Q4 2024 AllianceBernstein Holding LP Earnings Call
Thank you for standing by and welcome to the Alliance Bernstein fourth quarter 'twenty 'twenty four earnings we're being 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.
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 at this call.
Speaker Change: I'd now like to turn the conference over to the host for this call Vice President of Investor Relations for a b Mr. Giannis junk Golly. Please go ahead.
Speaker Change: Good morning, everyone and welcome to our fourth quarter 2024 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.
Speaker Change: With us today to discuss the company's results for the quarter are Seth Bernstein, President and CEO and Jackie marks CFO.
Speaker Change: Owner or zone head of global client group and private wealth will join us for questions. After our prepared remarks.
Speaker Change: Some of the information, we'll present today's forward looking and subject to certain SEC rules and regulations regarding disclosure.
So I would like to point out the safe Harbor language on slide two of our presentation.
Speaker Change: You can also find our safe Harbor language in the MD&A of our 10-K, which we will file on February 14th.
Speaker Change: 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.
Speaker Change: Our standard GAAP reporting and a reconciliation of GAAP to adjusted results are in our presentation Appendix press release and our 10-K.
Speaker Change: 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.
Seth: Now I'll turn it over to Seth.
Seth: Good morning, and thank you for joining us today.
Seth: 2024, it was a transformative year for alliance Bernstein, we executed successfully on key initiatives that enhance our financial profile, while also expanding our investment and distribution capabilities.
Seth: <unk> unique value proposition is highlighted on slide three.
Seth: We have a differentiated distribution platform, which includes our proprietary plus private wealth business.
Seth: Our platform gives us an edge in growing markets like Asia U S high net worth and global insurance.
Seth: In 2024, we captured market share across all three of these segments.
Seth: We can also deliver our clients distinctive investment capabilities across traditional and alternative asset classes.
Seth: Our versatile skill set allows us to capitalize an asset reallocation trends as we've seen in fixed income.
Seth: This also includes our growing private markets platform, which is supported by our strategic relationship with equitable.
Seth: I will briefly cover our progress towards our 2027 targets later in my presentation.
Seth: In addition, as Jackie will discuss in further detail we have a clear line of sight for further margin improvement, which will reflect on our results as we move into 2020 five assuming markets do not deteriorate.
Speaker Change: Finally, a b has a tax efficient partnership structure that prioritizes capital returns to shareholders, ensuring a disciplined approach to growth investments.
Speaker Change: Moving to slide four I'll review, our business highlights from the quarter and the year.
Speaker Change: First we closed the Bernstein joint venture with Saka, Jana and we relocated our New York City office, the JV allowed us to monetize the value in our business and eliminate a margin drag for a b, while putting Bernstein research in the hands of a leading industry player with a vision to grow it.
Speaker Change: Our New York City relocation will contribute approximately $50 million in annual occupancy related savings that we intend to flow through the bottom line.
Speaker Change: Those initiatives enhance our margin profile lowered the capital intensity bar business and enable us to focus on our core investment and wealth management capabilities.
Speaker Change: Second our active platform deliberate over $4 billion of net inflows in 2024, and two of our three channels retail and private wealth grew organically.
Speaker Change: Despite resurgent rates volatility in the fourth quarter, our active fixed income platform grew at a 9% annual organic growth rate exceeding 24 billion in inflows in 'twenty 'twenty four our highest year on record.
Speaker Change: Inflows exceeded 13 billion for tax exempt and approached 11 billion per taxable growing 22% and 5% respectively.
Speaker Change: Taxable flows moderated in the fourth quarter, particularly for our Barbell American income strategy as our portfolios intermediate duration exposure was impacted by higher rates.
Speaker Change: Active equity outflows persisted totaling $7 billion in the fourth quarter and 24 billion throughout the year.
Speaker Change: Redemptions remain concentrated within institutions fourth quarter outflows were driven by European and emerging market strategies, while global core and concentrated led full year equity redemptions.
Speaker Change: Partially offsetting the negative trends our U S. Large cap growth strategy continues to resonate with clients across the globe netting over 3 billion in inflows in 2024.
Speaker Change: Third our firm might be rate is holding steady this.
Speaker Change: This relative stability results and symmetrical growth be joined our management fees and our assets under management.
Speaker Change: Fourth we continued to expand our investment capabilities and distribution coverage by a team lift out and vehicle versatility.
Speaker Change: Our European growth strategy now manages over 700 million since launching approximately one year ago.
Speaker Change: We also have launched five new active etfs and converted to wrapping up the year with 17 strategies and $5 5 billion in assets under management, 70% of which was net new assets.
Speaker Change: Finally, we continued to expand our private markets platform through deepening existing partnerships and forging new ones are private markets. A U M stands at 70 billion as of year end up 14% in 'twenty 'twenty four.
Speaker Change: We have now deployed approximately 20% of equitable second 10 billion dollar commitment and we continue to leverage our expertise and capabilities tailoring them to insurance oriented solutions.
Speaker Change: We're pleased with the momentum of our newly formed insurance vertical led by Jeff Cornell <unk> investment and will be re and our partnership of RGA represent significant milestones in the firm's strategy to become a leader in insurance asset management.
Speaker Change: Slide five reflects the summary page with our key financial metrics, Jackie will follow up with more commentary on our results.
Jackie: Turning to slide six I'll review, our investment performance, starting with fixed income.
Jackie: Long term interest rates backed up considerably during the fourth quarter, driven by higher growth persistent inflation and fewer rate cut expectations.
Jackie: The Bloomberg U S aggregate index returned negative 3% in the fourth quarter with intermediate and long duration, selling often response to fluctuating inflation rates and uncertainty over the fed's future actions.
Jackie: Within credit returns were driven by lower quality debt with U S dollar hedge Bloomberg global high yield returning 1.1% in the fourth quarter.
