Q4 2022 AllianceBernstein Holding LP Earnings Call
Thank you for standing by and welcome to the Alliance Bernstein fourth quarter 2022 earnings review at this time all participants are in a listen only mode. After their remarks, there will be a question and answer session and I will give you instructions on how to ask questions at that time.
As a reminder, this conference is being recorded and will be available for replay on our website. Shortly after the conclusion of this call I would now like to turn the conference over to the host for this call how did investor relations for a b Mr. Marc Griffin. Please go ahead.
Thank you operator, good morning, everyone and welcome to our fourth quarter 'twenty 'twenty. Two 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.
With us today to discuss the company's results for the quarter are Seth Bernstein, our president and CEO and Keith Burke CLO and CFO .
<unk> head of our global client group and private wealth and Bill Seamers controller, and Chief Accounting Officer 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 10-K, which we will file on Friday February 10th.
Under regulation FD management may only address questions of a 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.
Despite a fourth quarter market rally 2022 was a challenging year for diversified investors with equity and debt markets, both down double digits in fixed income markets posting their worst annual returns on record.
Our financial results contracted along with markets with full year average AUR down, 6% revenues down, 8% and adjusted <unk> down 24%.
Nevertheless, I'm very proud of what our teams were able to accomplish our globally diversified platform grew our active assets organically for the fourth consecutive year continuing to Buck industry trends, our effective fee rate improved for the second straight year due to a mix of organic growth and to the carve out acquisition.
And we executed on multiple strategic transactions growing in private alternatives supported by equitable holdings and embarking on a promising growth opportunity for Bernstein research.
Let's get into specifics starting with a firm wide overview on slide four.
Fourth quarter gross sales of 30.9 billion declined by 9 billion or 22% from a year ago.
We saw slight firm wide active net outflows in the quarter.
For the full year gross sales of $115 6 billion were down 23% from a record prior year.
And we posted full year active net flows of 900 million our fourth consecutive year of active organic growth yes.
Year end assets under management of 646 billion declined 17% year over year.
Fourth quarter average AUM of 636 billion was down 16% versus the prior year, while full year average AUM of 686 billion declined by 6%.
Slide five shows our quarterly flow trends by channel.
Wide fourth quarter net outflows were $1 9 billion with net inflows and institutional offset by net outflows in retail and private wealth.
Retail gross sales were $14 2 billion with net outflows of $3 4 billion.
Institutional sales were $12 6 billion supported by a $6 4 billion custom target date mandate generating net inflows of $1 7 billion.
In private wealth gross sales were $4 1 billion with slight net outflows of $200 million as we continued to grow engagement in the ultra high net worth cohort supported by a focus on pre liquidity planning.
Slide six shows annual net flow trends in.
In a challenging year for active managers gross sales of 116 billion led to firm wide net inflows of $900 million, excluding axa redemptions.
Retail sales of 66 billion, where 34% below last year's record levels net outflows of $9 5 billion ex Axa were driven by taxable fixed income offset by organic growth in active equities and municipals.
Institutional sales increased to 32 billion the highest level since 2008, driven by <unk> 16 billion in fundings related to two institutional custom target date mandates we.
We had our fourth consecutive year of organic growth in this channel with net inflows of $8 6 billion ex Axa and private wealth had gross sales of $17 5 billion with net inflows of $1 7 billion.
Second straight year of organic growth in the death of the last seven investment performance as shown on slide seven starting with fixed income. Despite a fourth quarter rally fixed income market spell in tandem with equity markets in 2022, as central banks battled inflation interest rates soared and recession fears Mt.
In longer term yields in developed markets rose sharply leading global Treasury turns to fall 10, 8% during the year all credit sectors were challenge relative to government bonds securitized assets outperformed other credit sectors, while emerging markets hard currency sovereign and corporate bonds trailed.
In this environment, our fixed income performance lagged with 20% of our fixed income assets outperforming up with the one year period, while 53% and 70% of assets outperformed over three and five year periods, respectively. As we said last quarter, our one year under performance reflected our positioning in global credit as most.
Of our retail fixed income strategies, our broader based than just the U S and our focus U S outperformed last year, making peer comparisons more challenged municipal performance was impacted by an overweight to mid grade and lower weighted municipals and by overall yield curve positioning encouragingly in our retail channel we have.
