charge associated with the Bernstein acquisition.
Second quarter operating income of 279 million.
<unk> increased 43% versus the prior year period as revenue growth outpaced expense increases second quarter operating margin of 31, 7% was up 380 basis points year on year, reflecting the operating leverage of our business the.
And the Incrementals second quarter margin was 46%.
To the prior year period, we continue to manage the business too and incremental margin of 45% to 50% not necessarily every year, but on average over time.
The second quarter of effective tax rate for Alliance Bernstein L. P was 4.4%.
We now expect and effective tax rate for 2020.1 of between.
As compared to 5.5% GAAP from prior guidance of 5.5% to 6%, reflecting a greater mix of domestic source of earnings.
I'll finish up with an update on our planned corporate headquarters relocation to Nashville, which continues to go well.
A corner and we had 864 and Nashville based employees nearly 70.
5 of the way towards target of 1250.
From a major offices and the U S. Anemia, we began returning to the office and July which included moving into our new downtown Nashville headquarters building.
The new building access and commerce, which received of silver lead rating as well as the well health and safety seal is an integral.
Integral part of our unique state of the art and mixed use complex, which includes the National Museum of African American music.
The thrilled to welcome back employees and to this wonderful headquarters building.
And we'll enjoy best in class and 1 of these.
New headquarters was also benefit from robust critical system architecture to ensure operations under adverse conditions.
The second quarter estimated expense savings related to our Nashville, corporate headquarters relocation totaled $10 million compared to the transition cost of $8 million, resulting in a net $2 million increase in operating income of approximately 1 cent per unit.
Other net $2 million approximately $7 million as compensation related.
The savings offset by $5 million of increased occupancy costs.
For 2020, 1 we continue to expect accretion of around 2 cents per unit, increasing each year thereafter.
Peter you expect ongoing annual expense savings beginning in 2025 once the transition is over to be towards the upper end of the range of 75 to 80 million.
Million.
On last quarter's earnings call, we highlighted our private alternatives business and our path to become a global lever leader and private alternatives.
This quarter, we thought it would be helpful to spend a few minutes to discuss in further detail our virtuous cycle with equitable, especially in the context of recent insurance and asset manager.
Manager of news flow.
Turning to slide 18 at the timeline shows a bean and equitable have accelerated our strategic relationship and recent years towards growth.
Starting from the left that's part of our long history together and could have on its predecessor access of played a critical role and the development of our private illiquid platform.
The form beginning with the first seed investments in 2013.
Since that time, I put up on Axa and invested a combined $6 billion and committed capital and private alternatives, including the most recent commitment of $1.2 billion, which enable us to see our new European commercial real estate debt platform Matt.
And Matt fastest got the.
Of this portfolio of offerings on last quarter's earnings call.
The pace of our collaboration and vision to build businesses together has accelerated the equitable 2018 IPO and.
Earlier this year, a b C suite joined the management committee of equitable and shrink further definition alignment and execution.
Evolution on strategic objective between our 2 companies.
We've also recently updated of lengths of long standing investment management agreement and the festival.
Equitable and has also agreed to provide permanent capital, which is the investment capital of indefinite duration to a b and in doing so has helped initiate the virtuous cycle the exist between our 2 companies.
And this virtuous cycle occurs of equitable seats, and a basket of long dated assets and a b's current and expanding private illiquid platform, which provide and improved risk adjusted yield for Equitable's General account.
A b benefit by delivering differentiated service the equitable and its other clients while growing its longer dated higher.
Fee and higher multiple alternatives offerings.
All of this enables equitable to meet its own objectives, while growing a high multiple business of which the majority owner.
It is important to note the equitable and acts of initial capital commitments have allowed for a powerful multiplier effect driving a 4 times of inquiries from ceded.
And to add scale and AUM from third party capital for these businesses.
Today, we're pleased to inform stakeholders, the equitable's committing to provide $10 billion and permanent capital over the next 3 years to build out a bunch of private illiquid offerings, even further including pie of alternatives and private placements.
And this is almost twice the amount of total of <unk> capital, we have already at a b, which has grown to our current $20 billion and AUM private alternatives business our price.
Placement business because of another $12 billion and the AUM.