Jackie: Our one year performance softened during the fourth quarter bump in relative and absolute terms, given our yield curve decision and are underway to the lowest rated issuers.
Jackie: 57% of our assets under management is outperforming over the past year was 61% and 57% of our AUM outperformed over a three and five year periods.
Jackie: Although rates volatility continues to affect sentiment and appetite for duration, we remain constructive that the steeper curve means extended duration is finally out yielding cash.
Jackie: Credit remains an area of strong interest off the back of a solid 'twenty 'twenty four.
Jackie: Despite narrow spreads yields remain high and fundamentals are supportive.
Jackie: As the market reprice as future expectations it creates opportunities for new investors.
Jackie: We remain optimistic on the outlook for fixed income demand into 2025, and we have the right strategies to compete in the next wave of the reallocation.
Jackie: Our marquee income strategies, including American income global high yield and our fast growing mortgage income product.
Jackie: Our growing active fixed income Etfs, and our industry leading municipal platform.
Jackie: Turning to equities in the U S. The S&P 500 returned 2.4% during the fourth quarter with growth outperforming value by 900 basis points.
Jackie: Small caps ended flat as momentum waned in December global equities lag the U S in the fourth quarter.
Jackie: Performance of our <unk> equity strategies remain challenge with 40% of our AUM outperforming over the one year, while 35% outperformed over three years and 65% over the five year period.
Jackie: Although we are encouraged by recent signs of improving market breadth the headwinds from a highly concentrated equity gains continued to impact some of our largest services.
Jackie: While performance has softened on account of this concentration our client conversations around being underweight. The Mag seven are healthy and our investment philosophy still resonates with those who seek an active approach to investing.
Jackie: More than 20 strategies or funds across value equity income, China strategic core and select U S outperformed their respective benchmarks are composites over the one three and five year periods.
Jackie: Finally, I would highlight that our active strategies have had a robust start to the year diversification and equity allocations has become increasingly crucial and inactive approach that emphasizes company fundamentals can offered the necessary diversification.
Jackie: Moving on to slide seven to cover our retail highlights.
Jackie: Our retail channel extended its organic growth streak to six consecutive quarters rounding out our second straight year of positive channel flows and growing 5% annually in 2024.
Jackie: Channel annual sales reached record 2021 levels, while annual flows were the highest in three years.
Jackie: Fourth quarter activity was led by <unk> 5 billion in tax exempt inflows as much as the channels total muni gains for the entirety of 2023.
Jackie: Was the highest ever quarterly game for retail Muni is making 12 consecutive years of organic growth.
Jackie: So those were negative for all other asset classes during the fourth quarter, reflecting seasonality trends and elevated rates volatility.
Jackie: For the year retail demand was driven by 19 billion in active fixed income with taxable and tax exempt growing at 12% and 34% respectively.
Jackie: Equity outflows during 2024 were largely concentrated within passive while active also saw a 1% attrition rate.
Jackie: Versus the prior year base management fees grew 24% during the fourth quarter and 17% during the full year 2024 reflective of market growth net channel inflows and base fee growth.
Jackie: Organic base fee growth exceeded 3% in 2024 and was slightly negative in the fourth quarter.
Jackie: Moving to slide eight institutional redemptions accelerated in the final quarter of the year with active equities continuing to drive channel outflows. Additionally, fixed incomes positive momentum reverted in response to higher interest rates, resulting in modest outflows during the fourth quarter.
Jackie: Net inflows in private placements real estate debt and private credit were offset by realizations from maturing vintages.
Jackie: For the full year institutional demand was constructive for taxable fixed income growing 3% annually.
Jackie: Net deployments into alternative that's exceeded $2 billion with modest multi asset outflows, partially offsetting the trend.
Jackie: We had $2 billion in pipeline fundings during the fourth quarter was the pipeline the outstanding of $10 7 billion as of year end the pipeline fee rate ticked higher to 45 basis points, reflecting $2 7 billion in new additions predominantly in alternatives. This included $1 billion in commitments from RGA occur.
Jackie: Cross residential mortgages private placements nab lending and middle market loans.
Jackie: These commitments reinforced our strategy of initiating and scaling insurance oriented products in partnership with equitable.
Jackie: Prime examples our Nab lending strategy, which we launched 14 months ago and is already garnering solid interest we're seeing momentum start to build in our insurance vertical and continue to view it as an important growth driver for the enterprise.
Jackie: Moving to slide nine private wealth ended the year on a strong foothold growing at 1% annualized rate in the fourth quarter when tax off harvesting typically weighs on channel flows 2024 marks our fourth consecutive year of organic growth for Bernstein, driven by strong client demand for all its multi asset and tax.
Jackie: Exempt growing at 13 and 8% respectively.
Jackie: As a reminder, our private wealth net flows exclude reinvested dividends and interest income, which is typically reported within net new assets across key wealth management peers.
Jackie: The channels revenue surged during the fourth quarter, reflecting the three pillars of our platform's earnings power.
Jackie: Base fees growing roughly in line with assets spread based interest growing with cash and margin balances and performance fees resilient for private market strategies with the added benefit of potential upside from public markets. The subset leverage was on full display in 2024.
Jackie: For a few months management has been a pioneer in bringing alternative assets to the U S. High net worth segment. During 2024, we raised over $2 5 billion across our proprietary and third party private alternative strategies.
Jackie: Off the back of a strong fundraising year, we deployed approximately $1 3 billion in net equity investments, primarily driven by real estate equity.
Jackie: Ending with slide 10, I'd like to provide a brief update on our private markets business targets.
Jackie: We're pleased with the progress toward our goal of reaching 90 to 100 billion of private markets AUM by 2027 at which point these products should generate more than 20% of our asset management revenues.
