Q3 2021 AllianceBernstein Holding LP Earnings Call
Thank you for standing by and welcome to the Alliance Bernstein third quarter 2021 earnings review at.
At this time all participants are in a listen only mode.
After the remarks, there will be a question and answer session and I 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 two weeks.
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 Misty good morning, everyone and welcome to our third quarter 2021 earnings review this.
This conference call is being webcast and accompanied by a slide presentation. That's posted in the Investor Relations site of our website Www Dot Alliance Bernstein Dot com with us today to discuss the company's results for the quarter are Seth Bernstein, our president and CEO I Shan't call Senior Vice President and CEO of Asia Pacific and Alley to Bash CFO.
And head of strategy cake 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 third quarter 10-Q, which we filed 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 Seth.
Good morning, and thank you for joining us today.
In the third quarter, we grew organically across all three channels for the fourth time in the last five quarters.
Our geographically diversified and differentiated client focused offerings continue to resonate globally with clients and intermediaries.
Firm wide active equities have now grown organically for eight quarters in a row municipals once again grew organically by more than 20%.
Our investment performance strengthened across both equities and fixed income while our broadening institutional pipeline grew its annual fee base to nearly $60 million.
For the quarter, we posted annualized organic revenue growth was 5%, including a 1% year over year fee rate improvement and expanded our adjusted operating margin to 31, 8%.
Further we delivered 29% growth in both adjusted earnings per unit and distributions to unit holders, let's get into the specifics starting with a firm wide overview on slide four.
Gross sales were $32 3 billion or 3 billion or 10% from a year ago and down 11% from the second quarter net of last quarter's Venerable transaction.
Firm wide that active net inflows were $6 7 billion, a 4% annualized organic growth rate.
Quarter end assets under management of 742 billion rose, 18% year over year and 1% from the prior quarter, an average AUR that 747 billion increased 20% year over year and 3% sequentially.
Slide five shows our quarterly flow trend by channel.
Firm wide third quarter net total net inflows of $7 2 billion represented a 4% annualized organic growth rate net flows were positive in each channel for the fourth quarter fourth quarter of the last five.
Retail generated its strongest gross sales ever with net inflows of $6 6 billion driven by active equities and continued strength in units, which once again offset moderating sequential outflows in taxable fixed income.
Institutional sales of $2 6 billion led to net inflows of $200 million is fixed income and multi asset group.
In private wealth gross sales increased 15% over both prior periods with net inflows of $500 million as we grew our ultra high net worth business supported by our focus on helping these clients with liquidity advance planning.
Investment performance as shown on slide six.
Starting with fixed income.
In the third quarter yields bottomed and began to rise on tapering discussions and higher inflation trends, we continued to position our multi sector fixed income portfolios for periods of solid growth and also higher inflation by being underweight duration and overweight credit.
Our fixed income performance improved an already strong levels at 92% of our fixed income assets outperformed over the one year period, and 70% of assets outperformed over the three and five year period.
We continue to see outstanding relative performance in tax exempts six of our 10 retail municipal bonds were in the top decile of their Morningstar peer group across all periods and all time were in the top quartile across all periods.
Our tax and where vehicles, including SMA grew by 20% organically.
Turning to equities global equities rose through most of the third quarter, but gave up most of their gains in the volatile September <unk>.
In developed equity markets style leadership shifted from value stocks towards growth August them back again towards the quarter end.
In equities or percentage of assets outperforming strengthened improving to 76% for the one year period and 78% for the three year period and 70% for the five year period.
The improvement for the one year period reflects outperformance by our U S large cap growth and strategic equities portfolios driven by our disciplined approach to diversifying portfolios that measured wage considering that still high level of U S market concentration and high growth Mega cap company.
Now I'd like to review our client channels, beginning with retail on slide seven.
Third quarter gross sales were a record $25 6 billion up 46% year over year and up 7% sequentially.
Net inflows of $6 6 billion were positive in each with each region driven by 19% annualized organic growth in active equities our.
Our 18th straight quarter of active equity inflows.
U S large cap growth led the way among 10 different equity products that each exceeded $100 million of net flows.
Once again municipals grew by over 20% annualized and taxable fixed income outflows continued to moderate with American income redemptions, improving by $500 million versus the prior quarter.
As shown on the upper left chart, our broad diverse product offerings across asset classes has driven consistent organic growth with retail net inflows of 11 of the last 13 quarters.