We expect this anticipated capital from equable, well, perhaps not immediately but over time accelerate growth.
And it's and it and inorganic growth and our private alternatives business, allowing us to continue to deliver our clients of our clients employees unitholders and other stakeholders.
Slide 19 shows the a D. Currently manages $121 billion for equitable of which 64% because of the general accounts and 36% is the separate accounts.
And other is the <unk>.
Of centers of the Equitable's Pro Channel accounts 80, currently manages approximately 75% of the G I.
The $10 billion of permanent capital over the next 3 years, some of which will be incremental net flow to a b and some of which will be reallocation significantly enhances <unk> growth prospects again considering.
For GAAP the past seed investments has relaxed 4 times growth and committed capital from other clients.
Slide 20, which we showed last quarter highlights, our organic and inorganic growth strategy and alternatives.
The $10 billion of permanent capital from equitable will allow us to grow our core through scaling existing funds follow on funds and new funds.
And the new client segment, as well as existing and extending into Adjacencies.
On the organic inorganic side ex.
And with permanent capital commitment will enhance our ability to attract and retain highly qualified teams and turn allowing a b to fill gaps while focusing on scalable and higher growth markets.
Slide.
On Taiwan highlights the large valuation differential between traditional and private alternative managers, just as a reminder to all of us.
That growth permanent capital will help us accelerate growth into higher multiple business combined with the multiplier effect shown through Echostar commitment, we anticipate that growth and private of liquids should be accretive to our valuation not overnight.
Slide 20 times.
Finally on slide 22, we further highlight the benefits of both a b and equitable of the virtuous cycle.
And what I was able to enhance its general account income the approach.
Create risk adjusted returns and diversification and insurance capacity and priority asset classes.
<unk> remains focused on delivering superior investment performance.
<unk> and expanding our differentiated service and for our clients, especially private alternatives and.
In conclusion, we feel privileged to have a like minded partner owner and equitable.
Learn from what some of our traditional and private alternative competitors are doing and the industry and believe our relationship with equitable has a long term competitive advantage for lines of Bernstein.
Now I'll turn it back to Seth.
Thank you Ali turning to slide 23 and.
In the first quarter, we continued to make progress on the dimensions. We've previously outlined namely we drove a 4% active annualized growth rate spanning across each channel led by active equities and multi assets and municipals.
We expanded our suite of higher fee alternatives with ethical funding, our euro credit platform and seeding of new merger arbitrage vehicle as Ali just highlighted equitable's $10 billion commitments of private of liquids over the next 3 years will significantly accelerate our opportunity set and alliance of their strong mutual interest and growing our yield.
Yield enhancing alternative strategy.
We drove healthy incremental margins and the quarter in line with our long term goal.
As a partnership we have of Durably low tax rate and we will pay a distribution of <unk> 91 per unit for the second quarter for a robust trailing 12 months yield of 7% and a low rate environment.
With that we're pleased to take your questions.
To ask a question. Please press star 1 on your telephone keypad and you send me your initial questions to queue and order to provide all callers the opportunity to ask questions.
Youre welcome to of returning to the queue.
Follow up question.
To ask a question please press star 1.
Your first question comes from the line of Bill Katz with Citigroup.
Okay. Thank you and good morning, everybody I appreciate the added disclosure of Super helpful. This morning, maybe we could start with that on.
As a part of the site could you talk a little bit about just need a little more detail on the underlying economics on the 10 billion and it sounded like some of it may be new some of it may be a replacement.
But maybe you could help us with where you are today in terms of insurance related revenue is coming off of the equitable and and how you sort of see the $10 billion.
And the initial coming through the P&L. Thank you.
Sure.
So thanks for the question we think this is.
A meaningful step for alliance Bernstein and and equitable.
The types of things should not be on familiar to people like yourself who've covered some of the part of alternative firms.
Well and you see them of news flow.
It is at a $10 billion and you're right that it is some incremental.
Reallocation, but all to our liquids suites of private placements and the private alternatives, which which is the narrow are generally not always but generally higher fee areas to manage the.
The benefit that we get them on top of that is is we have a track record of.
And that a O M and multiplying it by about 4 and we hope that the track record continues and and and doing that and and thinking about that and we certainly have a glide path that we've developed together with equitable we won't dimensionalize.