Jackie: As of year end 2020 for our platform had reached 70 billion and fee, earning and fee eligible AUM representing over 16% of our total asset management revenue for the year.
Jackie: Over the past several years, we've successfully expanded our business leveraging existing capabilities and market presence into new growth areas, such as Nab lending asset based finance and residential mortgages. Additionally, we've continued to deliver strong growth in corporate middle market direct lending.
Jackie: We're building upon our strategic partnership of equitable to expand our capabilities in private investment grade, including specialty finance Nab landing mortgages and other insurance oriented vehicles.
Jackie: The pace of our collaboration with <unk> and our vision to build the business together has accelerated having now deployed 12 billion out of the $20 billion commitment.
Jackie: This helped attract investment talent and scale of our business faster as we are able to offer borrowers a extra solutions across the cost of capital spectrum and matches assets to the unique risk reward profiles of our diversified client base.
Jackie: I'm very proud of the progress we've made as an organization and then we'd like to thank our colleagues clients and unit holders for their support as we make continued progress towards our commitments now I'll pass it to Jacky to cover our financial results.
Jacky: Thank you Seth and everyone joining our call today.
Jacky: <unk> next chapter it's built on a strong foundation as evidenced by our solid fourth quarter and full year results.
Jacky: First quarter adjusted earnings of $1.05 per unit were up 36% versus the prior year and full year adjusted earnings of $3 and 25%, we're at 21% versus prior year.
Jacky: Strong markets are stable fee rate improved operating leverage and robust performance fee style E P equals.
Jacky: Distributions in E P grill uniformly and we distribute 100% of our adjusted earnings to unit holders.
Jacky: On slide 11, we show our adjusted results, which remove the effect of certain items not considered part of our core operating business for a reconciliation of GAAP and adjusted financials. Please refer to our presentation appendix.
Jacky: Fourth quarter net revenues of 973 million were up 12% versus the prior year and up 26% on a like for like basis, Excluding Bernstein research services revenue.
Jacky: Full year revenues of $3 5 billion were up 5% versus prior year and up 15%, Excluding Bernstein research services.
Jacky: Fourth quarter base fees increased 17% versus prior year in line with the average AUM.
Jacky: Full year base management fees of approximately $3 billion were up 12%.
Jacky: Fourth quarter performance fees of 133 million surged versus the prior year period, reflecting strong alpha generation across our public and private alternative strategies.
Jacky: Full year performance fees of $227 million increased 80% year over year coming in well above our guidance of $145 million to $155 million and we'll follow up with more detail shortly.
Jacky: Dividend and interest revenue along with the broker dealer related interest expense declined in the first quarter.
Jacky: Full year, reflecting lower client cash and margin balances within private wealth.
Jacky: Yeah.
Jacky: Moving to expenses fourth quarter total operating expenses of $619 million were roughly flat versus the prior year with higher compensation offset by lower non comp expenses.
Jacky: Operating expenses of $2 4 billion were down 1%.
Jacky: Fourth quarter, our total compensation and benefits expenses increased 7% versus prior year in absolute terms, but our compensation ratio of 46% and adjusted net revenues in the quarter was below the prior year of 47.7% ratio and better than our guidance of 48%.
Jacky: Full year revenues landed at a higher level than we had anticipated earlier in the year, allowing us to reduce the fourth quarter compensation ratio.
Jacky: Hence our full year compensation ratio ended at 47, 9% versus the 48, 5% implied in our prior guidance.
Jacky: We will begin to accrue at a 48.5% compensation ratio in the first quarter of 2025 below last year's first quarter level of 49% and we may adjust throughout the year, depending on market conditions.
Jacky: Promotion and servicing costs decreased 20% in the fourth quarter and 18% in the full year, reflecting the significant reduction of trade execution clearance expenses from Bernstein Research services.
Jacky: The decline in full year 2024, promo and servicing came in at the lower end of our prior guidance, reflecting a pickup in travel and client meetings during the fourth quarter.
Jacky: Fourth quarter, G&A expenses declined 14% year over year, largely driven by lower occupancy costs. Following the relocation of our New York City office, partially offset by a one time charitable contribution of $5 million.
Jacky: Full year G&A was down 7% versus prior year in line with our guidance for a mid to high single digit decrease.
For the full year 2024, our Nashville relocation generated approximately $23 million in savings for eight cents per unit.
Jacky: In 2025, we expect to realize roughly $50 million and occupancy related savings from our relocation to Hudson yards, which we intend to fully dropped to the bottom line.
Jacky: We have achieved our target of $75 million of annual savings, which we deliver despite elevated inflation pressures since the time of our relocation announcements.
Jacky: In 2025, we anticipate full year non compensation expense to fall within the range of $600 million to $625 million, we expect promotion and servicing to make up 20% to 25% of the non comp expense and G&A to account for 70% to 75%.
Jacky: We do not anticipate significant quarterly fluctuations in G&A or prolonged servicing following the deconsolidation of Bernstein Research services.
Jacky: Please note that promo and services includes transfer fees, which move directionally with the markets.
Jacky: Our non comp expense guide of 600 $625 million includes $50 million and go forward annual savings from occupancy related expenses, while accounting for modest inflationary pressures.
Jacky: Interest on borrowings decreased by $6 million in the fourth quarter and $11 million in the full year 2024 compared to prior year period, reflecting the lower interest rates in the quarter and lower debt balances following debt repayments and he made using the proceeds from the Bernstein joint venture and the private unit issuance.
Jacky: We intend to leverage the incremental debt capacity to fund our commitment to the Roomie re sidecar.
Jacky: And take advantage of any other potential growth opportunities that may arise.
Jacky: A L. P. S effective tax rate was five 2% in 2024 in line with the low end of our 5% to 6% prior guidance, reflecting a favorable mix of earnings and increased income at the partnership level.
