Q4 2021 AllianceBernstein Holding LP Earnings Call
Thank you for standing by and welcome to the Alliance Bernstein fourth quarter 2021 earnings review.
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.
Now I'd like to turn the conference over to the host for this call head of Investor Relations for AB Mr.
Mr. Marc Griffin. Please go ahead.
Thank you and Italia, good morning, everyone and welcome to our fourth quarter 2021 earnings review.
This conference call is being webcast and accompanied by a slide presentation. That's posted in the Investor Relations section of our website Www Dot Alliance Bernstein Dot com.
US today to discuss the company's results for the quarter.
Bernstein, President and CEO , and <unk>, <unk>, CFO and head of strategy.
Burke, our CFO will join us for questions after our prepared remarks.
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 10-K, which was filed earlier this morning.
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.
We are pleased to report 2021 results that showed a substantial progress we accelerated our full year organic revenue growth to 5%, including a 1% fee rate increase marking our third year in a row of active organic growth and fourth out of the last five.
Active equities, including ESG municipals and alternatives multi asset each grew organically at double digit rates this year.
Investment performance strengthened with 89% of fixed income and 73% of active equity AUM outperforming in 2021.
Our institutional pipeline's annualized fee base exceeded $65 million and we've launched a diverse set of new client focused offerings at the same time strengthening our strategic partnership with equitable holdings.
For the year, our adjusted operating margin expanded 350 basis points to 33, 6%, we delivered 34% growth in both earnings and distributions to unit holders, let's get into the specifics starting with a firm wide overview on slide four.
Fourth quarter gross sales accelerated to $39 4 billion up 8% or 26% from a year ago and up 22% sequentially, resulting in a record full year gross sales of $150 billion up 21% from the prior year.
Fourth quarter firm wide active net inflows were $6 4 billion up 4% annualized organic growth rate and our full year active net inflows of $26 3 billion also grew 4% organically or 5%, including a 1% fee rate improvement.
Year end assets under management of 779 billion rose, 14% year over year and full year AUM of 731 billion increased 18% versus the prior year.
Slide five shows our quarterly flow trend by channel.
Firm wide fourth quarter net inflows of $7 4 billion represented 4% annualized organic growth.
And then flows were positive in each channel for the fourth quarter in a row in the fix of the Lat fifth of the last six.
Retail generated its strongest gross sales ever leading to net inflows of $6 3 billion.
Active equities and continued strength in munis helped offset outflows in taxable fixed income.
Institutional sales of $6 6 billion led to net inflows of $400 million driven by active equities.
In private wealth gross sales increased 40% over the prior year period with net inflows of $700 million as we continue to grow engagement in the ultra high net worth cohort supported by our focus on pre liquidity planning coupled with an innovative product suite.
Slide six shows annual net flows trends.
The firm's strongest gross sales year ever led to firm wide net inflows of $26 1 billion.
<unk> reached a record $100 billion in gross sales active inflows of $28 billion were driven by 20% organic growth in active equities and 23% growth in municipals, which offset continued outflows from global high income service.
Institutional sales declined year over year net of a one time benefit from the Venerable sale.
We posted net inflows for the year of $2 3 billion and.
In private wealth had its strongest sales you're in more than 20 years with inflows of 3 billion positive in each quarter of 2021.
Investment performance as shown on slide seven.
Starting with fixed income.
The fourth quarter concluded a volatile year for fixed income markets with yield curves in developed markets flattening in longer term yields mix the central bank monetary policies diverged.
For the yield for the year yields rose in all major developed markets as the recovery in economic growth solidified and inflation surged risk assets were mixed with most credit sectors outperforming governments led by U S and Pan European high yield.
Our fixed income performance remained strong with 89% of our fixed income assets outperforming over the one year period, and 72% and 70% of assets outperforming over the three and five year periods respectively.
In tax exempt six of our 10 retail municipal funds top remained in the top decile of their Morningstar peer group across all time periods with all 10 in the top quartile across all periods. Our Muni bond inflation strategy was in the top 1% across all periods in our tax aware vehicles, including <unk>.
<unk> grew by 25% organically.
Turning to equities.
<unk> bouts of volatility 2021 was another strong year for equities globally as the MSCI World Index advanced by 24, 2%.