Much further about exactly what we're gonna do with the $10 billion of how we're gonna grow and it's a little bit of of freedom to build new businesses together for core equitable and for a b and serving their needs to improve their yield and our desire on behalf of unit holders and employees and the other stakeholders to grow our private.
Alternatives business.
But but but it could be organic or inorganic growth the growth prospects and as we mentioned and the AR and the prepared remarks, and we manage about $121 billion for for equitable and.
And we we have about 75%.
And for sake of background about 70.
The 5 insurance clients that we serve as well and we think that and what we're building conservative and more insurance clients moving more growth for us exactly of a subset and his remarks as well.
Okay. That's helpful. And then just for my follow up question and thanks for taking both the questions. This morning, so on pack.
And maybe the expense discussion a little bit and if I look at your G&A.
Day, It was up pretty measurably, and there's a whole bunch of things that the sort of fall into that just sort of wondering like whats the exit pacing on debt and then are in line with your commentary around sort of the normalization of whenever that might mean for the second half of the year, how should we be thinking about just sort of the pace of growth in the promo line and it is.
2019, still the right baseline to be sort of modeling back to or are there other offsets along the way that can maybe temper some of that normalization and thank you.
Sure, let's disaggregate that question into 2 buckets, 1 of that G&A and 1 about obtaining and particular given that that's income on servicing from a G&A perspective.
And he can tell a teenage girl and 8% on a year over year basis.
That.
Includes a relocation expense from Nashville, if you were to take that out of.
And the Nashville, relocation and you'd be talking about something like a 6 ish percent type type growth and G&A and that was driven by by a few a few things right some of them are.
Very much along the plans that we had in terms of growth.
The portfolio of course for launching new products for example, our European commercial real estate debt platform, which also is in partnership with equitable.
And there are some higher professional fees and there are some some trading errors and FX are those types of things are in that number and and we expect that.
Active and we're at 222 to continue as of the year goes on and now what I'd say is we also continue our guidance previously took the stick which is that excluding.
The Nashville relocation costs.
And would expect the G&A would grow with inflation now and as we've said on our prepared remarks, we think and placements.
And there's probably a little bit higher now than it was before but that that guidance really doesn't change it and by the way just just by way of interest.
We are seeing.
And in the G&A line and some some of your inflation coming from market data costs from professional services fees sort of eyes wide open about managing that and that will continue so that that's kind of on the G&A part.
And now.
And you mentioned promote from on servicing and obviously the big driver of that for US is watching teeny and watching for meetings and look there the display.
So we're it's hard to say right, it's hard to say, what's going to come out over the next couple of wild here, we're all watching downtime and being very careful.
And I will say of that.
Some of those T and expenses for example is on the start of meetings.
Year on year double and sometimes triple the cost of the I E things are ramping back up and think about what we're doing and Asia. As an example, those are ramping back up so those cost of doubled or tripled so far but still there significantly and sort of your run rate question and there are significant.
It cant be lower than what we saw in 2019.
Call it below 20% kind of numbers of of our 2019 run rates. So theres a lot more room to run here.
From an upside perspective, and and what we will watch that I don't have a great answer and see what I do know is for all of our sakes.
And.
I certainly like the C.
And and savings relative to 2019 number of but for all of our Sakes I sure hope that we get the <unk>.
The client live from colleagues he partners and yes, even see you Bill alive over over the course of the next few months here. So we'll just watch it carefully.
Okay. Thank you very much look forward of seeing you guys as well alright. Thank you for taking the questions. This morning.
Some states.
Your next question comes from the line of John Dunn with Evercore ISI.
Hi, good morning.
And just thinking about framing the puts and takes it flows and the front of it we'll channel you mentioned fun and Winches tax harvesting and seasonality, but could you maybe talk about some of the other drivers in or out.
Sure I can take that 1 thanks for the the question I. So not only did we continue to see strength and our cash campaign from earlier in the year, where we were having clients me of out of cash and back into the more active markets.
Also launched and the tax aware of campaign, which we think is highly.