Jacky: Our guidance for a B L. P as effective tax rate in 2025, 6% to 7%, reflecting a more normalized taxable mix of earnings.
Moving on to Slide 12, I will review the trajectory of our firm wide base theory.
Jacky: As of <unk> 20 for the firm wide fee rate was 39 eight basis points marginally lower than the previous quarter. Following two consecutive quarters of sequential increases.
Jacky: As we mentioned on our last call. The fee rate is influenced by numerous factors, we can't cover all of them, but some of the key trends and <unk> 24 included.
Jacky: An alternative plan distributions from maturing vintages outweighed net deployments across other strategies.
Jacky: In fixed income elevated rates volatility affected our taxable fixed income flows and AUM, we observed outflows and au and contraction within the hiseq surfaces, such as American income.
Jacky: The majority of our active fixed income inflows were driven by Muni SMA in the fourth quarter, which typically have lower fees.
Jacky: Equity markets gains were concentrated within the U S. While non U S equities suffered losses.
Jacky: Although active equity outflows remain mainly concentrated at the institutional level. We also experienced some outflows within retail and private wealth during the first cargo.
Jacky: Institutional active equity redemptions were concentrated in higher fee non U S services.
Jacky: While our fee rate will remain mixed dependent in the near term we are selective with our growth initiatives evolving our product capabilities and regional sales mix to mitigate some of the fee erosion witnessed across the industry.
Jacky: Slide 13 reflects a breakdown of our performance fees by private versus public strategy.
Jacky: Full year performance fees of $227 million, whereas 80% versus prior year exceeding our prior guidance of $150 million.
Jacky: The fourth quarter rally in U S equities was a significant contributor to the upside.
Jacky: And our public alternative strategies, the financial services opportunity fund generated over 35 million in performance fees that crystallized in December thanks to strong idiosyncratic in sector performance.
Jacky: Our private alternative strategies also supported to be mainly driven by a b carve out an AB private credit investors.
Jacky: Within a carve out performance fees came in higher due to stronger than expected investment performance, while certain funds were in catch up.
Jacky: Within a b PCI or performance fees benefited from higher base rates and solid credit performance.
Jacky: Overall, our performance fees in 2024 were primarily driven by our private alternative strategies, but we also sell significant contribution from public strategies.
Although public alpha is volatile and more difficult to predict our public alternative strategies improve our market leverage profile and provide additional upside tied to public markets. This complements our more dependable private performance fees, creating a robust performance fee stream for our business.
Jacky: We maintain our guidance of $70 million to $75 million of recurring hurdle based performance fees for 2025, driven by our private markets capabilities.
Jacky: These strategies include commercial real estate that carve out in middle market lending also known as a private credit investors or a b PCI.
Jacky: Turning to slide 14 in 'twenty 'twenty four we delivered on key transformative initiatives that enhance the operating leverage of our platform.
Jacky: The fourth quarter of 2024, Mark our first full quarter with both the JV and Hudson yards completed.
Jacky: <unk> adjusted operating margin stood at 36, 4% up 720 basis points year on year, demonstrating the strong operating leverage of our platform aided by seasonal tailwind.
Jacky: And robust market years, the fourth quarter margin typically benefits from crystallization of performance fees and a compensation ratio that is annual expenses and revenues are realized.
Jacky: While we do not expect 36% to be the steady margin state going forward. We are very pleased with the robust operating leverage of our platform.
Jacky: Excluding Bernstein research revenues are year over year incremental margin was 50% as it for Q at the higher end of our targeted 45% to 50% range.
Jacky: Our full year 2024 margin came in at 32, 3% up 410 basis points, reflecting strong markets and benefits from performance fees, a lower compensation ratio on higher realized revenues and improved operating leverage.
Jacky: Based on current market levels, we continue to forecast a baseline adjusted operating margin of 33% for 2025 with upside potential from favorable markets.
Jacky: It is worth noting that when we first issued our 33% guidance for full year 'twenty five on our three Q call. Our AUM was at a higher level.
Jacky: A 33% operating margin will put us above the midpoint of our 2027 estimated margin range target of 30% to 35%. Two years ahead of schedule with further potential for margin expansion over time as we scale our business.
Jacky: While we are keenly focused on margins. We are also committed to investing to drive earnings growth and long term value. We are therefore budgeting for some strategic growth investments, including bringing on new investment teams and launching new products that we expect to enhance returns overtime.
Jacky: Before opening the line for questions I want to express my gratitude to our colleagues that are considerable efforts and unwavering commitment to our clients unitholders and all stakeholders.
With that we are pleased to answer your questions operator.
Jacky: At this time the floor is now open for questions in order to ask a question simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star One again please.
Jacky: Limit your initial questions to chew in order to provide all callers an opportunity to ask questions. You are welcome to return to the queue to ask follow up questions. Thank you.
Jacky: We will pause for just a moment to compile the Q&A roster.
Jacky: Okay.
Jacky: Your first question comes from the line of.
Jacky: Craig Siegenthaler with Bank of America. Please go ahead.
Speaker Change: Hey, good morning, Seth Jackie hope everyone's doing well.
Speaker Change: Okay. Good thank you.
Speaker Change: So my question actually a follow up to Jackie's comments earlier today on the <unk> call on your corporate structure. So.
Speaker Change: In my coverage a b is the only remaining company.
Speaker Change: That still doesn't exist in a C corp structure and now Theres lots of examples across my coverage of companies that gained.
Speaker Change: Passive ownership more lonely active ownership and more importantly, a much higher stock valuation. So I'm curious to how <unk> thinks about that the pros and cons because it looks like.
