Q1 2025 AllianceBernstein Holding LP Earnings Call
Thank you for standing by and welcome to the AllianceBernstein's first quarter 2025 earnings review.
At this time, all participants are in a listen-only mode. After the remarks, there will be a question-and-answer session, and I will give you instruction 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. Head of Impressor Relations for AV, Mr. Yannis Jorgali, please go ahead. Head of Impressor Relations for AV,
https://www.youtube.com.au
Speaker Change: Good morning everyone, and welcome to our first quarter 2025 earnings review.
Speaker Change: This conference call is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website, www.alianceBernstein.com
Speaker Change: With us today to discuss the company's results for the quarter are Seth Bernstein, President and CEO and Tom Simeone, CFO . Onur Erzan, head of Global Client Group and Private Well will join us for questions after our prepared remarks.
Speaker Change: Some of the information will present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure, so I would like to point out to the safe harbor language on slide 2 of our presentation. Thank you very much.
Speaker Change: You can also find our safe harbor language in the MDNA of our 10Q, which we filed this morning.
Speaker Change: We bade our distribution to unit holders on our adjusted results, which we provide in addition to and not as a substitute for our gap results.
Speaker Change: Our standards, gap reporting, and reconciliation of gap to adjust its results are in our presentation
Seth Bernstein: Under regulation F.D., management may only address questions of material nature from the investment community in a public forum. So please ask all such questions during this call. Now, I'll turn it over to Seth.
Good morning, and thank you for joining us today.
Seth Bernstein: Against a backdrop of escalating uncertainty around trade policy and economic growth, Alliance Bernstein delivered another strong quarter. Our results highlight the strength of our franchise, the depth of our investment expertise, and the breadth of our globally diversified platform.
Seth Bernstein: On Slide 3, I'll review the key business highlights of our first quarter.
Seth Bernstein: Our differentiated distribution platform gives us an edge in growing markets like Asia, US high net worth and insurance, where we've consistently gained market share, including in the first quarter of 2025.
Seth Bernstein: Coupled with the extensive range of our investment capabilities that span across traditional and alternative assets, were strategically positioned to help our clients navigate turbulent markets and benefit from rapidly emerging trends.
Seth Bernstein: Even amidst the return of rates volatility and heightened policy risks, we successfully generated $1 billion in active fixed income inflows during the first quarter of 2025.
Seth Bernstein: Despite the downturn and overseas demand for our tax full-pixed income strategies, largely driving a 1.4 billion infirmly taxable outflows, we continue to enjoy robust growth for our tax exempt franchise, which generated 2.4 billion of inflows.
Seth Bernstein: Over the past five years, retail taxes have consistently grown at double-digit rates, reaching 46 billion in AUM, more than doubling in size since 2020.
Seth Bernstein: The Secular Growth and Private Alternatives is another theme that benefits us.
Seth Bernstein: During the quarter, we had over 2.5 billion of institutional deployment into our private markets platform, coupled with inflows from high network into our asset-based finance and private credit strategies.
Seth Bernstein: Active equity outflows of $2.5 billion moderated compared to recent quarters, with institutional redemption slowing down while retail flows flip back to positive.
Seth Bernstein: In the first quarter of 2025, we generated 500 million of retail inflows driven by solid demand for our U.S. large cap growth, global strategic core, U.S. select and our security of the future strategies.
Seth Bernstein: Our fee-paying and fee-eligible assets undermanagement have reached 75 billion as of quarter and, marking a 20% increase compared to a year ago.
Seth Bernstein: We've successfully deployed nearly 40% of equitable second $10 billion commitment and are leveraging our expertise to extend the addressable market with institutional and retail-oriented solution. Thank you.
Seth Bernstein: We're excited with the momentum we're seeing as we extend our private credit franchise to the institutional channel with customized solutions.
Seth Bernstein: In asset-based finance, we're expanding our retail offerings to help our own private wealth clients access this exciting new asset class, while also venturing into new distribution platforms.
Seth Bernstein: Our Credit Opportunities Interval Fund has exceeded 200 million in NASA Tundra Management, including the meeting allocation from third-party retail clients.
Seth Bernstein: In the first quarter, we've engaged with nearly a dozen new RIAs and were encouraged by the increasing number of advisors exploring alternative investments with AB. We continue to leverage our strong local relationships in the RIA channel, where we already partner with national aggregators and independent advisors in areas such as municipal bonds. We continue to leverage our strong local bond. We continue to leverage our strong local bond.
Seth Bernstein: Third, our diversified asset makes coupled with our enhanced operational efficiency provides downside protection to our revenue base and to our margins.
Seth Bernstein: As asset managers, we value diversification and we've developed an all-weather platform that mitigates concentration risks by geography or asset class.
Seth Bernstein: With liquid and liquid credit accounting for nearly half of our assets under management, we believe we're less vulnerable to significant equity market downturns.
Seth Bernstein: The strategic initiatives we've completed last year optimized our expense structure to expand the upside from favorable market conditions while also fortifying our business against downturns.