On a net flow basis, our U S equity funds ranked 14th out of 451 managers International equity funds ranked 29 net of 249 managers at meetings ranked 12 about 110 managers.
Several notable individual funds as shown on the bottom right, including small cap growth.
First at about 157 bonds.
Turning to institutional on slide eight.
Third quarter gross sales of $2 6 billion declined by $2 3 billion from a year ago and were well below the prior quarter, which included the venerable sale.
While a slowing funding while a slower funding quarter the pipeline continues to build.
Outflows moderated to a low two 9% annualized redemption rate, resulting in net inflows of $200 million.
Institutional has now posted net inflows for five consecutive quarters at nine of the last 10 quarters.
Taxable fixed income and alternatives drove the net inflows in the quarter, we priced our third COO, a $500 million offering and also secured our first third party decline for equitable backed European commercial real estate debt offering.
Our ESG portfolios with purpose grew to 27 billion up 11% sequentially driven by our U S and global sustainable thematic strategies, both of which not only received upgrades from our global consultancy in the quarter, but were also awarded that's sustainable and ESG research team from investment week.
United Kingdom.
We were also pleased to receive a morningstar ESG commitment level of advanced validating the efforts of our teams in recent years.
Our institutional pipeline grew to a record 26 billion at quarter end up 16% sequentially with additions, including an $800 million emerging markets debt mandate and that $620 million, China, a shares valued mandate from a prominent outsource CIO firm.
The annualized fee base reached $60 million and has grown at a 19% compounded annual growth rate since we began tracking in 2011 with alternatives over half the fee base.
As a reminder, this pipeline includes a $10 billion low fee customized retirement solutions mandate that we expect will fund in the first half of 2022.
Last quarter, we informed you that the prior Axa redemption program announced in early 2020 had been completed.
We however, expect new redemptions by Axa of approximately $5 billion in flow fee retail AUM in the first half of 2022.
Acura remains a critical partner in the development of our turn into this platform and we continue to engage in active discussions with Axa as we build out our alternatives business.
As of September 30, we managed 26 billion for axa or less than 3% of our AUM.
Moving to private wealth management on slide nine.
Gross sales of $4 1 billion increased 15% over both prior periods was advisor productivity also improving in the mid teen.
Net inflows of $500 million were positive for the fourth of the last five quarters.
We continue to see our mix shift toward our ultra high net worth $20 million and over clients influenced by our pre liquidity event planning efforts for which the pipeline remains strong.
We raised $78 million in the qualified opportunity fund focused on tax efficient investing.
Year to date, our alternative products are showing strong interest with assets raised having nearly doubled over the prior year.
And our proprietary separately managed equity tax loss harvesting product grew by 19% sequentially, while many bulk sorry, while muni impact in ESG portfolios continued to grow strongly.
I'll finish our business overview with the sell side on slide 10.
Bernstein research revenues increased by 15% year over year, and 7% sequentially with strong growth in both Europe and Asia.
Asia trading commissions were up over 40% in India continues to ramp strongly.
We're pleased that research checks continued to grow at double digit rates, reflecting our premium research franchise.
And we held our 18th annual Pan European strategic decisions conference with over 1000 investors attending over 400 virtual meeting.
We launched coverage on three new sectors. This quarter, two in Europe, and one in China.
I'll close our business overview with progress toward our strategy in the third quarter on slide 11.
Our investment performance strengthened with 70% or more equity and fixed income assets outperforming in each of the one three and five year time period.
Our geographic and product balances now driven organic growth across all channels and four of the last five quarters with retail positive 11 of the last 13 quarters and institutional positive nine of the last 10.
Private wealth grew for the fourth of the last five quarters with active client engagement across our growing inflation in tax aware suite.
Our ESG portfolios with purpose now stand at 27 billion.
And AUM up 11% sequentially.
We priced our third CLO in we're growing at a double digit annualized rates and municipals.
We are committed to managing our business to deliver strong incremental operating margins.
Our third quarter adjusted operating margin of 31, 8% was up 210 basis points year over year with adjusted earnings and unit holder distributions up 29% versus the prior year period.
You may have seen our announcement last Friday that Joan Lamm Tennant has been appointed independent chair of Equitable Holdings in Alliance Bernstein boards of directors effective immediately.
<unk> has been a valued member of the equitable board since January of 2020, serving as a member of the audit and finance and risk committees.
