ALLIANCEBERNSTEIN HOLDING L.P. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a transformative year for AllianceBernstein, with execution on key initiatives enhancing financial profile and expanding investment in distribution capabilities. The firm has a differentiated distribution platform including proprietary and private wealth business.
• Closed the Bernstein joint venture with SocGen and relocated New York City office, with the relocation contributing approximately $50 million in annual occupancy-related savings. The JV monetized value in the business and eliminated a margin drag.
• 2024 saw active platform deliver over $4 billion of net inflows. Active fixed income platform grew at a 9% annual organic growth rate with over $24 billion in inflows, highest on record. Active equity outflows persisted but some strategies like U.S. large cap growth had inflows.
• Firm-wide fee rate holding steady, with symmetrical growth between management fees and assets under management. Expanded investment capabilities and distribution coverage through team lift out, vehicle versatility, and private markets platform expansion with Equitable.
• Investment performance: Fixed income had negative returns in Q4 due to rate movements, but credit remained of interest. Equities saw S&P 500 growth in Q4, but performance of equity strategies challenged with concentration in U.S. markets.

Segment Performance

• Retail Channel: Extended organic growth to six consecutive quarters, with 5% annual organic growth in 2024. Channel annual sales reached record 2021 levels, and annual flows were the highest in three years. Fourth quarter activity was led by $5 billion in tax exempt inflows. 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. Organic base fee growth exceeded 3% in 2024.
• Institutional: Redemptions accelerated in the final quarter of 2024 with active equities driving channel outflows. Fixed income's positive momentum reverted in response to higher interest rates. For the full-year, institutional demand was constructive for taxable fixed income, growing 3% annually. Net deployments into alternatives exceeded $2 billion with modest multi-asset outflows. The pipeline fee rate ticked higher to 45 basis points.
• Private Wealth: Ended the year on a strong foothold, growing at 1% annualized rate in the fourth quarter. 2024 marks the fourth consecutive year of organic growth. The channel's revenue surged during the fourth quarter. Wealth management raised over $2.5 billion across proprietary and third-party private alternative strategies in 2024 and deployed approximately $1.3 billion in net equity curtailments.
• Private Markets: Private markets AUM stood at $70 billion as of year-end 2024, up 14% in 2024. Progress toward the goal of reaching $90 billion to $100 billion of private markets AUM by 2027 is being made, with these products expected to generate more than 20% of asset management revenues by then.

Guidance

• 2025 estimated adjusted operating margin is 33%, which is above the midpoint of the 2027 estimated margin range target of 30% to 35%, two years ahead of schedule.
• ABLP's effective tax rate guidance for 2025 is 6% to 7%, reflecting a more normalized taxable mix of earnings.
• 2025 non-compensation expense is expected to fall within the range of $600 million to $625 million, with promotion and servicing making up 20% to 25% and G&A accounting for 70% to 75%.
• Full-year performance fees guidance for 2025 is $70 million to $75 million driven by private markets capabilities.

Risks

• Market volatility can impact financial performance, including investment returns and client flows.
• Fee rate is mix dependent, with factors like alternatives distributions, fixed income rate volatility, equity market concentration affecting the fee rate.
• Institutional active equity redemptions, especially in higher-fee non-U.S. services, pose a risk.
• Fixed income market volatility can lead to outflows and AUM contraction in certain strategies.

Question and Answer

Q: Craig Siegenthaler asked about the company's corporate structure and bond reallocation.

A: Jackie Marks and Seth Bernstein discussed the tax hurdle, index inclusion impact, and continued interest in fixed income with favorable after-tax benefits. Onur Erzan added on fixed income demand and business hedging.

Q: Alexander Blostein inquired about organic base fee growth and corporate structure impact on shareholder value.

A: Onur Erzan talked about business mix dependence, institutional pipeline fee rate, and diverse business mix resilience. Seth Bernstein discussed capital allocation with the partnership structure requiring distribution of earnings.

Q: William Katz asked about net volumes, runoff risk in institutional equity book.

A: Onur Erzan mentioned positive start to the year, strong U.S. retail, fixed income traction, Japan and Southern Europe business strength, and improved institutional equity outflow outlook.

Q: John Dunn asked about active ETFs scale and investor profile, and U.S. growth equity demand outside Japan.

A: Onur Erzan spoke about 17 active ETFs with scale, investor profile including RIA channel, and growth in U.K., Italy, and Spain for U.S. growth equity strategy.

Q: Daniel Fannon inquired about private wealth growth.

A: Onur Erzan discussed private wealth growth through accelerating recruiting, experience advisor program, M&A in lower size RIA market, and marketing efforts with new Chief Marketing Officer.

Q: Benjamin Budish asked about institutional pipeline and redemption rate.

A: Onur Erzan talked about institutional pipeline being one lens, better redemption outlook, uptick in insurance-related wins, and strategic opportunities in insurance for institutional business