Asian investors supported by a global financial institution partners begin to rotate back into fixed income on the back of better valuations and a greater comfort with exposure to duration now that the fed appears to be nearing the end of the interest rate hiking cycle.
Turning to equities U S equity markets advanced during the fourth quarter with the S&P 500 up seven 6% lessening the full year's 18% loss for the quarter and year growth underperformed value is higher rates weighed on longer duration stocks.
The Russell 1000 growth index returned to 2% for the quarter, bringing the year to date loss to 29, 1% versus the Russell 1000 value index as return of 12, 4% for the quarter and negative seven 5% for the year.
The majority of our equity assets outperformed with 59% of AUM outperforming for the one and three year periods and 77% for the five year period or one year performance improved sequentially as our U S. Large cap growth composite beat the Russell 1000 growth benchmark EBIT by an overweight to health care sector and under.
Awaits to Mega cap technology.
In this environment, we're maintaining discipline on identifying high quality profitable companies with sustainable business models and large recurring revenue streams, all defensive characteristics, which seem helped buffer against spikes in market volatility.
Quality companies with strong pricing power, often demonstrate consistent profitability even in inflationary environments.
Stable companies have cushion on the downside because they typically have lower beta or a sensitivity to the broader market and traditional growth firms.
Now I'd like to review our client channels, beginning with retail on slide eight.
Fourth quarter sales were 14 billion down 13 billion from last year's record fourth quarter, but up sequentially.
Annual sales of 66 billion were down 34 billion from last year's record level.
The annual redemption rate reached a historical low of 24% fourth quarter net outflows were $3 4 billion contributing to full year net outflows of 11 billion. The latter driven primarily by taxable fixed income a dynamic seen industry wide.
Despite the challenging environment active equities grew organically for the sixth straight year on municipals grew organically for the 10th straight year. The latter led by our SMA tax aware in our SMA custom strategies.
The bottom left graph shows that we are taking market share in both businesses, where babies net inflows clearly bucking the trend of industry wide outflows.
From a regional perspective U S. Retail grew organically four its fourth consecutive year and Japan grew for the fifth straight year.
Several flow rankings as shown on the bottom right.
For the year, a bee ranked 10 of 456 in U S equity flow rankings with positive flows in the U S. Led by large cap growth a few words on flows our January 2023, AUM, which will be released today after market closes benefited from net inflows and retail we saw accelerating in <unk>.
Welcome to American income fund is ranked first in flows in the U S. Dollar flexible bond category for the last two quarters. We also saw continued strength in Muni sma's.
Turning to institutional on slide nine.
Fourth quarter gross sales of $12 6 billion included $6 4 billion from our previously disclosed low fee custom target date mandate full year sales were 32 billion. The highest since 2008, driven by 16 billion in fundings from two custom target date mandate 2022 was the fourth straight.
Year of net inflows in institutional positive even net of Axa redemptions in each of the last three years net inflows were $6 3 billion in the year or eight 6 billion, excluding axa, our effective fee rate continued to improve in the fourth quarter driven by the 10th consecutive quarter of net inflows into alternatives.
<unk> and multi asset.
Our institutional pipeline declined to $13 2 billion at quarter end with 12 billion funded in the quarter, including $1 5 billion of a b carve out fundings, including credit value fun dive C. L O eight and clean energy private alternatives comprised about half of the additions to the pipeline and the <unk>.
Quarter, notably middle market lending and Euro cred.
And the pipeline <unk> Raman remains more than three times, the channel average driven by private alternatives, which comprise more than 80% of the annualized fee rate.
In January we received an additional $1 3 billion dollar commitment for U S. Cred from equitable part of their 10 billion permanent capital commitment to improve the returns while growing our higher fee longer duration private markets business for which well over half of the $10 billion has been deployed in our strategies at year end.
Thus far in 2023, we have seen an increase in institutional client inquiries, which are broad based and well diversified by asset class style cap geography and client type.
Moving to private wealth management on slide 10.
Fourth quarter gross sales declined by 21% year over year and increased slightly sequentially.
Year gross sales of $17 5 billion declined just 4% versus a strong prior year with productivity remaining historically al abated down 2% year over year.
Full year redemption rates improved to 13% down 160 basis points from last year. Despite slight net outflows in the fourth quarter. The full year saw net inflows of $1 7 billion. The second year in a row of organic growth and the fifth in the last seven.