Speaker Change: Tax dilution is only something like 10% or low teens for Lps and <unk> can keep their low tax rate and an up C. C Corp structure, so really should be a win win for everyone.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Sure. Thank you Greg for the follow up.
Speaker Change: I mentioned on the call. This morning, the tax hurdle is a big one for us bigger than the passive alternative asset managers, who had converted so that's one factor to consider also and the up C.
Speaker Change: And.
Speaker Change: Outside of the example, we looked at that as well and in that one we would have to obtain the general partnership that in turn it makes us eligible for the major indices. Another big factor. So at this time and that's something that we thought was too big a bet to me when.
Speaker Change: Sort of need to enter the indices to really count on that multiple.
Speaker Change: You know I think Craig just adding to it I think.
Speaker Change: It's important to note that the Alt managers.
<unk> had a very different partnership structure than we had.
Speaker Change: Then we have <unk> and.
Speaker Change: And much of their income was taxed at a higher rate than ours is so the so the hurdle for them to equalize the tax drag they were creating was significantly lower and I think it's important for people to recognize that because we have a fiduciary obligation to make sure we're not disadvantaged.
Speaker Change: Jay our taxable unitholders today and at the moment and what we see given that.
Speaker Change: Getting index inclusion and having a higher hurdle to cross and others. It just.
Speaker Change: The math didn't really add up for us as we consider the pros and cons of the trade.
Speaker Change: And so we're not close minded to the idea, but we just haven't been.
Speaker Change: Convinced that the upside of this offset the risks to us and more importantly into our tax for unit holders.
Speaker Change: Changing our corporate structure recognizing.
Speaker Change: That the partnership structure does limit the appetite for for non taxable investors to step into it and foreign investors. So let me just stop there.
Speaker Change: Yes.
Speaker Change: Thank you for the comments and I will jump on to your question, but I think the attach debate is definitely a real one although I do think if you at EQ H remains achieved eight.
Speaker Change: They can at your your float can get in the major indexes because that is the FCC Corp. We've seen that a lot over the last eight years, but I'm going to circle up My index team on that and let me jump onto bond Reallocations.
Speaker Change: There was some noise in four Q and.
Speaker Change: The 10 year rose a lot, which definitely didn't help but I wanted your updated high level thoughts on the pace of some of this record money market.
Speaker Change: Could move off the sidelines via duration extensions and how <unk> is positioned to win in both taxable and munis, where youre already doing really well.
Speaker Change: Well, let me let me start.
Speaker Change: There may jump in on the question here is on the phone as well.
Speaker Change: Yes.
Speaker Change: Back up in rates in December certainly didn't help I think it reminded everybody that tariffs are attacked our inflationary.
Speaker Change: And the fed's pause in activity I think reinforces more uncertainty as to the direction of rates all of that being said.
Speaker Change: We we continue to see at least through January.
Speaker Change: Pretty strong interest in fixed income and it's important to note on an after tax basis from a muni perspective, you are.
Speaker Change: Better off much better off than sitting in cash in a tax for money market funds.
Speaker Change: I think that's been an important ingredient in People's interest there and also I see it as a benefit to us and sort of.
Speaker Change: Short and intermediate duration.
Speaker Change: <unk> and Etfs, we have where we continued to see interest in those funds owner do you want to add something.
Speaker Change: Yes sure.
Speaker Change: Correct. Thanks for the question.
Speaker Change: I'll add two things one that.
Speaker Change: The rear view view.
Speaker Change:
Speaker Change: Mirror view in 'twenty four we were one of the biggest beneficiaries of the rate normalization right. That's how we generated almost $25 billion of net flows. So we definitely are.
Speaker Change: Doing very well.
Speaker Change: The favorable interest rate environment.
Speaker Change: To a certain point in January we continue to see fixed income demand obviously, given the recent volatility is still there is some money sitting on the sidelines, but if you look at the shape of the yield curve.
Speaker Change: The opportunity to add yield by going a little longer on the duration and that tends to help our flagship product. So all in all we are relatively bullish about our ability to benefit from the fixed income environment and we are relatively hedged quote unquote from a business perspective as Ted mentioned, we have.
Speaker Change: Different solutions that can do well in the different environments. Our muni SMA business continues to do well in the new year and then we have the short duration products, particularly as part of our growing ETF lineup that continues to get traction.
Speaker Change: Thanks Jody.
Speaker Change: Okay.
Speaker Change: Question comes from the line of Alex Blaustein with Goldman Sachs. Please go ahead.
Speaker Change: Good morning, Thank you for the question.
Alex Blaustein: I was hoping to spend a couple of minutes on your organic base fee growth I think it's the first time, where you started to disclose that perhaps more kind of officially in the deck.
Speaker Change: Three plus percent for the year so helpful. There.
Speaker Change: I was wondering if you could take a step back and I know you don't have an explicit target, but as you look through the building blocks in the business when you're trying to achieve where are you seeing traction.
Speaker Change: How durable do you think this mid or low single digit organic base fee growth for the company, but what do you hope it could go over the next couple of years.
Speaker Change: Yeah sure Alexandre again, let me.
Speaker Change: Take that question and others can chime in as needed and then ultimately.
Speaker Change: As you well know.
Speaker Change: Our fee rate is very business mix dependent and not all of that is within our control given the cyclical nature of the markets and the shifting client demands based on what happens.
Speaker Change: With the macro environment et cetera, I mean that being said if we focus on the things that are relatively more controllable and maybe focusing on those obviously, we disclose our institutional pipeline. If you look at the fee rate there.
Speaker Change: Went up in the last quarter with the additional private alts.
Speaker Change: Mandates, we won and and if you look at the effect of fee rate there the effect of fee rate on institutional pipeline has more than doubled our effective fee rate for the rest of the institutional business. So that gives you a positive.
Speaker Change: Think indicator in terms of ability to too.
<unk>.