The ramp and in today's environment until there you're seeing the wealth advice and continue to drive a lot of our clients and engagement with US we will see additional product launches and the back half of the air and and alternative E. S T and the SMA platform to continue.
And in that space and to provide what we think are good and additions to our core offering and for particular on complex and high value clients with the continued to grow nicely and our AR and a substantial portion of our net inflows year to date.
Got you and and.
U S growth equities continues to do really well can you kind of give us a regional breakdown of where the debt.
And it's coming from.
Sure the.
Demand.
<unk> has been principally in the United States and and in Japan and.
And Japan.
Dan has been particularly prominent for us this year.
And but it's been a pretty strong performer for us globally.
Thank you very much.
Your next question comes from the line of Alex.
And with Goldman Sachs.
Hi, Thanks for taking the question. This is <unk> filling in for Alex. My question is on the is on your email we have seen some strength lately here across the industry. So what's driving the inflows out of non insulin as dean and.
And how sustainable are these flows and then on the fixed income side. I mean flows have been pretty strong if you kind of exclude the axa ex sort of attention. So under the current like given the outlook for the interest rates going forward. What's your outlook for the fixed income flows through the sustaining these levels of things those thank you.
Thank you for the question look.
Look we have and I.
I think we say it and our in our opening comments, we have we have had remarkable.
Sustained.
We've had remarkably sustained net inflows, particularly in equities.
And what is over a pretty extended period of time and <unk>.
And it comes from the fact that we have a pretty diverse group of of services that had been and something we've mentioned large cap growth, but we've also had continuing strong interest and our portfolios with purpose our sustainable strategies.
Really have begun to see strong demand, both in and U S and and in Europe.
And those are taking increasing share we've even seen interest and value, which has picked up pretty nicely from a performance perspective and the shorter term.
And we.
We used the tool with the maturation of our private office business. It's still early days as all he was alluding to but we're continuing to see strong take up in new and new efforts to raise money for our U S commercial real estate debt business for our middle market lending business and so.
For it so it's been pretty diversified in those areas, but I would also add debt, we've seen more activity and our multi asset group now that can be quite lumpy as we indicated.
And our comments specifically our target date, I'm, sorry of our customized retirement solution tend to.
To be very large although the fees are lower there and.
And then L I S.
And so that diversity has has played to our strength in fixed income look we think rates have a likelihood of going higher from here, but remember we've seen quite a rally.
And rates.
Taken us back down again over the last month, and we don't necessarily think that's sustainable and tactically do think rates will rise while most of the inflationary impacts we've seen on.
Our transitional and our and our view.
There are.
That the expectations building and and certainly as as people and our industry recognized it's harder to hire people. There's there's the.
The real shortage of talent out there. So there are pressures of.
On the consequence of that is we think rates will be rising that is beneficial.
Some of them from fixed income overtime yield really does matter to our clients.
And so where I look and fixed income I am actually pleasantly surprised just how temporary the outflows have been and in fact, they've been moderating further.
And from Asia, and our income products.
Butler.
Look Asian demand has historically been fickle thereof, the obviously other alternatives, whether it's Chinese equities.
Of which may not at the moment be performing very well, but had been performing previously that had safe and demand away from from from higher yielding services like like AIP and GH wise.
So.
Look again, it's I think it's the story of the diversified pool of business I think our SMA Muni SMA business here and the U S has really seen strong demand growth because I think we will offer quite a.
Differentiated service to our clients and.
And I think tax concerns.
<unk> suite to drive interest in more tax efficient vehicles. So.
I think it's a more mixed story for sure and then equities and alternatives and multi asset, but I think it is certainly manageable levels for us given the mix of business we have.
Got it thank.
And so much.
Your next question comes from the line of Dan Fannon of Jefferies.
I sat tightly and this is actually Rick Ray filling in for Dan and Thanks for taking my question and that could be on starting to good morning. So I appreciate the previous to tailgate and on the G&A run rate and just.
Just as a quick follow up on that.
How should we think about the contribution from some of the more sort of the seemingly idiosyncratic items that are detailed on the presentation kind of like.
For example of the day trading errors and it was that incorporated and the guidance you guys mentioned earlier and then as a follow up kind.
Broadly as you guys think about the eventual normalization of expenses and and.