Our client mix continues to shift toward our ultra high net worth $20 million and over clients, which remain our fastest growing cohort. This cohort has a particular focus of our pre liquidity event planning efforts from which AUM generation in the fourth quarter, well outpaced an industry wide M&A volume contraction of more than 50 per <unk>.
<unk>.
For the full year commitments of $1 8 billion to private alternative products were up 10%, which included the launch of Bernstein impact alternatives, a new third party partnerships looking to 2023, we have a robust set of new product launches planned, including a be carve outs clean energy credit value and transportation.
Our proprietary direct indexing strategy grew by 62% year over year, and 11% sequentially, while ESG AUN grew by 6% organically.
I'll finish our business overview with the sell side on slide 11.
Fourth quarter Bernstein research revenues of 100 million decreased by 12% year over year and were up 10% sequentially.
Oh year revenues decreased by 8% year over year.
The year was characterized by a stronger first half followed by a weaker second half is institutional trading volumes were constrained amidst global uncertainty.
We are continuing to grow research checks driven by high single digit growth at autonomous in November we announced the strategic decision to enhance growth opportunities for Bernstein research services through contributing the business into a joint venture with Societe Generale cash equities business. This announcement has been well received.
Ive by our talented global research teams, who recognize the potential and adding our new partners' equity capital markets' derivatives and prime brokerage capabilities. We continue to expect the transaction to close before the end of 2023 subject to regulatory consultation and approval in several countries and we anticipate disclosed.
Financial details closer to that time.
I'll now review progress against our growth initiatives on slide 12.
Our investment performance was mixed in 2022, while disappointing in fixed income the majority of our equity assets outperformed for the three and five year periods performance was solid with 70% or more both asset classes outperforming over the five year period.
I'm proud of our teams for driving active organic growth last year for the fourth consecutive year, despite challenging financial market conditions.
Robust growth in custom target date solutions and private <unk> led the way with active equities immune is also contributing to retail.
Our effective fee rate improved for the second straight year influenced by both the mix of organic growth and the strategic acquisition of carve out.
With the support of our strategic partner Equitable, we launched our active ETF business and closed on the carve out transaction, which significantly enhanced diversification of our $56 billion private markets business, a 57% year over year.
Financially contracting asset prices took their toll as we posted a three year rolling incremental margin of 35% below our long term target range of 45% to 50%.
Full year adjusted operating margin of 28, 4% declined 520 basis points year over year with adjusted earnings and unit holder distributions down 24% versus the prior year.
We entered 2023 facing pressures on our revenues and margins with AUM, 17% lower year over year, and we expect financial market conditions will remain volatile.
Accordingly, we recently took measures to reduce head count that affected a small portion of our global employee base.
As I look forward, our team's accomplishments against our strategic initiatives in 2022 give me confidence for 2023 with continued diligence in managing compensation and other costs, we remain positioned to capitalize on growth opportunities ahead of us. These key initiatives include growing our active ETF offerings.
Investing in our insurance business to grow third party clients investing in technology and capabilities of our Muni business and standing up an asset management business in China for which regulatory approval remains pending while executing on a b carvel opportunity and Bernstein Research's joint venture now.
Now I'll turn it over to Kate to review financials Kate.
Let's start with the GAAP income statement on slide 14.
Fourth quarter GAAP net revenues of 1 billion decreased 22% from the prior year period operating income at $204 million decreased 48% and operating margin of 20% decreased by 1080 basis points.
GAAP EPS of <unk> 59 cents in the quarter decreased by 54% year over year.
Full year GAAP net revenues of $4 $1 billion decreased 9%.
Operating income of $815 million declined 33% and operating margin of 21, 5% decreased by 580 basis points.
GAAP EPS of $2.69 decreased by 31% are over a year now.
My remarks from here on our adjusted results, which remove the effect of certain items that are not considered part of our core operating business.
We base, our distribution to unit holders and 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 in our 10-K, the latter of which we expect to release on Friday February patents.
Our adjusted financial highlights are shown on slide 15, which I'll touch on as they walk through the P&L shown on slide 16.
On slide 16, beginning with revenues.
First quarter net revenues of $802 million decreased 22% versus the prior year period for the full year net revenues of $3 3 billion were down 8%.