<unk> <unk> from <unk>, who served as chair of the Ecuador, and <unk> boards of directors since March of 2019, when <unk> became an independent company.
We are fortunate that have an outstanding leader and Joan to chair of our board.
As the first woman to do so in Av's history, She brings significant risk and capital advisory expertise. She is also recognized thought leader in corporate social responsibility.
Now as part of our earnings Spotlight series, which will have from time to time I am pleased to introduce you to RJ call head of Ab's Asia Pacific business, who will review our Asia platform.
Hey.
Thank you Sir.
To discuss our Asia business, all part of ABB, which is well positioned to capitalize on the apex growth potential given the competitive advantage. We intended to open nearly four decades of operations.
Today I want to stress the following key points.
Asia Pacific is a large fast growing region with significant growth potential as penetration of asset management increases from relatively modest levels.
Alliance Bernstein has a strong competitively advantaged position in APAC, having built local businesses with strong market positions over the last several decades.
We have a very healthy brand, which punches well above its weight in Asia.
We have a robust opportunity set ahead of us, which we are focused on executing on.
Let's start on slide 14.
Economic growth and high savings rates are two amongst many factors, which contribute to why asset managers are attracted to APAC.
The region has historically led the world with high savings rates that have remained resilient through various economic and market events.
Market wide assets and APAC across retail and institution.
Have grown at a 6% CAGR over the last 15 years and at a faster rate than recent years.
Importantly, the percentage of market AUM professionally managed just 25% lower compared to the global average of almost 44%.
On slide 15. This timeline shows ABB has roots in the region that go back for decades and early mover advantage.
Our first office was established in 1986 in Japan and since then we have built businesses in Australia, Singapore, Hong Kong, Taiwan Korea, and now in the process of building one in China.
Strong investment performance innovative product offerings and continued penetration of both retail and institutional channels have driven our growth.
Some notable milestones include launching a global high income global high yield product in 1997, which is our flagship service across the region and.
In 2006, we acquired full ownership of business in Hong Kong and were appointed in the first group of foreign managers of China's social security fund, but both equity and fixed income.
We haven't introduced innovation and share classes tailored to client demand converted jv's to wholly owned entities and have been willing to build onshore franchises where needed.
And the most recent Asia asset Management Fund manager Survey, we ranked <unk> out of 200 fund managers in Asia by AUM.
As a result as shown on slide 16.
<unk> is widely recognized in APAC and brand matters to intermediary gatekeepers.
We're very pleased that <unk> was ranked fourth in all of APAC and a recent study by Broadridge punching well above, albeit based on AUM.
As shown on the bottom right, we're actively engaged and strong in digital and social dimensions and are focused on connecting with our customers through all media and channels.
Next on slide 17, we discuss abb's competitively advantaged position in Asia.
Today, the importance of being early and in many instances being a first mover in APAC shows the.
The strength of our client relationships and the fact that <unk> services are offered on most platforms across APAC have allowed us to build an advantaged competitive position.
We've grown our fee based at a 13% annualized rate since 2016, and Asia now represents 25% of annualized fee base, excluding the Bernstein research business.
As a percentage of AUM impact represents 18% of AUM, which is two times the U S and European peer group average.
As you can see Asia as fast growing significant piece of the ABL business.
Moving on to slide 18.
The scale, we have built and the disciplined demonstrated and achieving it provides us with strong operating leverage contributing positively to <unk> overall results.
Relative to Asia <unk>.
<unk> operating margins in Asia are more than 50% higher than the peer group average thanks to our sites.
From a cost perspective, we benefit from the scale of our diversified platform as our costs are more than 50% below the peer average this.
This has enabled us to drive continuous improvements in productivity on a net revenue per FTE basis.
On the next slide we show how aviation platform has evolved from its core strength as a market leader in fixed income.
And Taiwan market, where income is a highly sought feature we have a market share leader, while leading with fixed income funds. We have leveraged this brand strength to diversify our product platform into equity and multi asset.
As with our fixed income franchise equity AUM has also been achieved across the region.
Japan has grown U S equity market share by three times in the past five and a half years.
U S equity service being an AUM market leader there.
Our success in growing our equity AUM extends beyond Japan to other markets in APAC as well.
As a result since 2015, we have grown our AUM at a CAGR of 10%, while diversifying across asset classes geographies and channels today.
Today, our AUM is better balanced between equity and fixed income retail and institutional and across geographies.
Only strengthened our foundation and positioned ourselves for continued growth.