Seth Bernstein: Fourthly, the durable base fee rate that has held relatively steady over the past several years are all in fee rate, including base and performance fees is another differentiating factor for AB. This relative stability results in symmetrical growth between our management fees and our AUM.
Seth Bernstein: Moving on to slide four, I'll highlight our strengthening relationship with equitable.
Seth Bernstein: We firmly believe that being affiliated with a leading insurance provider is a competitive advantage for AB.
Seth Bernstein: Investment grade quality private credit is a key growth opportunity for both Equitable and Alliance Bernstein and we've now deployed nearly 14 billion of the 20 billion committed by Equitable.
Seth Bernstein: This has enabled us to build out new capabilities like residential mortgages and private ABS, which we intend to expand with our other insurance and institutional clients.
Seth Bernstein: We continue to scale our distribution, leveraging our leading brand awareness and our expertise and vehicle versatility to expand our third-party growth avenues.
Seth Bernstein: This virtuous circle of delivering additional yield to our partners' balance sheet while seeding new strategies with permanent capital enables Alliance Bernstein to sustainably expand our business.
Seth Bernstein: We remain on target to grow our private markets at UM to 90 to 100 billion by 2027.
Seth Bernstein: Slide 5 reflects a summary page with our key financial metrics. Tom will follow up with more commentary on our results. Thanks for joining us today.
Tom Simeone: Turning to slide six, I'll review our investment performance, starting with fixed income.
Tom Simeone: Despite resurgent rates volatility driven by inflationary pressures caused by policy uncertainty, Bonn served as a safe haven during the first quarter of 25.
Tom Simeone: Overall, our performance improved with 64% and 63% of our AUM outperforming over the 1-3-year periods, while 81% outperformed over the 5-year period.
Tom Simeone: Where did the dynamics have been tumultuous, with markets reacting sharply to tariff headlines, global growth uncertainty, and shifting demand for US treasuries? [inaudible]
Tom Simeone: For example, the peak of the drawdown caused by a tariff announcement, the S&P 500 was down 15% while the US high yield index was down less than 2%.
Tom Simeone: While the elevated rates follow till they may dampen sediment and appetite for duration, we view the value proposition for fixed income as intact.
Tom Simeone: Specifically, we see the belly of the eel curve as an attractive spot to manage duration risk, given the ongoing buildup of term premium.
Tom Simeone: Reddit remains an area of opportunity, all-in-year yields over 8% presenting an appealing risk-adjusted return profile compared to long-term equity forecasts.
Speaker Change: The percentage of AUM outperforming over the one year period deteriorated to 23%. The shift was primarily driven by our US Large Cap Growth Fund, distributed in Japan, flipping from above to below median.
Tom Simeone: A significant factor contributing to this change was the strengthening the end during the quarter, impacting comparisons against other local growth managers. [inaudible]
Speaker Change: The three-year figure had improved to 52% while the five-year declined to 45%.
Speaker Change: This performance trend reflects the market dynamic of excessive concentration and a few mega-cap names within the AI scene.
Speaker Change: Our investment focus on companies demonstrating consistent growth with discipline-approached evaluation also posed challenges in the later half of 2024.
Speaker Change: Year-to-date, despite the volatility following the tariff announcement in April , our active platform has demonstrated significant relative performance.
Speaker Change: U.S. Ritwik growth has generated nearly 300 basis points of relative outperformance, positioning it near the top death style year-to-date. Our strategic core portfolios designed to offer downside protection in volatile environments about performing their benchmarks by three to 400 basis points year-to-date.
Speaker Change: Furthermore, global, international and emerging markets portfolios have established track recorders that have exhibited strong performance. [inaudible]
Speaker Change: Additionally, our US course strategies select equities and US strategic equities have continued to deliver robust returns following its successful year, showcasing their ability to generate alpha across various market conditions and attracting client interest.
Speaker Change: Overall, we had eight active equity strategies that generated over a hundred million dollars in and in plus during the first quarter of 2025.
Now turning to Slide 7.
Speaker Change: Retail posted its seventh straight quarter of positive net flows with sales continuing to track at record pace levels, offsetting elevated redemptions during a turbulent quarter.
Speaker Change: We continue to gain retail market share and tax exempt for the 19th Executive Quarter, growing at a 19% annualized rate. Our all-market income strategy drove multi-asset sales in the first quarter, particularly out of the Asia-Pacific region.
Speaker Change: Active Equity also grew organically, supported by continued inflows into our US large cap growth strategy in addition to global strategic core and US select equity.
Speaker Change: The Matic Investing is another area with significant potential. Our security of the mutual portfolio continues to attract solid inflows surpassing $1 billion in AUM just one year since we launched. [inaudible]
Speaker Change: Diversifying our product offerings remains a cornerstone of our distribution strategy and we're very pleased with the early success we're seeing as we scale our services across our global footprint.
Speaker Change: Offsetting organic gains are taxable fixed income franchise posted outflows of 1.4 billion, primarily as our marquee income strategies AIP and GHY had outflows given the uncertain
Speaker Change: Base Management fees grew 10% year-over-year reflectives of market growth and organic flows while they were down 3% versus the prior quarter due to the equity drawdown.