Large chaps led the way with S&P 500 up 28, 7% in developed markets outperforming emerging markets.
Style returns flipped repeatedly with value stocks rallying through may and growth stocks were gaining leadership until December .
In equities, our percentage of assets outperformance remained healthy with 73% of AUM outperforming for the one year period, 48% for the three year period, and 75% for the five year period.
Three year performance dipped sequentially as our U S large cap growth composite trailed the Russell 1000 growth benchmark, which is highly concentrated with five companies comprising 38% weight at the year end the.
This strategy did however, outperform relative to its Morningstar peer group for the three year period.
Our focus remains on identifying high quality companies with strong fundamentals and reasonable valuations characteristics, which can help reduce risk in down markets, while participating in a market recovery.
Paying close attention to the pricing power as well as how distortions that may have inflated or compressed earnings over the past two years will play out as business conditions normalize.
Now I'd like to review our client channels, beginning with retail on slide eight.
Record annual sales of $100 billion were up 21 billion or 27% from the prior year high.
Active equities sales grew by 23 billion with net flows up 20% organically driven by Japan U S and sub advisory and Muni sales grew by over 40%.
Fourth quarter net inflows were $6 3 billion up 9% annualized organically with full year net inflows of $20 8 billion up 8% percent organically.
As shown on the upper left 2021 was our fifth straight year of active equity inflows with organic growth, averaging 11% over that period.
U S large cap growth led the way among 10 different equity products that each exceeded $250 million of net inflows.
Once again municipals grew by over 20% annualized led by our SMA tax aware Muni bond inflation strategies, helping to offset continued taxable fixed income outflows.
ESG portfolios with purpose grew to $31 5 billion up 16% sequentially and 91% year over year, driven by our U S and global sustainable thematic strategies.
In the fourth quarter sustainable global thematic when the Green Fund award in the financial Services Awards of Excellence published by the Hong Kong Economic Journal.
Turning to institutional on slide nine.
Fourth quarter gross sales of $6 5 billion declined 34% from year ago, while rebounding from a slower third quarter.
Full year sales were $31 7 billion, including the Venerable sale.
We drove net inflows of $400 million in the fourth quarter and $2 3 billion for the year, our third consecutive Europe organic growth in.
Flows and customized retirement solutions, our Crs commercial real estate debt or cred European cred in active equities offset outflows in taxable fixed income and passive equities.
Our middle market lending business was awarded two institutional mandates with consultant successfully competing against larger better known alternative managers.
Our institutional pipeline grew to a record 21 5 billion at quarter end led by a $1 5 billion global core equity mandate.
The annualized fee base reached $65 million, the majority of which was from alternatives.
Our pipeline included a $9 $7 billion low fee Crs mandate, which funded in January 2022.
While pipeline AUM will be significantly reduced for the foreseeable future the annualized fee base. Excluding this mandate remains above $60 million with an active fee rate more than three times the channel average.
With respect to access for whom we correct me Lee managed 20 billion in AUM, we continue to expect $5 billion low fee retail redemptions in the first half of 2022.
Moving to private wealth management on slide 10.
Fourth quarter and full year gross sales grew by 40% and 27% respectively versus the year ago period, driven by strong advisor productivity net.
Net inflows were $700 million in the fourth quarter positive in each quarter of 2021 and five of the last six quarters.
For the year, we grew net inflows by $3 billion or 3% organically.
We continue to see our mix shift towards our ultra high net worth $20 million and over clients influenced by our pre liquidity event planning efforts from which gross sales more than doubled in 2021.
In 2021, we launched nine innovative product offerings, including real estate equity plus <unk> partners, one which is our new secondaries offering global Disruptors fund and sustainable intermediate duration to name a few.
In the fourth quarter, we closed on our commercial U S real estate debt private debt fund with over $200 million in capital commitments.
And for the full year commitments to private alternative products more than doubled versus the prior year.
Our proprietary separately managed equity tax loss harvesting product grew by 32% sequentially, while muni impacting ESG portfolios continue to grow strongly.
I'll finish our business overview with the sell side on slide 11.
Fourth quarter Bernstein research revenues decreased by 4% year over year and full year net revenues decreased by 2% year over year.