Finally, turning to slide 20.
Why do we take pride in the business. We have built to date, we have multiple growth opportunities available to us in APAC.
Traditional strength in fixed income has been successfully extended into equity.
But there remains significant opportunity to diversify within equity much as we have done in fixed income.
This has already begun with low vol equity and sustainable equity services, gaining traction as our distribution partners seek additional equity services for their platforms.
Multi asset solutions and APAC presents another significant opportunity driven by the realization that fixed income alone cannot deliver desired returns and an increasing focus on achieving outcomes rather than outperforming benchmarks.
Increasingly we received requests for custom solutions spanning both institutional and retail channels.
We have plenty of runway ahead of us and private bank channel.
Consistent demand for both public and private alternatives as well as for customized solutions and responsible investment.
There has literally been a doubling in registered family office from 90 from 2019 to 2020 and just Singapore.
Both Singapore and Hong Kong are promoting themselves in a bid to attractive business. We expect family offices as sophisticated investors will look beyond traditional services and seek managers, who can deliver differentiated actively managed strategies alternatives and customization, while incorporating ESG in their decisions.
The recognition the recognition Avi is getting for our R&D capabilities, our partnership, but the Earth Institute at Columbia University, and being a founding member of the Columbia Climate School is being well received by clients.
All of this plays well into our ability to engage institutional investors where penetration of asset management is growing.
Half of institutions now say, they consider ESG factors and hiring managers.
Innovative products efficient product delivery and a combination of local and cross border fund platforms enable us to leverage our footprint. For example, the active ETF unit class launch in our Australian manage volatility equity service positioned us to gain access to the advice component of the Australian dollar.
$1 billion of self managed Super funds.
Avi is amongst the first group of foreign managers in China, seeking an onshore fund management company license.
China is the second largest asset management market in the world and FMC license would allow us to participate in a market expected to grow at over 10% per annum and.
And FMC license is foundational and when eligible heavy may apply for further licenses, allowing us access to other segments of this growing under serviced asset management market.
In summary, our time tested diversified Asian business gives us a competitive advantage that continues to benefit from a flywheel of growth.
These high brand recognition coupled with its strong diverse product set allows us to pursue multiple growth avenues in a dynamic market. We are tremendously excited about the opportunities looking forward with that.
I will turn it back to Ali to present the financials. Thank you.
Thanks, Hi, Jay.
Let's start with the GAAP income statement on slide 22.
Third quarter GAAP net revenues of $1 1 billion increased 21% from the prior year period operating income of $280 million increased 29% and operating margin of 25, 7% increased by 160 basis points.
GAAP EPS of <unk> 89 in the quarter increased by 27% 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 unitholders on our adjusted results, which we provide in addition to and not as a substitute for our GAAP results.
Our standard GAAP reporting and a reconciliation of GAAP to adjusted results are in our presentation Appendix press release and 10-Q.
Our adjusted financial highlights are shown on slide 23, which I'll touch on as we talked through the P&L.
Shown on slide 24.
On slide 24, beginning with revenues.
Net revenues of $884 million increased 22% for the third quarter versus the same prior year period.
Base fees increased 22% for the third quarter versus the prior year period, reflecting 20% higher average AUM, which grew at double digit rates across all three distribution channels and a 1% higher fee rate.
Third quarter fee rate of $38 eight basis points with slightly higher sequentially. We continue to believe that although our fee rate may be volatile from time to time, given large mandates such as Crs that may skew averages the long term trend should be grinding higher.
Third quarter performance fees of $18 million increased by $11 million versus the prior year period, driven primarily by our private middle market lending business.
Third quarter revenues for Bernstein research services of $113 million increased by 15% from the third quarter of 2020, reflecting higher client trading activity in research payments across all regions.
Moving to adjusted expenses all in our total third quarter operating expenses of $603 million increased 18% year over year.
Total compensation and benefits expense increased 22% in the third quarter due primarily to higher incentive compensation and secondarily due to higher based compensation, both of which were driven by higher revenues.
As we guided to compensation was 48% of adjusted net revenues for the third quarter flat with the prior year period.
At present, given current market conditions, and our current expectations for the mix of fourth quarter performance fees, we do not expect the fourth quarter comp ratio to exceed 48 zero percent.
As a reminder, the compensation ratio is sensitive to variability in the year and mix of performance fee eligible funds.