Speaker Change: Creative strategies and benefiting from the organic revenue growth.
Matt: The other thing I think which is probably more Matt.
Matt: Given we had pressure on institutional equity is four.
Matt: For the last couple of years, if you look at our institutional equity product base.
Risk assets are lower.
Matt: And from an outflow risk perspective, you will have a little bit of a protection from a denominator perspective, if you will on the active equities I mean that being said we have a large retail business. Then you can face volatility as well so overall.
Matt: Our diverse business mix will make our fee rate relatively resilient vis vis our competitors.
Matt: We definitely have a very robust distribution platform, which should help with net flows as we have demonstrated with our sales momentum in 2024. It was our second best ever year from an overall sales perspective, and our retail sales almost hit $100 billion. So even when periods, where we have some challenges.
Matt: On one channel the other channel comes in to basically offset the softness and we'd continue to get active net flows so combining that their net flows with favorable.
Matt: Fee embedded in there.
Matt: In the pipeline.
Matt: There are things that can help with our fee accretion that said you know the markets are volatile and we have some risks intrinsic to this industry and our business.
Matt: Alright fair enough and maybe as a quick follow up to Greg's question around the corporate structure and what sounds like index conversion Thats, our sorry C Corp conversion, that's relatively off the table for now.
Matt: As you kind of take a step back and we've spoken about this in the past.
Matt: Probably not a lot of debates or the valuation of the stock is probably not an overly reflective of the growth in the business are there other things you might consider whether its change to your capital allocation process or broader ownership of alliance Bernstein.
Matt: To unlock shareholder value if she cough conversion is off the table.
Speaker Change: So when you say capital allocation process.
Speaker Change: What can you just clarify for me what you mean by that because we already distribute everything we earn.
Speaker Change: Alright, just share repurchases versus dividends.
Speaker Change: Oh, sorry.
Speaker Change: Okay.
Speaker Change: Well I mean.
Speaker Change: I think we need to go and do some thinking around it but the truth is we can't really retain anyway. So bye.
Speaker Change: By the nature of the structure, we have to distribute it so its to do share repurchases, we effectively have to borrow.
Speaker Change: To fund them.
Speaker Change: So I mean, we can think about it but it's a volatile business to start with and we like having a fairly conservative balance sheet to deal with that volatility.
Speaker Change: Great Alright fair enough.
Speaker Change: Your next question comes from the line of Bill Katz at Gd. Please go ahead.
Bill Katz: Okay. Thank you just going back to C Corp discussion for a moment could you tell us what you're penciling out for dilution.
The taxes, if I simply take roughly 10%.
Bill Katz: You get back to 11 multiple wished Alex's argument is.
Bill Katz: In line. Despite a differentiated storyline. So my broader question is if you're unwilling to convert to a C Corp. What is the appetite potentially sell the franchise to unlock value.
Bill Katz: Yes.
Bill Katz: Yes.
Bill Katz: Alright, our modeling.
Bill Katz: About mid 'twenty tax rate.
Bill Katz: Back into the impact of that and effectively that would require.
Bill Katz: Minimum of a two time multiple expansion.
Bill Katz: Look I think.
Bill Katz: Thinking about it.
Bill Katz: Sure.
Bill Katz: Bill.
Speaker Change: I don't think we have any interest necessarily in selling the business in order to unlock value.
Bill Katz: Okay.
Bill Katz: Nice job.
Bill Katz: Okay.
Speaker Change: I am sorry, I don't know what that was but I don't think we have any interest in selling the business.
Speaker Change: We think we're operating the business very effectively and we really think that the partnership with equitable.
Speaker Change: <unk> is a critical.
Speaker Change: A component of the success that we've had in that partnership continues to expand and grow and I think it has resulted in benefit to our third party unitholders significant benefit to them. So we like the model we have we like how it positions us, particularly in the insurance space and in our ability to.
Speaker Change: We have a compelling story to new investment teams, particularly in private odds to be a platform that allows them to scale more quickly than they could do it on their own.
Speaker Change: So we think it is a very tax efficient very corp capital.
Speaker Change: Structure efficient.
Speaker Change:
Speaker Change: Model that we have in place and are comfortable functioning within it.
Speaker Change: Let me stop there bill and make sure I fully answered your question.
Bill Katz: Yes. Thank you.
Speaker Change: As a follow up maybe to change the tone of the question.
Speaker Change: You mentioned that you're seeing a little bit better vibrancy in terms of the first month of the new year.
Speaker Change: It will be out shortly I was wondering if you just give us a sense of how net volumes are trending maybe across the different distribution channels or what are the asset classes and within that where do you think you are in terms of the run off risk associated with the institutional equity book. Thank you.
Speaker Change: Yes.
Speaker Change: Sure happy to.
Speaker Change: Take that one owner here again.
Speaker Change: We had a positive start to the year definitely seeing continued strength in multiple geographies and distribution channels.
Speaker Change: U S. Retail continues on I made a strong trajectory we continue to get very good traction in fixed income with our major distribution partners large out wire then.
Speaker Change: Independent broker dealers.
Speaker Change: Very pleased with that we are looking to add a couple of more large strategic relationships from a retail distribution perspective in the new year. So that will be hopefully added so two hour January starts.
Speaker Change: Secondly, it was very encouraging to see our Japan business continues to do very well despite.
Speaker Change: Japanese Central bank actions and some of.
Speaker Change: U S Japanese yen dynamics, our Japan business continues on.
Speaker Change: Strong trajectory, so thats a positive.
Speaker Change: Definitely seeing some momentum and southern Europe on back of some of the economic strength in that geography, we historically had strong equity.
Speaker Change: Followership with the broadening of the market's a bit we are seeing some appetite and strategies that has not been.