Speaker Change: Organic-based fee growth was 2% over the last 12 months and slightly below 1% as of the first quarter.
Moving to Slide A.
Speaker Change: Institutional cells and flows rebounded in the first quarter of 2025 to the highest levels since 4th quarter 2022, breaking a streak of persistent outflows.
Speaker Change: Channel and Post were driven by an accelerated pace in alternative deployments across various services, including private placements, commercial wheel estate debt, residential loans, and CLOs.
Speaker Change: Active equity out plus a 1.9 billion in the first quarter moderated versus recent trends.
Speaker Change: Our pipeline grew to 13.5 billion in the first quarter, up 2.8 billion sequentially, reaching at the highest levels in 7.4.
Speaker Change: Note that institutional funding is also accelerated with roughly 3 billion impassure mandates that were not captured within our pipeline.
Speaker Change: The decrease in the pipeline fee rate was mainly attributed to the addition of a size of a lower feed mandates, including an $800 million in passive index equities and 1.1 billion in systematic fixed income.
Speaker Change: Our ongoing efforts to market our systematic strategy continues to attract strong client interest, enabling us to grow our institutional market share and fixed income. However, these mandates tend to be lower feed and will impact pipeline fee rate.
Turning to Slide 9
Speaker Change: Private wealth posted solid inflows in the first quarter, growing to an annualized organic rupt rate of more than 2%.
Speaker Change: The Fats has paced in two years. As a reminder, our private wealth net inflows exclude reinvested dividends and interest income, which is typically reported within net assets across key wealth management peers.
Speaker Change: Our organic growth was fueled by increased sales momentum, underscoring robust client engagement and advisor productivity. We're still focused on supporting and growing our advisor sales scores, ramping up our recruiting effort in line with our long-term target of 5% headcount growth.
Speaker Change: Demand Dynamics within the channel were positive across all asset classes except for act with equities.
Speaker Change: Solid demand for our passive tax harvesting strategy led to 600 million inflows into passive equities growing organically at nearly 10% annualized rate.
Speaker Change: Alt's MAS inflows in nearly $500 million, growing at 7% annualized rate, marked the 8th consecutive quarter of organic growth for the alternatives of multi-asset within Bernstein. Private alternatives, including villasate debt, Carval, and private credit accounted for approximately half of those inflows.
Speaker Change: Fundraising in private alternatives continued to be a significant driver of channel activity with approximately 400 million raised in the first quarter.
Seth Bernstein: Before moving on to our financial review, I'm delighted to introduce our newly appointed CFO Tom Simeon. Having had the privilege of collaborating with Tom for several years, I'm eager for our unit holders, analysts, and all-stakeholders to have the opportunity to become acquainted with him. Tom? Tom?
Tom Simeone: Thank you, Seth. Good morning, everyone, and thank you for joining our call.
Tom Simeone: During my 20-year tenure at AB, I've had the privilege of serving in various roles across the organization. This has taught me what sets AB apart. I am enthusiastic about the future that lies ahead of us and excited to share our financial results with you today. Let's delve into the details.
Tom Simeone: We continue to deliver strong financial performance in the first quarter, reflecting solid growth and asset management fees and focused expense at discipline.
Tom Simeone: First quarter adjusted earnings of 80 cents per unit were up 10 percent versus prior year, benefiting from strong markets early in the quarter, sustained organic growth, a durable fee rate and solid margin expansion.
Tom Simeone: Distributions and EPU grew uniformly as we distribute 100% of our adjusted earnings to unit holders.
Tom Simeone: On slide 10, we show our adjusted results which remove the effect of certain items not considered part of our core operating business.
Tom Simeone: For a reconciliation of gap and adjusted financials, please refer to our presentation at Pendex or our TENQ. Thank you.
Tom Simeone: First quarter net revenues of $838 million were down 5% versus the prior year, and up 6% on a light-for-light basis, excluding Bernstein research.
Tom Simeone: First quarter, baked fees increased 8% versus prior year, in line with the growth in our Firmwide Average AUM.
Tom Simeone: Performance fees of $39 million increased by $12 million from prior year period, reflecting sustained offer generation from our international small cap and middle market lending strategies.
Tom Simeone: In the first quarter, we had an $11 million loss as compared to a deal in the prior year period related to our seedlight capital and other investments. [inaudible]
Tom Simeone: Moving to expenses, our first quarter total operating expenses of $555 million to climb 10% year over year, reflecting the deconsolidation of Bernstein research as well as lower occupancy costs from our New York office relocation and the lower compensation ratio. Thank you.
Tom Simeone: Total compensation benefits expenses of $414 million declined by 6% versus the prior year in absolute terms. This reflects a 48.5% compensation ratio of adjusted net revenues in line with our guidance and below the 49% ratio in the prior year period.
Tom Simeone: We will continue to accrue at a 48.5% compensation to revenue ratio in the second quarter of 2025, but we are mindful of market volatility and may adjust this in the second half of the year, depending on conditions. [inaudible]
Tom Simeone: Promotion and servicing costs decreased by 36% from the prior year, primarily reflecting the significant reduction of trade execution and clearance expenses from Bernstein research, in addition to lower marketing expenses.