We experienced a fourth quarter slowdown in Asia trading volumes, reflecting caution on the part of investors measuring the spillover effect of the Chinese property market among other events.
Full year trading volumes reflected less volatility in 2021 as compared to 2020, when the Covid selloff in ensuing recovery lifted volumes.
For the full year Asia trading commissions increased in the high teens, while research checks posted mid single digit growth, reflecting our premium research franchise.
In November we held our second virtual operate operational decisions conference with an impressive lineup of senior executives from over 51 companies in various sectors and.
And we launched coverage on three new sectors. This past quarter two in China, one in Europe .
I'll now review progress against our growth initiatives on slide 12.
Our investment performance strengthened in 2021 was 70% or more of our both fixed income and equity outperforming over the one and five year periods.
We drove organic growth across each channel all four quarters last year and five of the last six quarters with retail positive 12 of the last 14 quarters and institutional positive 10 of the last 11 active equities remains the standout performer.
Pivot wealth grew by 3% positive in each quarter of 2021 and five of the last six quarters with active client engagement and nine diverse new product offerings, our ESG portfolios with purpose now stand at $31 5 billion in AUM.
AUM up 91% year over year and alternatives, we launched our climate focused one five degree long short equity strategy and closed on a commercial real estate debt private debt fund.
Financially, we delivered on our commitments posting incremental margins at 53% above our long term target range of 45% to 50%.
Full year adjusted operating margin of 33, 6% was up 350 basis points year over year with adjusted earnings and unit holder distributions up 34% versus the prior year.
I'll return to share thoughts on our growth strategy, but before that I will turn it over to Ali to review the financials Ali.
Thanks, Jeff, let's start with the GAAP income statement on slide 14.
Fourth quarter GAAP net revenues of $1 $3 billion increased 19% from the prior year period operating income of $393 million increased 30% and operating margin of 38% increased by 240 basis points.
GAAP EPS of $1 27 in the quarter increased by 31% year over year.
For the full year GAAP net revenues of $4 4 billion increased 20% operating income of $1 $2 billion rose, 34% and operating margin of 27, 3% increased 270 basis points.
Full year GAAP EPS of $3 88 increased by 34% 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-K.
Our adjusted financial highlights are shown on slide 15, which I'll touch on as we talked through the P&L shown on slide 16.
On slide 16, beginning with revenues net revenues increased 16% for the fourth quarter and 18% for the full year versus the same prior year periods.
Base fees increased 19% for the fourth quarter and 20% for the full year as higher average AUM across all three distribution channels was driven by both markets and organic growth in each channel.
Day rates for both periods increased with the fourth quarter fee rate of $39 four basis points up <unk> seven basis points or 2% year over year and the full year fee rate of $38 nine basis points up 0.5 basis points or 1%.
We continue to believe that although our fee rate may be volatile from time to time, given large mandates that could skew averages such as the $10 billion low fee Crs edition in January the long term trend should be grinding higher.
Fourth quarter performance fees of $134 million.
Increased by $25 million over the prior year period, driven by our financial services opportunity fund and real estate offerings offset by lower fees as compared with prior year at ARIA partners.
<unk> full year performance fees of $222 million were up $92 million compared to $130 million for the prior year, reflecting a solid year for alpha generation and more diversified across public and private alternative strategies.
Middle market lending, a $55 million financial services of $41 million and U S select equity long short $32 million with the largest generators of performance fees.
2021 was quite an anomalous year for performance fees, both in terms of source magnitude and benefit to the bottom line, although difficult to predict a reasonable run rate for 2022 would likely be somewhere between 2019 and 2020 levels.
Fourth quarter revenues for Bernstein Research services decreased 4% from the prior year period, driven by lower trading volumes in Asia, reflecting a shift in Asian investor sentiment around risk.
Full year revenues declined by 2%, reflecting higher COVID-19 driven market volatility in the prior year.
We encourage investment losses of $1 million in the fourth quarter similar to the prior year period and for the full year, a gain of $1 million as compared to a loss in the prior year of $7 million.
Moving to adjusted expenses.
All in our total fourth quarter operating expense of $630 million increased 9% year over year, while full year operating expense of $2 4 billion increased 12% from the prior year.