Fourth quarter base fees decreased 12% versus the prior year period and for the full year period were down 3%.
In both cases, lower average a U N given by market declines were partially offset by higher fee rates. The fourth quarter fee rate of 41, three basis points was up 5% year over year, driven by the higher fee rate, a b carve out base fees and by asset mix and our full year fee.
At a 39 nine basis points, whereas by 3% year over year fourth quarter performance fees of $18 million declined by 116 million from the robust prior year quarter, primarily driven by lower fees at financial services opportunities, a b ARIA partners and real estate equity.
Full year performance fees of $91 million were down 131 million from the prior year driven by lower fees that financial services opportunities U S. Select equity long short, a b ARIA partners and private credit services.
Although difficult to predict given market conditions, we expect full year 2023 performance fees to be roughly in line with 2022 levels.
Fourth quarter revenues for Bernstein research services at $100 million decreased 12% from the prior year period, driven by lower customer trading activity across all regions.
Full year revenues of $416 million declined by 8%, reflecting lower trading activity in Europe , and Asia due to local market conditions.
Moving on to adjusted expenses all in our total fourth quarter operating expenses of $570 million decreased by 9% year over year, while full year operating expenses of $2 $4 billion were flat with the prior year.
Fourth quarter total compensation and benefits expenses declined by 13% from the prior year period, reflecting lower AUR, driven revenues and lower performance fees offset by a higher compensation ratio of 46, 4% of adjusted net revenues as compared with 41, 7% in the prior year period.
Our fourth quarter compensation ratio of 46.4% came in lower than our expectations, reflecting a disciplined compensation process, along with our fourth quarter market rally.
For the full year compensation and benefits decreased by 3% driven by a 15% decline in incentive compensation, which offset a 6% increase in base compensation. The full year 2022 compensation ratio was 48.4% 190 basis points above the prior year, reflecting lower.
Revenues due to the markets.
Entering 2023, lower equity and fixed income values are driving year over year revenue headwinds and a corresponding shift in our asset mix.
As Seth mentioned in this environment, we have taken proactive actions impacting head count across our global businesses, which will impact approximately 4% of our global employee base.
Combined with other ongoing saving efforts. These actions will help to offset some of these next dynamics and importantly position us to continue to invest in our key priorities.
As you know, we accrued compensation throughout the year and true up at year end as revenues crystallize historically, our full year compensation to revenue ratio has ranged from 47% to 50%.
Given market conditions, we believe we will be towards the higher end of this range in 2023.
We plan to accrue at 49, 5% compensation ratio in the first quarter of 2023 and may adjust throughout the year if market conditions change.
<unk> and servicing costs decreased by 11% from the prior year period and were up 10% for the full year as higher teeny and film and client related meetings rebounded from depressed levels in the prior year period due to the pandemic offset by lower trade execution expenses and transfer fees.
In 'twenty to 'twenty, three we expect permission and services spend to be up low single digits. As a continued rebound in teeny is offset by lower spend elsewhere.
G&A expenses decreased 2% in the fourth quarter versus the prior year period, reflecting favorable foreign exchange, partially offset by higher professional fees and technology related expenses for the full year G&A rose, 6%, reflecting the addition of a carve out higher technology and professional services spend and return any.
Earnings growth and efficiency projects and inflation, particularly in data services.
Given the backdrop of challenging market. We are focused on strong expense discipline in 2023, and we are managing G&A growth to be below inflation levels up low single digits.
Fourth quarter operating income of 232 million decreased by 41% versus the prior year period, and full year 2022 operating income of $947 million decreased by 22% versus the prior year period.
Fourth quarter operating margin of 28.9% was down 960 basis points year on year, our full year 2022 operating margin at 28, 4% decreased 520 basis points from record levels in 2021 for the full year on a rolling three year basis, we delivered incremental margin.
A 35% below our long term targeted 45% to 50% range.
As outlined in the appendix of our presentation fourth quarter earnings excludes certain items, which are not part of our core business operations in the fourth quarter. Adjusted operating earnings were 28 million or 11 cents per unit above GAAP operating earnings due primarily to acquisition related expenses.
For the full year adjusted operating income was $72 million or 25 cents per unit above GAAP also due to acquisition related expenses. The full year 2022 effective tax rate was four 9% slightly better than expected, reflecting a one time tax credit we expect an effective tax rate.
