AllianceBernstein Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2023

There are 9 speakers on the call.

Operator

You for standing by, and welcome to the AllianceBernstein Second Quarter 2023 Earnings Review. At this time, all participants are in a listen only mode. After the remarks, there will be a question and answer session, and I will give you instructions on how to ask questions at that time. As a reminder, this conference is being recorded and will be available for replay 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 Investor Relations for AB, Mr.

Operator

Mark Griffin. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to our Q2 2023 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.alliancebernstein.com. With us today to discuss the company's results for the quarter are Seth Bernstein, our President and CEO and Bill Siemers, Interim CFO, Controller and Chief Accounting Officer. Carl Spruillz, Chief Operating Officer And Onur Erzahn, Head of Global Client Group and Private Wealth will join us for questions after our prepared remarks.

Speaker 1

Some of the information we'll present today is forward looking and subject Certain SEC rules and regulations regarding disclosure. So I'd like to point out the Safe Harbor language on Slide 2 of our presentation. You can also find our Safe Harbor language in the MD and A of our 10 Q, which we filed yesterday. Under Regulation FD, management may only address questions of material nature Now I'll turn it over to Seth.

Speaker 2

Good morning and thank you for joining us today. In the Q2, equity markets continued to rebound with the bulk of the gains in June, Led by a small number of large U. S. Technology companies. Government bond yields rose amidst generally higher rates and a significant drop in market volatility.

Speaker 2

We generated net inflows 2 of 3 months in the quarter, led by U. S. Retail and our global fixed income platform, Both growing at 9% annualized organically. Our municipal SMA platform continued to gain market share growing for the 11th of the last 12 quarters. Our institutional pipeline grew to $14,400,000,000 up 10% sequentially, reflecting several active equity wins And our private market AUM ended the quarter at $61,000,000,000 up 13% year over year apples to apples, Assuming Carvel had been owned last June 30 and up 5% sequentially.

Speaker 2

During the quarter, Equitable Holdings made its second $10,000,000,000 commitment to grow this platform in the coming years. Let's get into the specifics, Starting with a firm wide overview on Slide 4. Gross sales were $22,400,000,000 Down $1,500,000,000 or 6 percent from the year ago period. Firm wide active net outflows were $4,000,000,000 reflecting $6,000,000,000 of pre announced low fee redemptions early in the quarter. Net flows were positive in both May June.

Speaker 2

Quarter end assets under management of $692,000,000,000 increased by 7% year over year and were up 2% sequentially. And average assets under management of $678,000,000,000 was down 1% year over year and up 2% sequentially. Slide 5 shows our quarterly flow trend by channel. Firmwide second quarter net outflows were $4,000,000,000 or a positive $2,200,000,000 excluding pre announced low fee redemptions of $6,200,000,000 Retail gross sales of $15,500,000,000 declined 5% year over year and slightly sequentially. Net outflows were $700,000,000 despite Strong demand for taxable and municipal fixed income, up 9% 13% annualized organically, respectively.

Speaker 2

Our institutional channel had gross sales of $1,500,000,000 declining from prior quarters. Net outflows were $3,200,000,000 reflecting the pre announced low fee redemptions. In Private Wealth, gross Sales were resilient at $4,400,000,000 driven by money market funds and private alternatives. Net flows were flat in the seasonally slower quarter. Investment performance is shown on Slide 6.

Speaker 2

Starting with fixed income. Developed market government on yields rose in all major markets as most major central banks hiked interest rates given persistent core inflation. Global developed market treasury returns were essentially flat. AB's fixed income performance Showed meaningful improvement in the 1 year period, improving the 73% of assets outperforming as both American Income and Global High Yield Funds Outperformed. The 3 5 year periods remain strong at 76% 75%, respectively.

Speaker 2

Investors are showing greater comfort with duration as the Fed appears to near the end of its rate hiking cycle. American Income net inflows in the quarter were positive $1,500,000,000 or $4,000,000,000 year to date. We secured our 1st systematic U. S. Investment grade fixed income client with $100,000,000 win, A validation of the strategy we discussed last quarter, which marries our fixed income technology with our quantitative research.

Speaker 2

We are initiating a number of other active conversations where there's a preference for higher quality bonds. Now turning to equities. Global equities advanced in the 2nd quarter led by a narrow group of stocks seen as big winners from the artificial intelligence revolution. During the first half of twenty twenty three, just 10 U. S.