Total compensation and benefits expense increased 4% in the fourth quarter versus the prior year period, primarily due to higher base compensation and commission offset by lower incentive compensation.
In the fourth quarter, some compensation expense move to G&A, reflecting investment as well as increased usage of outside consultants, which can accelerate strategic initiatives and improves our flexibility as these represent variable as opposed to fixed comp expenses.
Compensation was 41, 7% of adjusted net revenues for the fourth quarter versus 46, 7% in the prior year period.
Full year 2021 revenues crystallize at a higher level than we had anticipated earlier in the year, allowing us to leverage down the fourth quarter compensation ratio relative to prior period.
For the full year compensation and benefits increased by 15% driven primarily by higher incentive compensation, reflecting both higher market and increased performance fees and based compensation full.
Full year based compensation increased by 9%.
Average head count rose by 4% as compared with the prior year average.
Full year 2021 compensation ratio was 46, 5% 140 basis points below the prior year.
While our 2021 compensation ratio benefited from favorable market conditions 2022 has clearly brought brought more volatile markets.
Current market conditions, as we plan to accrue compensation at a $48 zero percent ratio in the first quarter of 2022 and may adjust throughout the year if market conditions change.
Should markets pull back further this ratio could go up as we plan to pay competitively given our people our most important asset.
As a reminder, the compensation ratio is also sensitive to variability in the year and mix of performance fee eligible funds and impact from the possibly increasing post COVID-19 fringe benefit.
Promotion and servicing costs rose, 24% in the fourth quarter and were up 7% for the full year, reflecting lower <unk> and meeting costs last year, owing to the COVID-19 pandemic.
Going forward, while we still strive to realize some portion of ongoing efficiencies, we would expect promotion and servicing spend level to increase meaningfully as the pandemic stages subside.
G&A expenses increased 20% in the fourth quarter versus the prior year period, or 15%, excluding Nashville and related relocation expenses.
This increase is split roughly evenly into three areas.
<unk> growth related technology and efficiency projects as well as new product launch support.
To inflationary impact from areas, such as market data and professional services in three core G&A necessary to support the organic growth of our business.
For the full year, G&A rose, 11% or 9%, excluding Nashville interrelated relocation expenses. This 9% growth was also split relatively evenly between the same three categories growth and efficiency projects as we opportunistically invested in the future at an accelerated pace to take advantage of our strong performance.
<unk> in the year.
Inflation impact and core G&A, including FX, adding 1%.
Looking forward, we expect the rate of G&A growth to moderate from 2020 ones right, though remaining above our historical average to somewhere in the mid to high single digits.
We will continue to invest in return generating growth and efficiency projects, including the use of outsource consultants, where appropriate and we expect inflation to remain persistent core G&A growth is necessary to support our organic growth.
Intangible expenses were flat in the fourth quarter and declined by $16 million for the full year as a quarterly amortization charges associated with our acquisition of Bernstein 20 years ago and in the third quarter of 2020.
Fourth quarter operating income of $394 million increased by 31% and full year 2021 operating income of $1 $2 billion increased by 32% versus the prior year period as revenue growth outpaced expense increases.
Fourth quarter operating margin of 38, 5% was up 430 basis points year on year, reflecting the operation operating leverage of our business.
The incremental fourth quarter margin was 64% as compared to the prior year period.
Our full year 2021 operating margin of 33, 6% increased 350 basis points from 2020 for the full year, we delivered incremental margin of 53% above the high end of our long term targeted 45% to 50% range.
2020 one's margins reflected strong markets, a robust level of beneficial mix of performance fees and continued low teen expenses due to COVID-19 .
Absent improvement in markets from today's levels, we would expect 2022 margins to be impacted reflecting continued higher inflation and our investments to both deliver our services to our clients more efficiently and grow for our clients through diversification and expansion.
As outlined in the appendix of our presentation fourth quarter and full year adjusted earnings excludes certain items, which are not part of our core business operations.
In the fourth quarter, adjusted operating earnings were $2 million or.
<unk> per unit above GAAP operating earnings due to the net impact of acquisition related expenses and contingent payments.
For the full year adjusted operating income was $2 million below GAAP due to the net impact of acquisition related credits offset by real estate and contingent payments, but <unk> <unk> higher when excluding the impact of netting minority interest and operating income.