For 2023 of approximately five 5% to 6% more in line with our historical run rate.
As indicated earlier this year, we are providing annual updates and the savings associated with our Nashville relocation at year end.
For the full year, 2022 expense savings of $43 million or greater than the transaction costs of $24 million, resulting in a 19 million dollar contribution to operating income for a net increase of seven cents per unit.
Of the $19 million, approximately 38 million as compensation related savings offset by $19 million of increased occupancy costs. We expect the Nashville relocation to remain accretive going to the range of $75 million to $80 million per year, beginning in 2025 once the transition period is over.
And some despite the market rally in January we are prepared for 2023 to be another volatile and challenging year.
Very focused on maximizing the opportunities set with a b carve out and completing the joint venture with <unk> and we'll continue to make investments in key areas, such as China, Etfs and insurance, taking a step back a b has a history of disciplined and balanced management of strategic priorities balancing opportunities and trade.
Looking forward, we have tremendous confidence in the positioning of our firm we made meaningful progress in 2022 across a number of our strategic initiatives positioning us well to take advantage of green shoots as their environment develops employees continue to exhibit a strong sense of ownership discipline in overall engagement and are well along.
With our priorities as we seek to drive the best outcome for our clients.
Now, we'll be happy to take your questions operator.
At this time, if you would like to ask a question press star one on your telephone keypad to withdraw your question Press Star. One again. 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. Our first question comes from the line of Alex blows.
<unk> with Goldman Sachs. Please go ahead.
Great. Thanks, good morning, everybody.
Seth as usual, maybe we will get started with the question for you on fixed income.
Very encouraging to get your comments on a stronger flows in retail and in the first quarter. So far against sounds like it's partially coming from the retail channel can you unpack that a little bit some of the regions, where you're seeing the strength and as you look out for the rest of the year I'm curious just to get get your thoughts on sort of the differences between institutions.
<unk> demand for active fixed income versus retail as despite the fact that the performance numbers that you guys cited a challenging it doesn't really seem to matter for retail flows given there. They are back in a pretty healthy way, but I wonder to what extent that might impact the institutional business.
Alex. Thank you very much let me give you some a bit of color on that point, we have been positive.
Taxable fixed income in January principally from Asia, but we're seeing interest in Muni SMA here in the U S.
And so that seems to be on a better track.
That of course presumes that the fed is closer to the end than to the beginning.
And but what I do think is clear is that people think it's a more interesting entry point at current yields.
Then obviously they have done in the last several years, which is a change for us.
Those arent as robust as they had been.
In the prior cycle yet but.
Who knows how they will evolve with regard to investment performance.
Our clients, particularly in Asia understand where more globally oriented than a number of the other competitors that's not to say we didn't underperform we have.
But they have to live with us and understand the trials and tribulations as we go through a cycle and are confident in our ability to recover I would further say to you that if you dig into a number of our institutional strategies, we do have quite competitive performance, whether it's in emerging markets our U S high.
Yield and so we have seen some interest there, but let me hand, it over to owner to give you some more color hi, Alex.
That summarizes dwell the two things I would add are on the institutional side.
If you look at the pipeline in.
In the fourth quarter almost half of the additions came in from fixed and fixed income. So we saw that strength and then in January again, one month doesn't make a trend, but we have seen.
A couple of good wins in the international markets.
And we are seeing.
Pre pipeline development with emerging market debt high yield as well as on the insurance investment grades which are.
Critical priority areas for us and on the.
Retail side, the only other color I would add beyond the cyclical stuff is as you know the expansion of our media platform with the custom solutions as a priority and in the fourth quarter.
Launched our custom Muni solution sets and that got onboard to several very large top 10 U S. Intermediaries. So we're going to get some benefit of that expansion, then I expect us to gain market share hard to predict the overall market volumes, but on a market share basis.
As I feel.
So the confidence.
Perfect. Thanks for that color.
My second question is for Kate great to hear sort of a.
Non comp expenses in the low single digit for G&A and promotional kind of in the in the upper single digit range is also pretty well maintained there I guess as you think about the environment and I. Appreciate you guys are being cautious around.
Kind of baking in robust market recovery. Despite you know obviously, a good start of the year, but as we think about areas, where some of these expenses could drift higher if markets remain more constructive where would it be what would that look like or you see kind of a pretty good line of sight on sticking within these kind of guidance ranges, even if markets are.