Tom Simeone: June 8 declined 13% versus the prior period, primarily driven by occupancy savings from our New York City office relocation, coupled with lower professional fee and portfolio service and costs.
Tom Simeone: The first quarter run rate of our non-compensation expenses is tracking better than our guidance as we are exercising expense discipline in the face of a deteriorating market backdrop underscoring our improved operational flexibility.
Tom Simeone: As a reminder, promotion and servicing makes up roughly 20 to 25% of non-conflict expenses and GNA accounts for 75 to 80% excluding one-time items.
Tom Simeone: First quarter interest on borrowing is decreased by $10 million versus the prior year due to a lower cost of debt and lower debt balances.
Tom Simeone: Please note that we intend to increase leverage during the year to fund our commitment to the ruby-reside car and take advantage of any other potential growth opportunities that may arise.
Tom Simeone: Transitioning to Slide 11, let's take a look at the trajectory of our firm-wide base theory, which is net of distribution expenses.
Tom Simeone: In the first quarter, our firm-wide fee rate stood at 39.5 basis points slightly higher versus the first quarter of 2024, supported by AUM shifts between asset classes and channels. [inaudible]
Tom Simeone: This dynamic was somewhat evident in the first quarter as the decline in fee rate from the fourth quarter of 2024 was primarily attributed to the adverse effects of the downturn in equity markets during the latter part of the quarter. [inaudible]
Tom Simeone: The decrease was particularly influenced by the drawdown in U.S. equities, which constitute approximately three quarters of our total equity assets.
Tom Simeone: Although non-US equities perform better, their smaller share of our asset allocation only partially mitigated the overall negative impact on the fee rate.
Tom Simeone: In contrast, fixed income markets outperformed equities in the first quarter of 2025, while this provided diversification benefits to our assets under management and revenues, our fixed income strategies typically command lower fees, particularly for our institutional side.
Tom Simeone: While our fee rate will remain mixed dependent, we have managed to deliver a durable fee rate over time as our regional sales mix and selective growth initiatives have mitigated some of the fee erosion witnessed across the industry.
Tom Simeone: Slides will provide the detailed breakdown of our performance views by Private and Public Strategies.
Tom Simeone: Performance related fees from our private alternative strategies totaled $20 million during the first quarter. On the public front, our international small cap strategy, which has consistently outperformed the benchmark over the 1, 3, 5, and 10-year periods, yielded $19 million in performance fees.
Tom Simeone: Although public alpha is volatile and more difficult to predict, our public strategies enhance our market leverage profile and provide additional upside tied to the public markets.
Tom Simeone: As a result, we're revising our annual performance fee expectations to 90 to $105 million up from the prior projection of $70 to $75 million.
Tom Simeone: For the remainder of the year, we expect our private alternative strategies to be the primary contributors to our performance fees as they have been in recent years.
Tom Simeone: These strategies include commercial real estate debt, AB Carval, and AB Private Credit Investors, or ABTCI, which is the largest contributor.
Tom Simeone: Although certain strategies exhibit greater volatility than others, we anticipate an additional $50 to $60 million dollars of hurdle-based performance fees for the remainder of 2025.
Tom Simeone: It is important to highlight that our estimate factors in a lower interest rate environment. However, the wide range of rate cut projections obscures our visibility on the potential impact from such cuts.
Tom Simeone: Turning to slide 13, we saw solid margin expansion during the first quarter of 2025.
Tom Simeone: The adjusted operating margin reached 33.7% up 340 basis points versus the first quarter of 2024, demonstrating our approved operating leverage following the completion of both the Bernstein Research JV and the move to Hudson Yards.
Tom Simeone: Our forecast for a 33% margin for 2025 assumed flat markets from year-end 2024 levels.
Tom Simeone: If the recent market weakness continues, it could put downward pressure on future margins, although we will also actively manage expenses.
Tom Simeone: While we are keenly focused on margins, we are also committed to investing in growth and generating long-term value for our unit holders.
Tom Simeone: As part of our strategic planning, we have allocated resources for targeted growth investments, such as onboarding new investment teams and introducing new products, with the expectation that these endeavors will yield enhanced returns over time.
Tom Simeone: Before we move on to the Q&A session, I want to extend my heartfelt appreciation to all my colleagues throughout our organization for their unwavering dedication.
Tom Simeone: is a privilege to assume the CFO role, and I'm eager to contribute to our collective success and create value for our clients, our unit holders, our colleagues and all our stakeholders.
With that, we're pleased to answer your questions. Operator? Thank you very much.
Speaker Change: We will now begin the question and answer session. If you would like to ask a question at this time, if the press star followed by the number one on your telephone keypad. Please limit your initial questions to two in order to provide all questions and opportunities to ask questions, you are welcome to return to the queue to ask follow-up questions.
Speaker Change: And your first question comes from the line of Alex Blostein with Goldman Sachs. Alex, please go ahead.