The full year 2021 effective tax rate for Alliance Bernstein LP was five 2% about as expected going forward. We expect an effective tax rate for 2022 of approximately five zero percent to five 5%.
I'll finish with an update on our corporate relocation.
To Nashville.
We are enjoying use of the new fifth and commerce location, which we moved into last July .
At year end, we had 974 Nashville based employees up 23% from a year ago and more than three fourth of the way to our target of 1250 colleagues.
For the fourth quarter estimated expense savings related to our Nashville, corporate headquarters relocation totaled $12 million compared to transition costs of $6 million, resulting in a net $6 million increase in operating income or net <unk> accretion to EPS.
The net $6 million approximately $10 million is compensation.
Offset by $4 million of increased occupancy costs.
For the full year 2021 expense savings of $43 million were greater than transition cost of $27 million <unk>.
Resulting in a $16 million contribution to operating income for net increase of <unk> <unk> per unit.
The net $16 million approximately $33 million in compensation related savings offset by $17 million of increased occupancy costs.
For 2022, we expect the natural relocation to remain accretive.
We continue to estimate ongoing annual expense savings in 2025 once the transition period is over to be in the range of $75 million to $80 million per year.
With that I'll turn it back to Seth for some closing remarks before we take your questions.
Thank you Ali turning to slide 18.
Last year under Ali's leadership, we undertook a fresh look at our strategy with the resulting five part strategy statement now guiding our path forward.
Deliver diversify and expand responsibly with equitable.
In 2021, we made great progress in this regard we delivered improved investment performance and accelerated our organic growth.
Included in 2020 one's banner year, our active equity platform has grown organically by 5% annually over the last five years well above the industry.
We diversified our global product offerings with innovative offerings across all channels. For example in alternatives. We grew our commercial real estate debt in middle market lending offerings and onboard of the climate focus long short team one five degrees west.
We successfully expanded our global distribution footprint driving over 40% sales growth in the U S retail SMA assets.
Celebrating our advisor hiring in private wealth and we're progressing in China, having received formal acceptance of our application in the fourth quarter, a key milestone in the FMC license application process.
Our responsible investing platform continued to grow strongly as we added two new strategies that align with the UN sustainable development goals sustainable income and sustainable U S thematic credit as well as climate solutions and sustainable emerging markets debt to name a few.
And we announced earlier in 2021, Equitable's commitment to allocate 10 billion of permanent capital to our private alternatives and private placement platform.
We're pleased with progress, including recent commitments from Ecuador for a cred core plus both fixed and floating and our construction to permanent strategies.
In response to client demand, we continue to assess inorganic growth opportunities to fill out our product gaps with focus on the private credit side, including asset backed infrastructure and renewables to name a few.
In summary, we had a strong 2021 entering a more volatile 2022, our teams remain focused on pursuing insight that unlocks opportunity for our clients unitholders and other stakeholders with that we welcome your questions operator.
If you would like to ask a question. Please press star one on your telephone keypad again Thats Star one.
Withdraw your question press the pound key.
Please limit your initial questions to two in order to provide all callers an opportunity to ask questions. You are welcome to return to the queue to ask follow up questions.
We'll pause for just a moment to compile the Q&A roster.
Your first question is from the line of Bill Katz with Citigroup.
Okay. Thank you very much for that detail and taking the questions. This morning. So maybe Seth were for you where you're sort of left off with equitable maybe the bigger picture question is where are you with equitable in terms of some of that advancement of the $10 billion. It sounds like it's a few things going on and then is there an opportunity.
To broaden that suite out beyond equitable.
The players organically.
Thank you Bill let me take them in turn.
We are already utilizing.
A portion of that $10 billion on our existing strategies, whether it's.
Middle market lending CLO, and our commercial real estate debt business. They were the initial investor in our European commercial real estate debt business, which as you know we launched last year.
It will take time to deploy that but commitments have been made.
Yes.
It is our absolute expectation that we will be able to commercialize those products and new services and teams we bring on beyond just equitable or our existing base of insurance clients.
The World continues to have a very strong demand.
For private debt generally that has been the focus to date of our effort.
And so I feel pretty good about it.