Or a little bit stronger and maybe just a clarification on G&A you talking I'm, assuming you're talking about for the adjusted G&A number low single digit growth not the GAAP number.
Yes. Thanks for the question you are correct.
Is it getting it off the adjusted GAAP number for DNA that we in our forecast we tend to be I think conservative in terms of looking at what the market trends would be where I would anticipate you.
You could see some increase at them if we have.
Our markets. This year is that you may see some increase on the T&D side, where we would be looking to continue to support our robust sales efforts.
That in and of itself is where we are going to see some higher expenses, but they're more than offset in other areas otherwise from a G&A perspective, I think we feel pretty good that we used to be in sort of the up to the low single digits area and we don't anticipate that that should be climbing higher.
Even in a in a higher market environment.
Great. Thanks, so much everyone.
Your next question comes from the line of Bill Katz with Credit Suisse. Please go ahead.
Okay. Thank you very much maybe just picking up on the expense discussion for a moment. So appreciate the the moves to reduce the head count.
So I'm intrigued to hear you say you still get it sort of an incremental $75 million to $80 million of.
The annual run rate savings in 2025, as you sort of consolidate the head count headquarters to me.
Is that mean, you're bringing forward the timeline on that or is there still an incremental 75 to 80 of beyond sort of the adjustments, you're making pro forma into 2023.
No for 2023.
There's there's Nashville is not impacting our 2023 forecast of $75 million to $80 million, you're talking about is really the final realization of the completion of the Nashville move.
When we exited our New York Real estate Holdings.
So we won't have that that double counting of real estate expense are the Nashville, and it was accretive this year by about seven cents.
We expect that continued accretion going forward and we'll provide those updates annually as we did this year and that so that that part of the program continues unabated separately. It was the the head count reduction actions that we took place that took place earlier.
This month and that was really a result of us examining the environment that we're entering into here in 2023, and making sure that we're positioned competitively not only to take out costs, where we saw opportunities to do so but also free up some opportunities to continue to invest.
In areas that we find strategically attractive and so our hope is as at the year.
It continues that will be able to increase that strategic investment based on market result, but but the head count reduction is independent of what we were doing related to Nashville.
Okay. Thank you and says maybe one for you.
You have a lot of good things going on in terms of flows step back a little bit and give us a sense of as you look at your private market business, maybe alternatives at large what are the top two or three areas you sort of see the best opportunity in 2023.
Well again, let me start Bill and then I'm going to hand it over.
To to owner.
Wow.
While there are some headwinds in the private market. We're still very excited about what we're doing with carnival carve out they have a number of new strategies and in newer vintage strategies that are up and launching a fund raise this year.
Which we're seeing pretty good receptivity toward.
Additionally.
We continue to see opportunities.
For newly raised funds and in our U S credit business in a less competitive marketplace and we're seeing better structure in terms and are in our middle market lending business, but I Wonder why don't you give some additional color yes.
Yes, Thanks Ed.
The things I would highlight are one we are very encouraged by the momentum with the clean energy fund to wet Carwile, which we're going to close this year or the second vintage will bring much more assets than the first vintage.
And that is our nice foray into the broader retail market as well.
That's one additional area I would highlight.
Seth mentioned on U S real estate that we have been quite successful.
With the deployments in the second half of the year. Despite all the challenging market environment Thats, because we are sitting on pretty healthy level of dry powder I think given the market conditions. I think we have an advantage dry powder position to be able to deploy at attractive terms, so we like that space and.
The demand for.
Oh, Wow income driven credit strategies remain very strong and our private wealth channel.
The realizations in terms of the <unk>.
Income generation in 2022 has been very attractive for our clients. Despite all the challenges in the marketplace. So that should continue to have an evergreen demand from our own proprietary private wealth channels. So those are few things I would highlight.
Joe just I apologize my line got dropped said when you were answering Alex's first question did you specify the dollar amount of flows in January I apologize.
No we didn't but we're releasing tonight.
Okay. Thank you.
Your next question comes from the line of Craig Siegenthaler with Bank of America. Please go ahead.
Thanks, Good morning, SaaS hope you're doing well.
Thanks, Craig.
So.