Speaker Change: Thats popular until recently some of the more the fastest strategy is low voltage strategies for instance.
Speaker Change: And.
Speaker Change: On the institutional side.
Speaker Change: All the hard work that went into and the investments we put to build our insurance business is.
Speaker Change: Now delivering strong benefits and we expect that to accelerate we obviously talked a lot about our new partnership with RGA, but beyond that we continue to win new insurance mandates domestically and internationally and that gives me a strong.
Speaker Change: Confidence in terms of our ability to grow insurance with equitable as well as large insurance clients.
Speaker Change: In terms of the institutional equities as I mentioned in my previous comments, if you look at some of the.
Speaker Change: Relative to the performance challenged products that fits in our institutional equities.
Speaker Change: The AUR Windows is relatively more modest now as a result, if you look at our assets at risk kind of forecast.
Speaker Change: So at more favorable picture I mean, obviously generating new sales is different than.
Speaker Change: Outflows, but it is on the outflow front.
Speaker Change: I see a positive trend so value added up I think instead of necessarily a positive outlook and we continue to have again diverse waste even by asset class as well as by.
Speaker Change: Bye.
Speaker Change: Different channels last but not the least obviously, we will have now more opportunities to distribute our private credit solutions I touched on insurance, but the other exciting development as our first interval fund out of carve out a carve out in the market now it has been.
Speaker Change: Active in all of the large custodian platforms I E are available to our a distribution and starting with the second quarter. We are turning on some broker dealer partners as well as we approach the AUM threshold, so very pleased with the <unk>.
Speaker Change: Momentum with our in total fund, which now has.
Speaker Change: 200, plus million in assets and we expect that to expand.
Speaker Change: Significantly as we add more distribution with large distribution partners.
Speaker Change: I guess I would just add owner of that.
Speaker Change: Performance in equities has picked up quite a bit and that started the year.
Speaker Change: As we've seen more more dispersion in performance among.
Speaker Change: Names and and.
Speaker Change: Our growth portfolios are performing pretty well and gaining back some traction and we've seen institutional equity search and when activities. So.
Speaker Change: It's hard to call when when the tide turns we're not going to do it today, but it's going in the right direction.
Speaker Change: Can I ask a third question.
Speaker Change: Sure great. Okay. Thank you.
Speaker Change: Maybe as a fourth question I know it's shifting.
Speaker Change: Long queue.
You had mentioned Seth in your prepared comments about some investment spending, including possibly for our new products and or teams I'm wondering if you could just update us maybe what are you thinking about on the M&A side and then for Jackie.
Speaker Change: Mentioned.
Speaker Change: Hey, guys. Thank you for that and then you mentioned that if markets go up if markets were to go down how much flex do you have on some of the fixed costs.
Speaker Change: The non comp Opex side. Thank you.
So that was really two questions, but let me let me answer the first one and Jack you will answer the second.
Jack: We look we look at traditional where we see opportunistically, where we see a really distinctive team where capability that we think need to client demand but.
Jack: But we spent more of our time focused both on <unk> and in the wealth management area, we look in that segment as well.
Jack: Mindful of the multiples that are out there, but I guess, where I would say in the private sector. We continue to look at strategies that fit into the needs of liability managers like insurance companies. So if not private credit infrastructure areas like that that we would be.
Jack: Interested in filling out our capabilities and Jack why don't you take the next part of the question.
Jack: Sure. Thank you, yes look I mean, we remain very disciplined about our cost base.
Jack: As I mentioned, we're investing for future and for growth, but we are very disciplined about our options and optionality in both comp and non comp so whether I can in terms of how quickly we hire or not hire or whether it on non comp we know exactly whats discretionary and fixed and we have all of those levers to us.
Jack: We shouldn't need for them, but as of right now we're very much focused on investing for future.
Jack: Yes.
Jack: Thank you.
Jack: Yes.
Speaker Change: Your next question comes from the line of John Dunn with Evercore ISI. Please go ahead.
Jack: Thanks.
Speaker Change: You mentioned active Etfs had come up a couple of times.
Speaker Change: Just maybe give us a flavor of how you're seeing those scale and how big a roster do you want that to be and then maybe the profile of the investors you marketed in them too.
Speaker Change: Sure Hi, John.
Speaker Change: I can't comment on that we now have 17 active Etfs. These etfs are all in the U S and colors that a large range of investment areas fixed income equities as well as some of the more buffered strategies.
Speaker Change: If you think about the scale already fixed out of our 17 Etfs cleared more than half a billion dollar mark. So if you think about the five five that we ended the 24 six.
Speaker Change: Six of the funds have already more than <unk> 1 billion. So we are really pleased with having multiple winners in that product set that is diversified we have large fixed income products equity products buffered products. So it allows us to play into different areas in terms of the profile.
Speaker Change: We benefit from obviously, our proprietary while channel, but more importantly, the larger opportunity remains in the third party channels and we've seen great opportunities opening up for us, particularly with our ace because until you get to certain thresholds and some time in the <unk>.
Speaker Change: Market Youre not typically on the shelf of the large broker dealers. So as a result, your first buyers then.
Speaker Change: The first several hundred million dollars typically focuses on the RIAA channel.
Speaker Change: And we really benefited from using Etfs as well as our other high net worth oriented strategies like SMA to open a lot of new doors in the RIAA channel and in terms of investments in distribution.
Speaker Change: Chad I'll, then specialization and the new specialist resources, we put on the ground for that along with our ETF specialists in our ETF team is definitely helping us to unlock those new opportunities and if I reflect on the last five to six weeks, we see there.
Speaker Change: Continued momentum with those ETF strategies, and we are on a very positive trajectory.
Speaker Change: And in the future.