But.
Let me leave it there.
Okay, maybe one more big picture for you just as you think about.
The opportunity in retail democratization theme, which large numbers, depending on who you speak with could you talk about a little bit what the incremental plans are within your existing book of the private client business and then how you might tap into.
So the market outside of your own footprint. Thank you.
Alright from our private wealth basis, Billboards right right. So I guess what are you doing with your existing book and then B. How do you sort of go after the mass affluent in non AB distribution channels.
I'm going to actually answered the second part of that first and I'm going to hand, it over to Kate FERC to answer with respect to our private wealth business who's on the phone and runs that business.
But more broadly that's exactly who we have been attacking.
Through our distribution partners, both in the United States and globally, whether it's the very strong receptivity to our large cap growth service in Japan.
Or increasing interest in equities.
<unk> and greater Asia are sustainable.
Suite of products, which has really been driving strong.
Interest is principally retail.
In terms of those flows that we were talking about earlier in our presentation and I really think we look to our retail.
Our growth strategies, both in the U S a bit in Europe , but more in particular in Asia.
To really drive that growth further.
Coming years, if I take one or two chip in with respect to private wealth management.
Sure. Thank you.
The focus with Bernstein private wealth continues to be.
Moving upmarket into the ultra high net worth.
And we've seen a lot of excess.
In that area growing the net.
Our then that's slightly higher than our average flows but we are recognizing that there is a real opportunity in this emerging wealth cohort that you talk about that for us in a very specific area and you see that in the success of the growth of our pre liquidity in transactional and that's where we are at par.
Entering with early venture.
Entrepreneurs and.
And new private business.
Looking at how can we can provide them with not agnostic wealth advice.
Separate from the transaction about how they wanted to be positioning their portfolio longer term and we're seeing that pre transaction planning really be a nice driver of that.
Emerging cohort.
To invest in making sure our wealth advice meet those client needs and are looking to continue to kind of expand that offering but in a very curated and specific audience at that emerging versus going after it.
Property.
Hey, Bill can I, just clarify something when you talk about <unk> in particular, when you're talking more broadly about.
Into the affluent marketplace, while I was speaking directly to the alts that seems to be the incremental theme at the margin. So I was hoping to get.
Apologize.
Misunderstood I apologize if I wasn't clear thank you.
Actually it's been an important source of growth.
<unk> business has been a large driver of that and she can add more color there but.
Our select platform is already seeing interest and was a strong contributor in 2021.
And we also.
Tend to sort of move into.
Expand into retail our private credit capabilities through partnerships with others. So watch this space.
Anything specific.
No I would just add.
Add that alternatives continue to be attractive areas.
Clientele.
Thank you.
Your next question is from the line of Dan Fannon with Jefferies <unk> company.
Thanks, Good morning.
I guess to start just in terms of the performance fees I appreciate the kind of forward looking commentary, but as we think about the fourth quarter and the magnitude was there something different about.
The makeup of these performance fees is the comp ratio, obviously came in a lot lower.
And so just thinking about payout or how we should think about.
The compensation associated with performance fees going forward as well.
Thanks for the question.
So, yes, I would say that the performance fees in the year and in the quarter were a little bit anomalous both in terms of the size for.
For the year the $2 22 number that was larger than we would expect.
And to your point, Dan on the mix of where they came from you mentioned a couple of the funds that you probably haven't heard a lot of over the past several years petrol services opportunity fund from a real estate platform those come in.
Strong more strongly than we would've thought in any one year it's.
It's hard to predict as you can imagine what happens in one year versus another year. We do expect these funds to perform but sometimes things come in little bit earlier or less spread out then we would think that does impact.
Generally the impact to the bottom line as well depending on the mix. The way we would think about performance fees just to give you a guide going forward in a more normalized manner is somewhere between 2019, and 2020 levels Thats kind of a more normalized level to think about for performance fees.
Going forward.
Understood and then just as a follow up here you talked about promotion and servicing is increasing significantly so.
Maybe put some numbers around that if you could or how to kind of frame that in terms of historical or other periods. And then also the comp ratio discussion for the first quarter that I think you said.
Up to date for kind of current AUM levels. So just wanted to see kind of what the starting point of that comp ratio in terms of year to date.