Promotion servicing costs increased 19% in the third quarter due primarily to higher tier E transfer fees and higher marketing and for meeting expenses, we expect travel and meeting related expenses will continue to increase in the fourth quarter of 2021, though we note that business travel remains well below pre COVID-19 levels.
All in G&A expenses increased by 12% in the third quarter versus the same prior year period, or 9%, excluding Nashville interrelated relocation expenses in the quarter, we continued to invest to support the organic growth of our business, where we see returns, particularly in technology related projects that expand our ability to service and <unk>.
Our customer base.
We also incurred returned to office expenses as employees returned in July that said core inflation in G&A is now higher than the mid single digit range with consulting and market data services contributing to the increase.
We expect fourth quarter G&A expenses to remain elevated reflecting Nashville, and our related relocation expenses growth related technology and product development costs and inflation and market data services technology and professional fees.
We continue to see good returns as we invest for growth.
Managing the spend within the context of our long term incremental margin targets.
Within other expenses intangible amortization expenses declined by $5 million from a year ago. Once again, reflecting the absence of historical quarterly amortization charge associated with the Bernstein acquisition.
Third quarter operating income of $281 million increased 30% versus the prior year period as revenue growth outpaced expense increases.
Third quarter operating margin of 31, 8% was up 210 basis points year on year, reflecting the operating leverage of our business.
The incremental third quarter margin was 41% as compared to the prior year period, we continue to manage the business to an incremental margin of 45% to 50% not necessarily every year, but on average over time.
The third quarter effective tax rate for Alliance Bernstein LP was five 7%. We continue to expect an effective tax rate for 2021 of between five and five 5%.
I'll finish with an update on our planned corporate headquarters relocation to Nashville, which is going well.
At quarter end, we had 930 Nashville based employees nearly 75% of the way to our target of 1250.
For our major offices in the U S and EMEA, we began returning to the office in July which included moving into our new downtown Nashville headquarters building.
For the third quarter estimated expense savings related to our Nashville, corporate headquarters relocation totaled $12 million compared to transition cost of $7 million, resulting in a net $5 million increase in operating income or approximately <unk> <unk> per unit.
Of the net $5 million approximately $9 million as compensation related savings offset by $4 million of increased occupancy costs.
For 2021, we expect accretion of approximately <unk> <unk> per unit versus our prior guidance of <unk> <unk> per unit and we expect savings to be positive each year. Thereafter, we expect ongoing annual expense savings beginning in 2025 once the transition is over to be in the range of $75 million to $80 million.
Now I'll turn it back to SaaS.
Thank you Ali turning to slide 26.
In the third quarter, we continued to make progress on the dimensions, we previously outlined.
We drove 5% annualized organic revenue growth, including a 1% increase in fee rate with net flows growing in each channel led by active equities municipals.
We secured our first third party client per equitable back European commercial real estate debt platform and priced our third CLO also with the backing of equitable.
We drove healthy incremental margins in the third quarter and are on track with our long term goal for the nine months of the year.
As a partnership we have a relatively low tax rate and we will pay a distribution of <unk> 89 per unit for the third quarter for a robust trailing 12 month yield of 7% and a low rate environment with that we're pleased to take your questions.
At this time, if you'd like to ask a question press star one on your telephone keypad. Please limit your initial questions to two in order to provide all callers an opportunity to ask questions.
To return to the queue to ask follow up questions.
Your first question is from the line of Dan Fannon.
With Jefferies.
Hi, everyone. This is actually Rick Roy filling in for Dan.
Doing well today.
I had a question actually on the alternatives of course.
I have highlighted shown strong growth coming from private wealth channel I was just curious how how are you guys looking at demand from non private wealth channels.
Are you guys seeing flows become more diversified and kind of on that point, whether it's retail or otherwise.
What what sort of funds are you guys in the market raising AUM for it.
This horrible European commercial real estate fundamentals have highlighted.
Yep.
Sure some of those points.
Sure. Thanks, Rick for the question.
And thanks for focusing on private alternatives, which is a really important and growing part of both our business and it sounds like the industry as well to recall we have.
A $20 billion now in our broader private alternatives business.
We continue to see that growing at a very very good pace.
Not only in the businesses that we have right now commercial real estate that you mentioned are middle market direct lending business as well and we are a U S and European real estate debt business as well as otherwise but also in.
Adjacency.
<unk> that we're building as well and we expect that to continue to grow and have a lot of faith in it from a channel perspective.