Speaker Change: And so as a feeder to the expansion. So your other question. We all look at two dimensions. One obviously, we have a very strong Asia distribution as Asia becomes more viable for active Etfs definitely based on our radar we have very strong distribution in multiple markets as you know so that could be.
Speaker Change: Venue for us as an expansion.
Speaker Change: In terms of our product lineup.
Speaker Change: Even some of the relative value opportunities in emerging markets.
Speaker Change: And some of the other extensions and fixed income with the rate outlook etcetera, So emerging markets and some of the fixed income categories are on our radar for the domestic lineup.
Speaker Change: Makes sense and then maybe extending from that.
Speaker Change: I think you guys said that there was a bunch of places outside the U S that we're a U S.
Speaker Change: Growth equities was a it was thriving you mentioned, Japan I think that's what most people associate with are there any other.
Speaker Change: And Japanese regions, where that strategy.
Speaker Change: Our strategy is in demand.
Speaker Change: Yeah. So in Europe, we definitely have seen good success by deepening our partnerships with 546.
Speaker Change: Regional banks and getting into a multi product relationships and couple of also more wealth management.
Speaker Change: Type institutions, if I were to call out three markets, where equities have been very dominant it would be U K, Italy, and Spain, if I take care of it may be lost.
Speaker Change: 12 to 18 months view, including 25.
Speaker Change: Yeah.
Speaker Change: Got it thank you.
Speaker Change: Your next question comes from the line of Dan Fannon with Jefferies. Please go ahead.
Dan Fannon: Thanks, just one question from me on private wealth, obviously, a good year in the fourth quarter or as you look at slide nine and the breakdown of the revenues, but do you think prospectively and the investments you're making how should we think about growth in this business how in terms of.
Dan Fannon: Getting new advisors, attracting new advisors, you mentioned, even inorganic so just curious about your thoughts around growth for the segment.
Dan Fannon: Sure Yes.
Dan Fannon: As you mentioned.
Dan Fannon: Record AUM in our private wealth business and record advisor productivity.
Dan Fannon: We increased our advisor head count by a couple of percentage points as well and as you grow obviously.
Dan Fannon: For growth goes even higher so that means we need to add more advisors to our platform. We have been gearing up for that for the last couple of years.
Dan Fannon: We'll take multiple forms we're not constraining our flexibility by.
Dan Fannon: Just aiming for one lever the levers available to us are one accelerating our traditional recruiting program, we tend to hire 25, or so advisors. There we can definitely increase that second looking at experienced advisors.
Dan Fannon: <unk> added a couple already in the new year from a local iras in geographies, where we are underpenetrated. So we definitely have a very active.
Dan Fannon: Our recruiting program, including a dedicated organizational structure to go after those experienced advisers and remember we have not done that if you go back to our history. So the experienced advisor recruiting program is net new and then finally, we have the ability to do M&A.
Dan Fannon: And that will be more in the law.
Dan Fannon: Lower size or a kind of market, we are not looking to be at or a roll up or we're not after the mega Iras.
Dan Fannon: But given we are in on the 20 markets and.
Dan Fannon: Some of the market that we are and we are under penetrated we have a lot of opportunity to grow our market share in a very scalable way by adding our A's tuck in fashion and definitely Thats part of our playbook and we also made some hires to facilitate that strategy.
Dan Fannon: So those are the things that will help us and then finally with our new Chief marketing officer that joined US in 'twenty four from one of our competitors. We are also looking at other ways to continue to feed new clients.
Dan Fannon: Generation sources.
Dan Fannon: Our existing advisors as well so definitely.
Dan Fannon: Those are the investments we have made that will yield benefits in terms of sustaining and accelerating our growth.
Dan Fannon: Yes.
Dan Fannon: Great. Thank you.
Speaker Change: Your next question comes from the line of Benjamin British with Barclays. Please go ahead.
Benjamin British: Hi, good morning, and thanks for taking the question just one from me as well just curious on the institutional side, you comment a little bit about the pipeline.
Benjamin British: Curious if you could share any color on sort of known upcoming redemptions dealer wins sort of things, we should expect to impact.
Benjamin British: In Q1 and more broadly for the year, what are your thoughts on sort of improving the <unk>.
Benjamin British: Overall redemption rate, which was a bit more challenged in the back half of the year versus the first thank you.
Benjamin British: Yes sure.
Benjamin British: In terms of the outlook for the institutional business.
Benjamin British: The institutional pipeline the one thing I always remind ourselves in these calls is our pipeline is only institutional but we also have other sub advisory kind of events that we tend to have in our retail channel and thats, sometimes quasi institutional business like small foundations, and endowments, where cash balance plaza and things like that.
Benjamin British: In our private wealth channel so the institutional pipeline is only.
Benjamin British: Yeah.
Benjamin British: Lance into into the institutional client base in terms of what we are seeing in terms of big outflows.
Benjamin British: Relative to previous two or three years I think we're in a better spot as I also commented before so as a result, there isn't any massive kind of non manned.
Benjamin British: Mandates to depart that will have a disproportionate impact relative to our last two or three years of run rates, including the second half of last year in terms of <unk>.
Benjamin British: Recent wins, we definitely saw an uptick in our win rate in insurance based on the investments. We have made that will be more in the taxable fixed income area.
Benjamin British: And then we continue to look for additional strategic opportunities in insurance that could be additive again RGA was definitely.
Benjamin British: They are positive for us.
Benjamin British: We continue to look for similar strategic relationships in insurance that could be additive to our institutional business. So those are a few things that I would highlight as the major.
Benjamin British: Positives.
Speaker Change: Very helpful. Thank you very much.
Speaker Change: There are no further questions at this time, Mr. <unk> I'll turn the call back over to you.
Speaker Change: Yeah. Thank you. Thank you all for joining US today, please reach out to Investor Relations. If you have any fallouts I look forward to hearing back from you.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].