Speaker Change: Hey, good morning. Thank you. Tom, welcome to the call. Question to you guys, starting maybe with the asset allocation trends you guys have seen so far in the second quarter, obviously. Super volatile, backdrop lots of uncertainty. It seems like the retail channel is starting to look a little bit softer, including on the fixed income side, which has been...
Seth Bernstein: Historically, source of strength for you guys. So, how do you expect the retail channel, I guess, to behave as we kind of deal with the current backdrop. And Seth Kiris in particular, when it comes to non-US retail, given your distribution footprint there, how that channel is performing on the outlook there. Thanks.
Sure. Hi, Alex Onur here. I'll take the question.
Seth Bernstein: In terms of, I'll start with that's a location, then switch to non-US retail.
Seth Bernstein: What we are seeing is that driven by largely what's happening with the treasuries and rates, obviously the continued Fed. The Fed.
Uncertainty with the rate cuts. [inaudible]
as well as the terror policy uncertainty is...
Speaker Change: This is not a first time or a new thing. We have seen this trend in the past. There were times like COVID or 2022.
Speaker Change: When the rate cuts happen, when the shape of the yield curve gets solidified with the steeper yield curve, our strategies go back to strong inflows. So as a result,
Speaker Change: from Taxable Fixing Comes, so definitely it will help us in the long term while it might partially hurt us along with others in the short term. [inaudible]
Speaker Change: However, balancing some of that is the strength of our text-exempt franchise.
Speaker Change: in the U.S., as well as our growing ETF franchise, which obviously cater to us like the different audience with the active ETFs being 100% U.S. today. So we're all we continue to see related to strength in our U.S. military business.
Speaker Change: And, and hence, overall, we believe, ready to be confident about the long-term prospects for.
Speaker Change: Taxiable and tax exempt fixed income. In terms of the non-US geographies, I already touched on the fixed income. I'm not going to be labor further into that. In terms of equities, as you know, we run the largest active equity strategy in Japan. [inaudible]
Speaker Change: And that strategy delivered very strong flows in first quarter. We continue to monitor what's happening not only with the equity markets but also with the dollar yen dynamics. Thanks.
Speaker Change: However, even if a second quarter might be a little bit softer with the, again, equity market and effects volatility, the structural trend in Japan is the growth of the retirement market with the niche accounts.
Speaker Change: And we play well into that retirement money, which tends to be stickier, more long term oriented, less short term. And we expect to have strong growth in our Japan franchise, leveraging that retirement trend. [inaudible]
Alex, I've just asked that... [inaudible]
Speaker Change: As I said in my earlier comments, we believe the fixed income thesis remains intact despite what has been remarkable volatility. And you know, when you look at sort of yield to 8%. Okay.
Speaker Change: out there and they could get higher for sure but they look pretty good relative to any kind of long-term expectations of equity returns right now and I think risk adversion will probably remain.
Speaker Change: Present for a while, and so I think once the stability begins to reassert itself...
Speaker Change: But that will take some more time to figure out. But it's also worth noting that our own retail flows have certainly stabilized in recent days at a better level. So, look, we are monitoring it just like everyone else is and can't predict the future. It's a better bet.
Speaker Change: I like the mix of businesses we have and our emphasis on fixed income in a time like this.
Speaker Change: Yep, I agree with you there. Thanks. A great, great detail. For my follow-up question, I just wanted to ask you guys around the equitable dynamics, and now with the tender results now, and participation was relatively limited, and I was curious if you could expand on...
Speaker Change: Maybe some of the structural benefits to F2 equitable from having Alliance Bernstein as a public company do you ultimately see them willing to acquire more over time or kind of how do you think that relationship plays out over the next several years?
Speaker Change: Well, first thing I'd say is you all cover equitable and you should certainly ask them the question yourselves. We took it, I'd take it as a vote of confidence.
in this business that they had decided to make.
Speaker Change: such an endeavor to increase their holdings in AP in the manner that they did.
I think the premium clearly didn't.
Speaker Change: Convince a ton of people to go to tender into it, and I think a part of that is the very high distribution yield we offer remains pretty attractive, particularly in times like this.
The Clients, and so I do think...
The logic of maintaining the independence of baby.
Frankly, for several reasons. One. One.
Speaker Change: Our employees like the clear alignment and the recognition that a public security has for their endeavors.
Speaker Change: Equitable seized this as a more attractive currency, potentially as we continue to look...
Speaker Change: For opportunities to supplement our product or distribution capabilities. And so we want that as do they, as a potential option. And as you know, we've used it before, whether it was the purchase of Carval or in other contexts. Thanks.
And I guess finally, I would say to you that...
Speaker Change: It's a pretty tax advantageous position that they have today. Okay.
Speaker Change: in their position as a private partner, as well as owner of public units, to have AB in the current status as a partnership so. So, uh, the-
Speaker Change: There is no change in our view in that, and I don't believe there's a change in their view.
Great. That's super helpful. Thank you guys.
Speaker Change: Your next question comes from the line of Craig Siegenthaler with Bank of America. Craig, please go ahead.
Craig Ziegenthaler: Good morning, Seth Onur. Hope everyone's doing well. I had two follow-ups to Alex's last question. The first one is, is EQH taking more active role in the imaginative AB, which I thought was run fairly autonomously over the last?