Wanted to get another update for you on the potential rebalancing this year and I wanted to see first if you have any perspective, if you think fixed income's going be the big winner and secondly, we saw pass it really dominate the fixed income landscape last year.
That continues if and when there is large rebalancing into fixed income.
Look I think that this is a particularly difficult year to forecast just given all the uncertainties embedded in it so take it with a boulder of salt.
I think that there's a lot of pent up demand for income.
And so I think youll continue to see appetite.
But inflation expectations really matter of Craig you know that and to the extent that we see shockingly strong jobs data again.
That could throw that off and so I'm hesitant to to have enormous confidence in it but I.
I think that there is really strong demand, where we see it in in tax exempt we see it in taxable and we really see it offshore.
So I think there's big demand for it.
With regard to the question on passive look I think.
We have to assume that passes we will continue to gain share in liquid markets fixed income isn't excluded from it.
Which is why we've been automating, which is why we have been lowering our cost of execution.
But we have to like everyone else have a value proposition, where we be net of fees.
In order to earn our place in a sophisticated clients portfolio. We think we have that opportunity. We think our clients understand our investment profile, which is to be generally long carry in our credit funds and so we do underperform in those markets.
But ultimately.
We're very comfortable with the way we structure our portfolios, we try to avoid the idiosyncratic exposures and credit.
And and I think overall and over long periods of time, we performed very well.
But I don't think the secular chen's change the pace of that May slow, but I don't think that trend changes as one other com.
Comment is.
Obviously some of it is the ETF trend. So there is a little bit of a vehicle overlay to the story.
With the launch of our active Etfs, we are very encouraged by the early momentum. We have obviously, we only have two fixed income etfs, but we are encouraged that we were able to raise $200 million innovate a short amount of time and we believe we can participate in the ETF adoption into fixed.
Income space than we actually believe some of them will be active not only passive so hence we believe we are well covered given.
Given the structural trend.
Great and then just as my follow up.
If we do have these large fixed income reallocations.
And you know a lot of it does go to past it but there is an active sleeve. How do you think your bond business is positioned for that.
No. The one year numbers arent, great five year numbers are better but also your taxable bond business Hasnt really seen good organic growth for a while it's actually your active equity business that has seen good organic growth over the last few years, but how do you think.
<unk> is positioned for that.
Look I think that.
A b.
Is building a much stronger domestic U S retail presence, where we've always been underway under strength relative to a number of our key competitors and so we've been always quite dependent on Asian flows.
And we have seen very limited demand in fact, selling over 30 odd months periods. So.
I think we are.
Better positioned than we were historically, we've had periods of underperformance before where we where that has not been a big issue outside for for us outside the U S.
And with respect to within the U S, which may be more.
Rating sensitive.
Well I suspect that would have a bigger impact in the U S. I think our play is really in the tax exempt space, where we absolutely have high conviction that our industry distribution partners are moving aggressively into the SMA space and we have a differentiated product to <unk>.
<unk> upon that and I think the fact that we buck trends to do that helps I think our U S high yield capability is a competitive strength and there will be disruption in that marketplace.
So I do think there are other elements of opportunity for us, but it is a pretty mature market. As you know so I would say given the stronger retail distribution footprint, we're building and the success we've had early days.
Uh huh.
Im optimistic, but we have to prove that.
Thank you Seth.
Okay.
Your next question comes from the line of Dan Fannon with Jefferies. Please go ahead.
Thanks. Good morning. My question is on just broadly retail gross sales, obviously down versus a record 2021, but if we look back and it's also below 2022 and 2019 levels. So trying to think just in terms of kind of assets in motion kind of momentum in sales, how youre thinking about normalization. If this last year.
Abnormally low or if the other periods, where more and more outsized and how to think about it going forward.
Yes, thanks for the question on again.
You're absolutely right 2021 was probably an outlier year I think we should.
Look at it more by region.
From our perspective, we believe we will continue to experience growth in sales in U S. Retail given our investments are focused in that space. Both on the sales side as well as on the expansion of products.
We definitely are seeing a comeback as Seth mentioned on Asia taxable fixed income.
Particularly American income portfolio, which has been a longstanding flagship product for us.
Coming back part of it is rates part of it is the opening of Asia in Hong Kong that definitely is an area.
And we are bullish about Latin America, we are.
Encouraged with some of the.