And knowing that you guys mentioned the timing around that is little uncertain. How much would you guys say you're under spending relative to pre pandemic levels and to what degree of would you say a these savings will be sticky and if you could provide any numbers around this.
Thank.
Thanks, Rick.
So.
2 parts of that question 1 is on some of the kind of 1 off things and our G&A and you mentioned trading areas in particular I can tackle that head on.
No 1 wants hating error and in.
Ever.
As part of the business.
And sometimes these things happen sometimes of the bigger than others and everybody has on right.
And so so you don't model for it you don't plan for it but what we've seen and our rearview mirror and turns of errors and all the other is hepatic.
The impacts of our G&A is in our guidance. So as we look for the full year, we expect.
The to be in line with inflation with the takeaway of the Nashville relocation cost and and we stick to that and I believe and that again well managed is these idiosyncratic events as we go along but that is our guidance and and we believe and what we've delivered so far and leaves us very well to get to that point by the end of the year. So hopefully that covers that and it's not just.
The foreign exchange and there are there's new product launches and there et cetera, and but we still believe that that is the right guidance.
And on on a broader savings I guess the way we've articulated before is that if you think of a.
Last year.
And we would have them understand.
Quote unquote by about $50 million little bit north of $50 million and imprecise science and.
It is what it is but we think about $50 million of what the quote unquote save last year versus the 2019 numbers.
Do we think we'll we'll see all of that come back. This year I mean look at the halfway through the year and I gave you.
The spend numbers before I'm probably not.
And our hope is that we can find savings relative to the 2019 number we haven't articulated exactly how much but certainly something that that we think clients will want to see us differently and colleagues like travel and her office differently and so we will find some savings there.
And then on but it's tough to say exactly what level of it'll be out there will be some savings however, and travel and all of the other costs relative to that 50 that we faced in 2020 versus the plan.
Great I appreciate the answer to that question and thank you.
Your next.
And it comes from the line of Robert Lee with K B W.
Great. Thanks.
And thanks for taking my questions.
The first 1 maybe on new and private.
Wealth management fees.
Kind of curious if you can update us on some of the growth initiatives, there and and I guess, particularly interested just given the.
Question of war for talent and outstanding.
And particularly you know experienced financial advisors, and and if you're seeing any kind of pressure on retention or on.
And and I know you don't go and if they go out and recruit new advisors and mainly train them yourself, if youre seeing any issues with the kind of growing the advisor force and.
He would like.
Sure. Thanks for the question.
So in terms of and our growth initiatives. We are on plan with our advisor head count it's up 3% year to date and we're on track to hit our Hypersound talk of Premier advisors and kind of in.
And so we continue to have success.
And finding and attracting great new talent to our advisor force them on as he said, we do grow our advisers, we've put them through and I think the best in class training program here and so that when they are out and let's cut.
'twenty, 1 I am sorry are able to really represent the fastest bernstein's investment and wealth strategy and price.
And certainly do no debt there is a compensation pressure out there and the industry, we continue to pay competitively and our and I'm pleased with and our existing force and.
And in terms of the turnover we've seen today, that's pretty much and on average from a flip of previous years and so we continue to watch that and then that's the back into the and business and into our people to take.
And to continue to keep all of what we think is the great competitive advantage of pets and advisor force as well and with our.
Our investment teams and and last Saturday and the price teams that on that have been with us for a long period of time.
Okay, Thanks, and maybe the follow up on me.
And you did touch on in the prepared remarks, the you know the type of storms the product and so.
I mean, clearly you've seen.
You know competitors make acquisitions and best and you know kind of direct indexing.
Similar space.
And talking about the you have any current plans to take that capability and roll it out through.
Third party advisers or the current intention of kind of keep that proprietary.
Terry and and.
And the house.
And I'll start with I can start with the first part of the answer and then all of you can join the join me I think when it comes to how do we think about M&A and where.
We're very pleased with our current closed architecture approach, we leverage the products primarily.
And you do see us partner occasionally with an outside firm and and alternative space that we have not.
Yes.
And gone into but we do primarily and do primarily plan to continue to grow via a b vehicles.
Have launched for example.
And we're in the midst of launching several purpose driven offerings and 2021around sustainable Madagascar. The amaze. That's also in conjunction with our retail team.