Speaker Change: 20 years across three CEOs, and then the follow-up would be, are there any limits in place to prevent EQH from buying more stock in the future. Thank you very much.
Speaker Change: There has been absolutely no change in the engagement or activities of equitable versus the operations of Alliance Bernstein. We continue to operate autonomously with independent members, board with independent members.
Speaker Change: We continue to set our own comp to revenue ratio in consultation, of course, with our board. And we intend to have that continue. So there's been absolutely no change, Craig, in that regard. And there's no change anticipated.
Additionally, equitable, there is no...
Speaker Change: Technical restriction that I'm aware of that that precludes equitable from potentially buying more units.
Speaker Change: And indeed, as you might have, oh, I'm sure you recognize that when we entered into the RGA transaction, we actually funded that acquisition through an investment equitable made. Thank you very much.
Speaker Change: in units of private units of AB to facilitate that we raised $150 million to do that. I can see that ownership stake rising or falling, depending.
Speaker Change: on our acquisition activity. And I'd point out that it had fallen as part of the acquisition of Carvel. So there isn't a limitation, Craig, that I'm aware of.
Thanks, Seth. I just have a follow-up on...
Speaker Change: of Unis in the SMA Rapper, so powerful that can sort of power right through that sort of issue.
Speaker Change: Look, we spent a lot of time focusing, as you might imagine, on what's going on in reconciliation discussions in Washington. I think 10.
There won't be a repeal.
Speaker Change: And that's what we hear from people we talk to in Washington by the day and over until it's over so I recognize that. [inaudible]
Speaker Change: There may be areas within the community market that might see some sort of restriction, or other ways for example limiting higher income. [inaudible]
Individuals' ability to take that deduction.
Speaker Change: But our view is that the importance that muni financing has. [inaudible]
Two states and municipalities who are so critical and fundamental. [inaudible]
that we don't think that...
Speaker Change: Full repeal is on the table, but obviously we're watching carefully to answer your question more directly.
Speaker Change: I think in the event that such a change happened, then it was repealed. I think you would certainly see a one-time reaction to that in the repricing of the sector to accommodate it. I think…
Speaker Change: That would be a likely outcome, so there would be a shock to that market that would affect flows, but ultimately muni credit quality and credit. Thank you.
Speaker Change: Migration is much slower, as you know, I think, than corporate migration. It has been a very-
Speaker Change: Comfortable place for people to keep a portion of their retirement savings and the need for income if anything is even greater than it's been before and I don't see.
Speaker Change: A Better Substitute Board. Now, it may, what constitutes a taxable American holdings.
May change to include...
Non-unusible fixed income assets, that may well happen, but. Bye.
Speaker Change: I think people are very comfortable investing in that space and it will continue to be an important part of people's retirement. And also the positive is in a scenario where there are no major changes, which is probably the base case scenario. No.
Speaker Change: You would expect also some increased demand because there has been some volatility rates. [inaudible]
Speaker Change: Senarios are out there and there is definitely some risk. Also, there is an upside when the mark is normalized in terms of the tax protected yield and high net worth and ultra-nate
Speaker Change: kind of using it as they always did over the last decades.
Thanks Jonah.
Thank you. Thank you.
Speaker Change: Your next question comes from the line of Bill Katz with TD Cowin, Bill, please go ahead.
Bill Katz: Okay, thank you very much and Tom, congratulations on the new role. Maybe start with on the expense side. I think I've heard you correctly, no change to the prior guide on non-comp of 600 million to 625. Thank you very much.
Bill Katz: So it's the first quarter just some delay of spend and that might accelerate into the back half of the year. Or what kind of flex would you have if the revenue backdrop were not to play out against your base assumptions? Yeah, that's right.
Bill Katz: Bill, this is Tom. Thank you. You have it right there. The 6 and 6, 25, we're going to remain sticking to that guide for now. But Q1 is a bit lower. We do see some spend increasing throughout the remainder of the year. And based on that, if you annualize Q1, you'll see that we do have some flex. So we do have some levers that we can pull if we need to reduce expenses during the year.
Look, if we don't see that base case, roll forward. [inaudible]
Bill Katz: We're gonna need to take a more cautious route in spending. We're gonna need to take a more cautious route in spending.
Thank you. Thank you.
Right, that was your head.
Speaker Change: Yes, for sure. Thank you. And then maybe a big picture question, doing very well on the alt side. I think we're going to pack that a little bit. What's the allocation in the private
Speaker Change: I think last recollections something about 10%, but just correct me on that. And then maybe you could unpack a little bit about some of the success factors you're having on the third party side, which products you're seeing the most traction and where you see the greatest incremental distribution connectivity. Thank you.
Speaker Change: Sure, yeah, your recollection is right. We tend to have around 10% allocation in the client portfolios today, if you look at our overall AUM, particularly for certain client segments, like all-time network clients. Thank you.
Speaker Change: Obviously, family offices that target allocations much greater, 20% or above. So, there is definitely more upside than hence we have a pretty robust product pipeline. Not only to drive allocations from existing clients, but also use new products to acquire new clients.