It's pretty well diversified actually.
A quarter. The AUM right now is in is from the private wealth business that we have and then 75% of it roughly is from the institutional channel.
In institutional channel being both third party as well as our partners with equitable and others and insurance, particularly so we think that that diversification helps us both in terms of broader diversification in product as well as in channel to your question on what's around the corner I look theres lots around the corner for US again as I mentioned at the outset, we have high hopes for that business. We continue.
You don't want to grow it and diversified both from a product perspective, and a talent perspective, including down the line certainly hopefully not not overnight, but over time in retail as well. So thanks for the question.
Got it thank you.
Your next question comes from the line of Bill Katz.
With Citigroup.
Going to cut minutes late so I apologize if you may have.
Covered this in your prepared commentary just coming back to the recently announced $10 billion permanent capital initiative with equitable.
Does the leadership change does it change anything I presume not but secondly can you give us an update on maybe where you stand in terms of transitioning the existing book and Bill in the second book and maybe even some third party opportunities beyond that.
Sure. Thanks, very much yes, so so on the $10 billion.
Our agreement, we have with equitable to seed a lot of our capital in private alternatives.
Just a reminder, rough numbers around half of that will be a reallocation of where they've invested right now with us and the other half will be new capital brought to bear to see things that we expect to grow and.
And if you remember a couple of quarters ago, Matt Basket runs that business went through our growth trajectories and think about growing 4% buybacks roughly is what we've done historically and we continue to believe that we can deliver that for our clients. Most importantly, and also for our shareholders.
That process is in the early stages at $10 million in the early stages right now we're working together with equitable to figure out what asset classes, they want to expand into whether it be areas that we have right now areas that we want to go into obviously and grow those businesses. So we're still working on that front.
And so far the progress has gone very well and exactly as planned I think you'll start to hear more about it in 2022 to your very specific question about about the change in leadership that does not change anything.
To those plans, both equitable and ABC the virtuous cycle that we can both create and are both creating and expect that to continue to be a bigger driver of our growth in private alternatives.
Okay. Thanks, and just as a follow up on your try and squeeze a second party and I apologize, but I appreciate the added color and context of the Asia Pac portfolio and I. Certainly appreciate you, saying that your fee rates should grind up from here overall, but can you unpack that a little bit how does Asia pacs platform compared to maybe the rest of the asset management platform.
On our fee rate.
And margin perspective, and then Unrelatedly as you look to G&A for next year, how should we think about the growth rate given what you gave guidance on for the fourth quarter. Thank you.
Why don't I start and then maybe Jay can chime in as well.
So to the first part of your question.
On the fee rate I think as you saw and some of our days RJ slides, which hopefully were helpful. And gave you a little bit of a spotlight on a business we're very proud of.
The delivery of the products, obviously from a fee rate perspective depends on both the channels any actual products that we deliver.
And if you look at the products that we're delivering certainly the shift to active equities in that marketplace and the partnership we have with wonderful distributors, there that deliver to the end clients with us.
You would expect that the fee rate would be higher from a mixed perspective for us from that region and your expectations would be true for us and again as long as we deliver the right product in the right talent to our clients. We believe that we will be rewarded with resistance.
The rates in our marketplace and again, we're managing the mix across the board.
From a G&A perspective, if that's if that's the second part of your question.
Bill.
Look there are a couple of things we can do it right. So so pure brass tacks from a G&A you saw this quarter was about a 12% year on year increase.
If you.
Look at that and decided and disaggregate it about three points of that 12% increase with the Nashville relocation, we've been pretty clear hopefully telegraphing that so 12% growth goes to something like 9% growth again, the national move delivering really good savings already this year at approximately four <unk> and we hope.
Continue to be positive as we go forward in terms of savings there. So that's part of that move as those investments we have to make so now youre left with 9%.
Growth on year on year basis, and I'd, just aggregate that into two areas. One area are our investments, we're making deliberately to deliver for our customers in particular, we've invested in this in this quarter and I think some of the investments will continue in delivering to our clients globally and a more digitally forward manner.
We believe those are giving us really great returns already in those are deliberate investments from a technology perspective.
We want to continue.
As a part of that of the 9% Thats left.
And those are deliberate decisions right product development decisions as well in there there is a chunk of that 9%. That's left that we wish we didn't have Ryan it's not our choice.