Market performances within that thank you.
Sure.
Sure so.
On the.
The promotion servicing elements number the two biggest buckets of that that have vacillated, given given COVID-19 , our TNT and for meetings.
What we said in 2020 versus 2019 holds true actually for 2021, which is effectively say across both of those roughly $50 million $501 million.
Work.
Peony for meetings across those across those two relative to 2019, so essentially flat 2021 versus 2000 Twenty's way to think about it.
If you want a sense of where we are on that we're probably around.
A quarter of the span of 2019.
Right now we expect that to go up significantly we hope for all of our stake that that goes up significantly because we also get to be in front of our clients.
And I'd say the pace of that is your guess as best as Rguest I would say that we do expect savings over the long term relative to our 2019 numbers.
We've talked on these calls before to something like 75%, 80% hopefully from a run rate basis, but we would expect those costs to go up in the short term certainly as people get back on the roads and there is some pent up demand hopefully that gives you some contact and around around that.
On the comp ratio as we've said, 48% in the comp ratio, we're starting to accrue in Q1.
Obviously, if the markets go down since then or if there's a big change in the market that may change.
We'll have to see how things play out, but we have been historically very balanced and thinking about investing in the short term of our business as well as importantly for the long term of our business.
And we have balanced that through all of our expenses, obviously, including including the comp ratio.
We understand it's a competitive market and our people our assets and we're going to make sure we're competitive in that marketplace as well.
Thank you.
Your next question is from the line of Robert Lee with <unk>.
Great. Thanks, Good morning, Thanks for taking my questions.
Curious I mean, the and looking at the U S retail SMA.
Highlighted.
On page, 18% to 40% increase in sales I'm, just kind of curious.
It's possible to to what would you attribute that obviously performance, but was there some specific new strategies that you introduced whether product was one of the distributor.
The sales side, just trying to get a sense of kind of what.
What drove that dramatic increase in how maybe broad based it was.
Robert.
It was look.
Tax tax exempt sma's have really been an important driver for us.
We were early.
Mover there.
And we've offered a considerable degree flexibility in how we structure them and.
This is for our clients.
And it's resonated with distributors as well as in our.
Our private wealth business more generally where it has been a cornerstone elements of our offering.
Jess.
In the equities business I'm, sorry, the fixed income business, specifically, you've also seen I think along with the industry more broadly increasing demand for more affluent.
Investors.
For SMA over Etfs or mutual funds for that matter and so we think that demand will continue to grow.
As people become more tax sensitive and want to understand what's going on in the underlying importance.
Great and I know you don't want to focus too much on one month or one or two months, but.
The January obviously was on the flow front. In addition to the Crs It looks like it was a strong.
Start to the year I mean could you put any kind of.
Flesh it out a bit I mean, we're willing to say here's what flows were in January outside of Crs or give us some sense of that.
But we don't disclose specific flows, but what I will tell you we've seen a continuation of the trends.
David in the past pretty strong.
Strong continuing interest in equities.
And continuing with them <unk> fixed income principally from Asia.
So.
Momentum is okay, but look there are headwinds in the marketplace, we recognize and as Ali said earlier I think we're anticipating more volatile markets generally with more rapid changes in investor interest.
Yes.
Great. Thanks, Thanks for taking my questions.
Again to ask a question. Please press star one on your telephone keypad again Thats Star one.
Your next question is from the line of John Dunn with Evercore ISI.
Hi.
Maybe just on you mentioned in Asia.
The initial outlook for may be getting a shift back in demand for retail fixed income into Asia sometime in 'twenty, two and maybe how is this pattern kind of played out in other in prior cycles.
Thanks for the question.
So look.
Generally.
The strength of our business historically, although it is beginning to change today was really very much an income oriented fixed income that continues to be a important part of that business and investors in Asia tend to be much more market sensitive and performance sensitive and thats been our experience to date.
Our relative performance is reasonably good.
I think what we're seeing is what we frankly see every time the fed is engaged and goes into.
Tightening mode.
General.
Lack of interest in fixed income assets generally and reallocations elsewhere.
And so we face that.
I would tell you is every time in the past that's happened and it's been from so far from a.
Relative perspective, more modest today than in 2021 that we saw.