Speaker Change: I mean, actually, if you look at our first quarter, if I were to quote the net new assets, which is different on that net flow, so if you were to look at it like a wealth manager, our annualized organic growth rate was 6.5% on a net new asset basis, so as a result, as the net new asset.
Speaker Change: At the current rate, it is 10% and with all sign-its worth and family office and even at a greater rate.
Speaker Change: In terms of the demand, it's broad-based, obviously private credits is a big part of the story, but also for our private wealth business, we own board, best-in-class managers that are additive in other adjacent asset classes, whether it's in real estate equity, venture capital, etc. So it's going to be relatively broad-based in our private wealth channel. But the trends in private credit, the strategies we offer, whether it's middle market lending, whether it's the car valve strategy,
Edges, the demands stayed strong in the first quarter and expected to remain that way for the rest of the year.
Speaker Change: In terms of other channels and where we are seeing the demand and broadening, the influence that Fannon has been an optic.
Speaker Change: As you know, we have been focusing on building on insurance cap capabilities globally, leveraging some of the equitable synergy, equitable is now almost 30.5 billion into their 20 billion overall commitments. Thank you very much.
Speaker Change: And that helps us broaden the strategies we offer, for instance the new private placement ABS that we added in the fourth quarter of 24 already is contributing to our flows. And that helps us.
John's channel, so I expect the insurance to be a very strong contributor to our alternatives growth in private credits across core direct lending, real estate debt, as well as special to finance. Thank you very much.
and Hard Assets from Carwell, Carl F.
Speaker Change: On the retail side, our interval fund and the BDC kind of product are in the markets.
Speaker Change: Our focus in the US has been the Interval Funds, given the broad appeal and ease of deploying that strategy, the minimums are low, it's a Fortiac product.
So, and the subducks and the whole...
Speaker Change: Client experience is much smoother than some of the more complex solutions.
Speaker Change: We are approaching $700 million in that product already at the 12th month mark, which is in line with our plans.
Speaker Change: And hitting that threshold allows us to have broader conversations with larger broker dealers and wirehouses, and we expect to own board a large broker dealer in that strategy. This quarter, while seeing also continued demands from the RAs. And it does a product extensions or products that are getting interest in the overseas markets. There's definitely interest in non correlated assets. .
Speaker Change: Some of the asset-based finances definitely interesting to our clients, seeing strong demand, as well as our aviation income, which is a little nichey, but definitely seen as a less correlated product from the client base.
Thank you very much for that.
Speaker Change: Your next question comes from the line of Ben Budish, with Worklays. Ben, please go ahead.
Ben Burdish: Hi, good morning and thanks for taking the question. I wanted to check on your private markets fee expectation. I guess first, Tom, it sounds like you indicated that the expectation for this year was a guide up. When I was looking at the transcript from the last call, I think the commentary was 70 to 75 million of recurring hurdle based performance fees. I just want to make sure I have the right sort of apples to apples comparison. And then the other piece I was curious about in the slides you indicate that ABPCI is the majority of private markets performance fees. I'm curious, can you?
Unknown Executive, Ioanis Jorgali, Seth Bernstein, Mark Griffin
Ben Burdish: So the other performance fees in 2024 were Carvall, PCI, and real estate.
Ben Burdish: Yeah, we had some international smith that resulted in about $19, $20 million of performance fees in Q1, and that's what's leading to the revision upward.
To the public markets forecast hasn't changed. [inaudible]
Ben Burdish: The private market's forecast has not changed, but what increased it overall is because we had some public performance fees in Q1. [inaudible]
Good luck.
Ben Burdish: Okay, that's helpful. And then maybe a broader question on private markets. You talked a little bit about investment-grade private credit to a huge team we hear about from some of the other alternative managers. Just curious, how much of your private market activity today is investment-grade? And when you talk about sort of expanding to other third-party insurance partners or L.P.s sort of, or even other, you know, wealth clients sort of outside your current...
Ben Burdish: You're wealth business. How important is investment grade as part of that strategy? Thank you. Yeah.
Ben Burdish: It's primarily an insurance story. When it comes to private wealth or tour party retail, even the larger parts of the institutional markets, typically IG is not the dominant strategy, although it might be appealing in certain jurisdictions. It's an insurance story.
Ben Burdish: Like Japan, etc., where they might be looking for some diversification from fixed income but not the full risk exposure to the wider credit markets. This is the end of the video.
Ben Burdish: as well as additional leadership talents. I mean that was one of the reasons why we brought Jeff Cornell from a large insurance company who was the CIO there to lead our insurance efforts. [inaudible]
Ben Burdish: That was back in May 24, as you might recall, and that has been a large part of our growth. In terms of specific percentages, I don't have it offends, but again, in terms of net flows into...
Ben Burdish: into private credits in insurance IG has been the disproportionate amount, and I will expect it to remain that way.