Sustainable credit portfolio portfolio and.
The partnership as well and then ESG and Improvers.
And then we continue to look as we said and.
And bottoming out of the alternatives platform I'll turn it over to all of the <unk> to talk about where we think about that in terms of of M&A and that construct.
Robert Thanks for the question just to build on what Kate said.
For us it's all about the clients.
It's all about what the client needs are and delivering pour of the client is.
As Keith mentioned once.
Once we understand what we believe the client wants and what we think we shouldn't be delivering to the client. It then becomes the question of buy build or partner.
And and we have a success on all 3 alright, and we had success in terms of building things you mentioned for example, the path product that we have the tax harvesting product.
That we have crossed over $1 billion and very very quick said Ah and we want to continue that growth from there.
And as we look at even and that's leave other custom index thing that is out there are we should we should certainly look at partnering with other folks. If there is a need that's not fulfilled there, but we've built something that's actually quite robust and quite.
Quite successful and then there's a there's the buy option, which we look at quite carefully as everybody on the phone I think knows and we believe there's a lot more activity out there and we've had a pretty good track record I'd say.
And accelerating track record as well of of acquiring or accu hiring.
Our investment processes.
And that can support exactly the said at the outset, what our clients for our clients want and and and also I'd say and as Kate mentioned go does it Theres a partnership tracks and it's not just buy or build we really thought long and hard about partnering we are and integrated architecture and of our private wealth business in particular, because we believe that holistic view delivers better for the client.
2 of our areas, where we won't be all things to everyone and we certainly want on the investment teams that we can partner to bring those threats and so we're looking at all 3 dimensions and it's all under the umbrella of the maniacally client centric and quiet.
Great. Thanks for taking my question.
Our final.
Question comes from the line of Bill Katz with Citigroup.
Just a follow up 2 part follow up so thanks for taking the question queued and sort of flesh out a little bit what you're doing on the the OIS portfolio. It sounds interesting to me and then just the conceptual question just given a lot of the headline risk that we're seeing and the Asia Pac, particularly on.
But the mainland area.
Which I think is more of a 2 of of direct equity issue, but does that have any spillover effect to co mingled accounts either in terms of absolute level or maybe the mix of what might be coming in the door. Thank you.
Bill the.
L. I S is a.
The structure we.
And the Chinese did some years back in partnership with 1 of our key institutional clients.
To build and annuity option.
And in defined contribution plans for 4 or 3 B and 401k plans.
And we.
We have.
What we.
Creative and interesting option, where we can give the plan sponsor access to a number of different insurers.
For those participants who won and annuity option of portfolios you I think know better the most there.
There is a fundamental public policy issue facing.
And in America today, which is many people who are facing.
And we're looking forward from retirement are under under saved for the post retirement period and the security of having an annuity structure psychologically is very important.
2 of them to a subset.
We think of that population the secure act last year I think has reshuffle the deck and has made this a much more important initiative for plan sponsors than it was before it can become the default the option now and so we are seeing wheel of interest there, but these are.
Our very long process.
Decisions that take considerable amount of time to the RFP stage and ultimately through award and execution. So its.
It's a slow moving train, but we're optimistic there will be opportunities the fallout of that for a b switching.
Upset over to China look the the executive orders that have come out of of Washington, do impact, how we manage co mingled vehicles.
In the United States.
And with Chinese equities, and and like other money managers.
Switching the bonds of 2 adjusting of our portfolios of accordingly at dozens of as I understand the impact us how we manage those portfolios outside the United States and so for example, and our Chinese portfolios mainland portfolios, we manage for onshore clients on our.
And in.
And we're seeing a shares we can in fact.
And it Hasnt really impacted us and the way that we manage the portfolios.
Okay. Thank you for the extra questions.
Okay.
And there are no further questions at this time, Mr. Griffin and I will turn the call back to you.
Thank you Angie and thanks, everyone for participating on our conference call. This morning feel free to contact Investor relations with any further questions and have a great day goodbye.
This concludes today's conference call you may now disconnect.
Yeah.
And this is Elizabeth.
Yeah.
The.
Yeah.
Yeah.
Yeah.