Prior periods of disruption.
We see we typically come back with pretty strong results in the enthusiasm for the services pick up look at as high yield.
Yields sort of pop up over 5%. We think that is an important point, where investors start to take more notice.
And begin to.
We carefully back into the market, but I think more broadly.
Asian investors are tending to be more interested in equities and multi asset than they were in the past and we continue to see interest in both of those as well.
Got it and then maybe on the institutional side.
A different environment on a bunch of fronts. This year are.
The questions the institutional consultants asking are they changing are they looking at different stuff.
Maybe a sense of how those conversations may have shifted.
Yes, I would say theres certainly been over the last several years much more focus on responsibility ESG, how it's integrated into our processes. We have a good story to tell.
But in terms of interest in markets look I think it continues to be driven by interest in alternatives, but.
And traditional markets much less activity in fixed income, although we've seen some that are participating in.
And in equities, certainly we've seen more interest in Hep C and.
Benefited from some business as people begin to rotate into value.
Beyond that I guess.
Less less clear to me that there has been changes.
Got it thank you.
We do have a question from the line of Bill Katz with Citigroup.
Okay. Thanks, so much for the follow up so Seth you mentioned that there might be some inorganic opportunities to build out the platform.
And wonder if you could dive into a little bit more and then b, there's been some pretty big multiples being paid out there. How are you thinking about the sort of the gap between bid ask in terms of trying to effect. The transaction. Thank you, yes, I'm going to take them in turn and that May ask Ali to jump in as well.
Look we as I've told you.
And others, all along and we continue to look at teams. Our philosophy has been I think fairly clear which is.
Sure.
Our are interested.
Is <unk>, where we see edge, where we see a culture, where we see a track record of excellence where are we.
We think.
We can actually grow them faster than they can grow themselves and get them to scale people know, where the right kind of home for active managers, we understand how to manage.
<unk>, giving them their space, but also realizing the benefits of integrating and and and.
Unifying.
Those services that they need whether it's distribution technology operations and core functions.
And so we've had a very good track record to date of finding onboarding.
And.
And getting teams to scale it doesn't always work, but for the most part it's done well I would say the activity levels remain fairly high at what we look at Bill.
So theres nothing to report there, but let me make a couple of comments with respect to the valuation gap.
<unk> traditional and alternative matters, because we certainly recognize it and our approach has been.
Frankly to really focus on smaller teams or teams that don't have significant assets under management and to help them get the scale because if we're going to have to pay.
A relatively higher multiple we'd much rather get the benefit for our unit holders by benefiting from the scaling of that business. So I think we would shy away from buying a larger firm for that reason.
But we continue to be focused on that area Ali, which I'd like to jump in.
Sure just to add a little bit.
Question. One is we're certainly in the flow of everything that you read in that Youll see.
So we've deliberately stay.
<unk> stayed away from some of the acquisitions that you might have seen in the.
The context of why we stay away from them is really exactly as Seth said because were not looking for things that are at scale.
For things that we can grow and that we have competency in NSS described of the team to grow.
That is our number one thing we need to believe in the team to grow and look there's a lot of interesting stuff out there.
We are again in the follow up.
If it's not scale and what is it to grow bucket, we're very focused on alternatives private alternatives in particular, we've built a very sizable business of $23 billion in overall turnover for us so far.
Heard us mentioned that on past earnings calls, we believe there is a lot more growth in that to deliver for our clients who are asking for these types of products.
And we see some interesting opportunities to partner with firms and grow those firms and we can grow them in particular, because we have a distribution channel that is very well honed mentioned retail just a moment ago, which is just opening up for us, but we have a very well honed private wealth channel that is looking for alternative instead.
<unk> of course, we're hearing that more and more Seth mentioned that a moment ago and let's not forget our partner with.
With our with equitable who not just with the $10 billion number, but just more broadly it was a great partner to build private credit. So again, it's busy out there.
We have been fortunate to bring on some great teams and we look forward to bringing on some more teams that we can grow in the future.
Many thanks.
There are no further questions at this time, Mr. Griffith I'll turn the call back over to you.
Taken Italia. Thank you everyone for participating in today's conference call feel free to reach out to Investor relations with any additional questions and have a great day.
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