Inflationary pressures that are there and gosh I will tell you that the inflationary pressures for all of us and I'm not sure. This is inconsistent with what some of our peers would say have certainly crept up so the high end of the mid single digit range is how I think about the inflation rate. These days, so I think a 4% to 6% of the mid single digits, we're kind of at the higher end of that.
Things like market data services that things like recruiting costs et cetera.
And we don't see that dissipating over time, so so to your question.
Disaggregation in this quarter and if you think about in Q4, we would not expect that growth rate to be any less than what we've seen year on year in Q3 in fact.
The safe bet to believe given the ROI, we are getting some of the investments that the year on year growth in G&A for Q4 will be north of what we saw in Q3, hopefully that answers kind of chunks of your questions or RJ things you guys might want to add.
I'm not sure I have a lot more to add Ali but.
To the point that we are focused on continuing to diversify our equity.
Services in the region that should at least off the fee rate on the average fee rate on the mix there.
To the point that I made about <unk>.
Continued demand conversations on multi asset solutions and customization.
If we succeed in those conversations and bring those assets on that's also beneficial towards the average fee rate.
Thank you.
Okay.
The next question is from the line of John Dunn with Evercore.
Hi, guys.
Maybe one on private wealth management, you guys had talked about kind of a dichotomy between legacy clients outflow and then.
Oh sure.
Where people.
The new products, maybe could you talk about that push and pull where we are in the short term and then in the medium term as a way to keep all three legs of the stool.
Contributing to growth.
Sure. Thanks Pat.
This is Kate for Karen.
But we continue to see a strong mix shift towards the ultra high net worth.
We categorize in sort of 'twenty, Brian or.
$20 million or greater and that is growing at a faster rate organic growth rate than the rest of our organization sort of mid single digits.
The $2 to 3% that we've put up as a net organic growth.
Growth rate right now and I think that's largely attributed to a couple of intentional.
Things, we're doing around segmentation, so one is where.
We have this complex high value clients and they tend to have opportunities and that is often in Seth mentioned this in his comments around and does create liquidity events, we think that the lump the advice and the work we're doing with those clients in a differentiated and enables us to be really independent.
<unk>.
Valued adviser to that client.
So we continue to do.
Thought leadership in that area and drive that but even more broadly.
Overall.
Investment were often making asset allocation.
The alternative.
<unk>.
SMA platform do you see things like portfolio with purpose continuing to be adopted and growing well.
It's a little over $6 billion right now.
75% year over year, and you've seen the alternatives business alignment as we mentioned in earlier comments and doubling year over year, and we think that that continues to support our movement into that ultra high net worth space that being said the core platform continues to be very strong in terms of the pool.
And breadth of offering we have to that that broader client base.
To see segmentation for us the emerging affluent our kind of traditional core client and then continue to grow in that ultra high net worth space I think over time and with a different and we will continue to invest in improving that offering as well as differentiating among.
Segment.
Got you and then maybe one looking out further as you as you build the China, the China business.
There are a bunch of years.
What do you think what strategies might do you think might be in demand in that market and you think it's going to be a different kind of market than the rest of Asia.
Product wise.
Well I think.
The market lends itself to active management and so we would expect.
To see ourselves launch a number of different active services in that market.
Leading off with probably an equity service.
There are the market there is heavily focused in money market funds as well as hybrid funds, which are a mix of equity and fixed income funds.
<unk>.
Differentiated multi asset services.
Equity.
And at some point.
<unk> our solution type services would be the ones that we properly launch in China.
<unk>.
You would see probably a number of services that looked like what we are selling them the rest of APAC, but we would suddenly.
Customize it to the needs of the domestic market.
Thanks, very much guys.
Your next question is from the line of Alex <unk>.
Dean with Goldman Sachs.
Hi, This is <unk> filling in for Alex My question is on the <unk>.
The search revenues.
Pretty strong growth in this quarter or so, but just seeing if you can provide some color as to how much was it from increased client engagement or more are more client on boarding voices as trading volumes and if you can just spell out as to what's the strategy for this segment within the U S uneven.
Outside the U S. Like we saw pretty strong growth in Asia and in Europe.
Thank you.
Highest seth thank you for the question.
It was a strong quarter for Bernstein research most of that was attributable to volume.
At particularly into September, where we saw choppy or markets their activity levels rise in that context.
<unk>.
Keep in mind that overall in the third quarter U S volumes industry volumes were down a bit by Europe, and Asia were up pretty strongly.