Renewed appetite when it comes to fixed income as well it has been historically, a big retail fixed income buyer for us using the UCITS platform and we have been successful with some fixed maturity products lately.
EMEA.
<unk> had a huge hits in 2022, obviously, given the Russia, Ukraine and proximity to the energy crisis, and everything else and we had a pretty material contraction. There. So from a low base Istent upsides I think Japan is one reason, we definitely will see some slowdown and that will be more driven by.
By the movements in the Japanese yen, which will make the U S denominated assets less attractive. So overall I think probably I have more longs and shorts in terms of regions.
And we expect a healthy level of sales.
And remember we always focus on net flows then.
We're not going to hopefully have the same level of redemption that was also partially triggered by the tax loss harvesting, which was quite unique for 2022.
Great that's very helpful.
And then just a quick question on private wealth advisor productivity was down year over year I assume that was more environmental in terms of the backdrop, but you have put in a lot of initiatives in place to kind of increase productivity over the last couple of years can you maybe talk about.
What what did occur last year, and how we're thinking about that.
The wealth opportunity kind of as we think about 'twenty three and beyond.
Thanks for the question.
223, it was only a small decline in productivity again from a very.
Hi Peak 2021, if you look at the <unk>.
Last kind of five years 'twenty to 'twenty, two will stand out as a very strong productivity here in terms of our average.
Revenue production.
The channel also delivered on an annual basis organic growth that was the second consecutive year, we achieved that.
I feel good about the momentum.
Overall in terms of the initiatives.
We are trying to pivot more into <unk> networks, and if you look at our organic growth rate with ultra high net worth versus other segments is three times. So we are seeing.
Good trend line there in line with our strategy.
And as you know we have been an early adopter of alternatives in our private wealth channel where at the penetration of alternatives is typically ahead of our competition given our history track record and the proprietary plus model and that continues with.
$5 six products in the pipeline to be launched in our channels. Both our private credit solutions that are proprietary as well as the next vintages of third party products. So all in all.
I think it's healthy.
The area, obviously, we will work on is.
Tuning back five.
Unanswered advisor hiring, which we consciously slowed down given the economic outlook, obviously, the new financial advisers are not as productive as the older ones. So once we accelerate that and we have a February class coming in you might see some.
Change in the productivity just because the new advisors might might come at lower production, but it's a high quality problem that we will discuss at.
At the coming quarters, but one month, but we did have positive flows net flows in private wealth in January .
Correct.
Your next question will come from the line of John Dunn with Evercore. Please go ahead.
Good morning.
You guys talked about.
In terms of the 10 billion from equitable being well past the halfway mark.
Early thoughts on maybe the next phase of that relationship.
Could we see kind of the next round a bigger order of magnitude and maybe an acceleration of timing.
Yes, let me start and then.
Matt.
<unk> continues to be.
Critical to us in our strategic planning on how we attack the insurance industry generally and how we build our private alternatives capability in particular in <unk>.
And.
And we are really focused on expanding our third party third party insurance reach beyond equitable important though they will continue to be critical that they will continue to be for us.
And there are quite supportive of that endeavor, our ability to expand further in private alts in the equitable General account is is directly related to the change in size of their G&A over time.
And so as it grows if it grows we benefit from that.
And Conversely to the extent that contracts there will be less capacity view to expand that being said.
They continue to look at opportunities as do we and and so it'll be more I guess opportunistic is probably a fair way to describe that in terms of growth, but theres, a continuing commitment to invest with us.
Where it where they need incremental yield on their general account portfolio.
I don't know wonder if you have anything to add no I mean.
The only other thing is.
Still there's another several billion dollars the other 50% to be deployed obviously that will bring incremental revenue and we need to digest that and that will open the way for brainstorming new ideas that's already underway.
Makes sense and then can you just remind us of the kind of capital impacts.
The consolidating Bernstein.
I'm sorry can you just clarify you mean Bernstein research to be yes.
<unk> venture.
Right.
Hi, it's Keith here.
We're still in.
Early stages.
The work around what the ultimate integration would look like until we will give further guidance on that as we get closer to the closing of the transaction.
Got it thanks very much.
There are no further questions at this time, Mr. Griffin I'll turn the call back over to you.
Okay.
Okay terrific. Thank you Regina thanks, everyone for participating in our conference call today as always feel free to reach back out to Investor relations with any additional questions and have a great day.
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Yes.
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