All right, thank you very much, very helpful. [inaudible]
Speaker Change: Your next question comes from the line of Dan Fannon. The chapter is done. Please go ahead. Thanks. Good morning. Just wanted one more clarification on the performance fee. I'll look is the public markets numbers. This is just being conservative where you're assuming no performance fees because the performance is yet to be crystallized or is there a start of the year? Can you give us an update? Maybe on how those strategies are looking to give us essentially what that might actually come to?
Speaker Change: That's exactly right, the public markets we don't forecast generally because they need to be crystallized.
Speaker Change: Understood. And then just a follow up on advisor productivity and just within the private wealth you talked about that improving. Can you talk about the mix of new advisors versus existing advisors and whether the newer ones coming on board that you're actively recruiting more aggressively are the ones that are more productive and more broad based. And then just a follow up on advisor productivity and just within the private wealth you talked about that you're actively recruiting more
Eidsmore Broad Based Power. We are...
Speaker Change: Strength in the Private Well Channel has been the retention of our most senior than most productive advisors. We have, I think, above industry retention rates. And that has been a very strong contributor to productivity. Let's see.
Speaker Change: And Vanvill Recruit, as you know, are recruiting mixed tends to skew towards younger advisors, where we train.
Speaker Change: and developing our own model, although we are adding more experienced advisors at a slow rate consciously. Right now, the recruiting mix remains heavily skewed towards younger advisors that we mold into our model. [inaudible]
Thank you.
Speaker Change: Again, if you would like to ask a question, simply press star, followed by the number one on your telephone keypad.
Thank you.
Speaker Change: And your next question comes from the line of Bill Katz with TD Co. Bill. Please go ahead.
Bill Katz: Thanks, I just appreciate the follow, a couple of sort of modeling myths just tracking too. Tom, just to follow up on the public side of Performance Fees, is there a way to give us a sense of either AUM, they're eligible for Performance Fees?
Bill Katz: And or how those roles of funds are doing, either role of an absolute turn at the end of the Q1 versus maybe 1231, as we think through the incremental upside.
Tom Simeone: I think you're asking about the private side there, Bill, and those are very predictable.
And those are recurring and consistent.
Tom Simeone: Yeah, I'm signing it up. No, it's more on the public side. Just try to get a sense of. [inaudible]
Speaker Change: Okay, and just, you've mentioned in your commentary that there could be some pressure on the face-through rate given the market backdrop, but that makes sense.
Tom Simeone: Is there a way that you can give us what the exit fee rate was on the base fee rate at 331, maybe versus the average for the quarter at the prior actual number?
Speaker Change: You know what else I have in front of me and I'm sorry, Bill, is the free rate for the quarter of 39.5 basis points.
Okay, thank you very much.
Speaker Change: Your next question comes from the line of John Dunn, with Evercore ISI, John , please go ahead.
John Dunn: Thank you. Maybe the pipeline being up is great. Can you just give us a little more flavor of the temperature of different parts of the institutional side of the business and also maybe look geographically if there's any different appetite for risk in different regions?
John Dunn: Yeah, sure. We feel very good about the continued strength in the pipeline.
John Dunn: There has been definitely very strong kind of upside from a particular fixed income. Insurance, as I mentioned earlier, was a big contributor, but we also had increased allocation to our...
John Dunn: Systematic fixed-income capabilities, which we launched relatively recently in the last several years, and it's great to see that that's opening a new...
John Dunn: A type of opportunities for us and we onboarded it in terms of the pipeline. We added a significant international client, a European client to that strategy, so feeling good about the momentum there.
John Dunn: In terms of other areas of pockets of strength, I mean definitely the demand for asset-based finance is strong across different geographies.
John Dunn: I'm talking at this point, more pre-pipeline, but definitely, if I look at the client conversations, what comes to the CRM, definitely you would see a lot of asset-based finance type conversations. Thank you very much.
John Dunn: That is there. When it comes to equities, equities have been somewhat concentrated in the more under-allocated areas, whether it's...
John Dunn: Emerging Markets, whether it's value strategies, whether it's the small mid cap, right, because it has been very dominated.
John Dunn: in the last several years with the large cap with the mega seven etc. So those are the areas that we've seen more increased client interest, if you will.
Speaker Change: Got it. And then U.S. growth equities in Japan, so distributed in Japan have been a nice tailwind for you guys. Are you seeing any kind of early signals of non-U.S.
Speaker Change: Sorry, the last part of your question got muffled. Can you repeat the last part of your question, please? Yes, sir, I used to use Japanese for other non-US investors avoiding investing in US stocks.
Speaker Change: No, we have not seen that broad trend. My guess is going to be a reaction more country by country. Definitely we have not seen any. We have not seen any.
Speaker Change: Major impact in our core geographies like Japan, obviously we need to monitor what happens over time and maybe there could be some reaction to US exceptionalism, but so far looking at the activity.
Speaker Change: Since the Liberation Day, we have not picked up anything dominant. [inaudible]
Thank you.
Speaker Change: Hey, Bill, this is Tom. Let me just get back to you on that one thing while we don't look at the exit fee rate. I will say the 39.5 basis points that we experienced for Q1, that take down a little bit in the later half of the quarter. So if that helps you in any way there.
That concludes the conference call. You may now disconnect.