So it was a nice offset for the for the business given this diversification as you pointed out Asia continues to grow.
Quite rapidly for us.
The other area, where we were seeing was pretty strong.
Pretty strong.
Receipt of checks for subscription research services, which is important particularly of course in Europe.
And.
That will continue but we are volume sensitive and so.
We saw a pickup in volatility again, I wouldn't necessarily see that element of repeating.
Look our strategy is to continue to differentiate <unk> eight ourselves with fundamental.
Research and where we've been spending time and focus is by broadening our offerings in Asia in particular and also in Europe.
So we feel that the business that continues to gain recognition for its distinctive approach we have at that point of view, which people want to see.
But the secular competitive challenges of the research business remain and while this will be a stronger year, particularly for those firms that have an IPO calendar.
Or our prime brokerage business attached to it.
For us it's been a pretty strong year based on the quality of the research and trading support we provided.
Okay. Thank you so much.
And your next question comes from the line of Robert Lee.
With Keefe Bruyette <unk> woods.
Great. Good morning, Thank you for taking my questions.
Just real quickly.
And the private wealth business.
Delighted to one of the things you highlighted was the success youre, having with your tax loss harvesting portfolio and can you talk about the ability or interest.
Rolling that out more broadly just kind of clearly.
That seems to be a very popular and hot.
Growth area for the broader wealth management industry.
Industry so.
Maybe touch on that first.
Sir I can.
Start from the private wealth perspective, yes. There are two things I think that are happening. There. One is at from a Bernstein wealth perspective, we have had a very strong tax aware campaign.
Delight that diverse operating across the different asset classes and when did that has enabled I think in many ways for that that products and to be positioned very well in the marketplace and we are looking in with impact of law for further extension of that that product.
Encase eight will that span all in terms of.
Taking it further.
I'll turn to south or others.
Pine on.
And then on the timing or questions around that.
Sure.
Look it's a question we think about a lot I mean, they fit very nicely in Bernstein research because much of what Bernstein has always done has been in SMA form which has allowed us to be quite aggressive in tax management and we just.
Thought that when we looked at what was publicly available out there we thought we could build something that was as good.
Or better for our clients.
We're really proud of the team having put it in place and we do think about where their commercial applications for it beyond us, but we are.
Sure.
Humble as to what the opportunities are given the competition out there that being said I think the real opportunity is customized indexing, which I think is going to continue to grow.
And it's going to grow within both private wealth in our business, but I think also among all.
<unk> and others in the business more broadly and it is an area we focus on and think about how we how we participate.
Great and then maybe just a quick follow ups I mean, you've had.
Honestly more success than.
The most and the continued continuing to inflow into your active equities business and I'm, just curious, particularly within U S. Retail obviously performance helps can't do it without performance but.
Is there anything else that you could point to maybe specifically in the U S. Do you feel.
Whether it's your size scale distribution footprint, that's kind of helped you maybe bucked the trend.
A bit more because even some peers with good performance are struggling to get any kind of inflows. So any additional color there.
Well look I mean, I think good performance as table Stakes and I think you your question.
<unk> implies it and so we agree with that but we are blessed with it.
<unk> also has an interesting products beyond large cap growth, which has been a real strong.
Player for us in the domestic U S market, whether its sustainable use dramatic or other.
Portfolios with purpose that seem to resonate with clients and I think thats, maybe be important attribute we have developed a number of strategies.
Where clients want the return stream and can't replicate it.
Through passive management, and we have a differentiated return streams that.
That speaks to them, particularly people, who are who are building model portfolios and others, who are looking for diversification within their existing.
<unk> models, and so I think given that we were perhaps.
Under scale in equities for a while.
And we've had products in the clients really value that diversification I think that's played to our strength.
Domestically, but I think we're our calling effort is very thoughtful and increasingly.
Tech enabled and so I think we're seeing better efficiencies, there and being more timely and engaging with clients.
But I don't think there is a silver bullet here I think it's a lot of different functions working very effectively together.
And so.
I guess Thats my answer I don't know Ali if you have a different view or additional debt.
I think that's great.
Great. Thanks, so much for taking my questions.
Okay.
There are no further questions at this time, Mr. Griffin I'll turn the call back over to you.
Thank you Mr. Thanks, everyone for participating on our conference call. This morning feel free to reach out and contact Investor relations with any further questions and have a great rest of your day Goodbye.
This concludes today's conference call you may now disconnect.
Okay.
Thanks.
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