Speaker 2

Stocks accounted for 79% of the S and P 500's gain And 54% of MSCI All Country World Index is gained. Over this time, medium forward PE ratio of the 10 largest capitalization stocks in the S and P 500 surged by nearly 50% to 28.2x at the end of June, Compared to a median increase of just 7% for the rest of the market. While we own many of these companies, we're wary of the concentration risk The high benchmark weightings in Mega Cap Tech, a risk highlighted earlier this week when a major benchmark provider carried out a special rebalance of its technology index to reduce the weightings of its 7 largest constituents. Near term equity performance was challenged With just 23% of equity assets outperforming over the 1 year period, our 3 year performance improved to 48%, while 5 year declined 52% of assets outperforming. Importantly, we continue to outperform our peer group with 65% And 71% of our equity assets outperforming the Morningstar peer groups over the 3 5 year periods, respectively.

Speaker 2

At quarter end, 62% 65% of our equity assets under management in U. S. And Lux funds respectively We're in funds ranked 4 and 5 stars. Now I'll review our client channels, beginning with retail on Slide 7. Gross sales of $16,500,000,000 in our retail channel declined 4% from a year ago and were down 2% sequentially.

Speaker 2

The redemption rate was slightly higher at 27% versus 25% last quarter, resulting in net outflows of 700,000,000 We continue to see strong growth in U. S. Retail, which posted 9% annualized organic growth, Driven by taxable fixed income, equities and munis. Last quarter, we highlighted our belief that we're in the initial innings of a fixed income reallocation. Our Asia business continued to grow, bolstered by American Income, which grew sales at 5 times year over year, Driving taxable fixed income net inflows of $1,300,000,000 or 9% annualized organic growth.

Speaker 2

Muni sales inflows also continue to be robust with net inflows of $1,000,000,000 or 13% annualized organic growth, Positive for 11 of the last 12 quarters. Active equity sales were 8,000,000,000 The highest level in 4 quarters, reflecting strong momentum in U. S. Retail from our key strategies. Increased global redemptions resulted in net equity outflows.

Speaker 2

As shown on the bottom right, we ranked in the top 2% Cross border flows for fixed income, substantiated by Broadridge, which ranked AB 1st in Asia for year to date fixed income sales and net inflows. We're experiencing a strong start for our ETF launches for which assets under management reached $800,000,000 Having raised approximately $500,000,000 year to date, balance between retail and private wealth channels with sales from well over 100 distributors. Turning to Institutional on Slide 8. 2nd quarter gross sales were $1,500,000,000 down from both comparable prior periods. Net outflows were $3,200,000,000 reflecting previously announced low fee redemptions between our custom target date and fixed income businesses, driven by rebalancing.

Speaker 2

Our pipeline grew to $14,400,000,000 atquarterend, up 10% sequentially. Additions included a $1,300,000,000 U. S. Large cap growth mandate, which funded earlier in July and for which annualized fees exceed those of the pre announced redemptions. We saw over $300,000,000 of CarVal additions And a number of additional active equity wins.

Speaker 2

We're pleased that at the imminent close of its latest Clean Energy Fund, AB Carballo have raised approximately $1,500,000,000 which is triple the size of its first clean energy fund. Notably, Equitable announced at its May Investor Day a second $10,000,000,000 multiyear commitment to AV's private markets platform. The initial $10,000,000,000 program announced in mid-twenty 21 is now 75% deployed. Moving to Private Wealth on Slide 9. 2nd quarter gross sales were resilient at $4,400,000,000 up 35% year over year, While down 23% from a seasonally strong Q1.

Speaker 2

We continue to experience strong sales in money market funds and private alts. While second quarter net flows were essentially flat, on a year to date basis, they've grown at a 3.4% annualized organically, Double the rate of the prior year period. Our AUM growth from business sales well outpaced the industry Staying growth in the ultra high net worth $20,000,000 in over category. Year to date alternative raises of $1,300,000,000 were well diversified across strategies, including secondaries, private credit, real estate, equity and clean energy. And our proprietary direct indexing strategy grew to $3,000,000,000 posting strong annualized organic growth of 35%.

Speaker 2

I'll finish our business overview with the sell side on Slide 10. 2nd quarter Bernstein Research revenues of $92,000,000 decreased by 14% year over year and 8% sequentially. Industry wide global institutional equity trading volumes remain constrained with investors reluctant to turn over portfolios in the face Continuing market and economic uncertainty. Research checks were up at Autonomous for the quarter. We launched coverage on 4 global sectors this past quarter, 3 in the EU and 1 in Japan.

Speaker 2

Our 39th Annual Strategic Decisions Conference was a resounding success with over 1200 clients and nearly 150 companies attending. Our joint venture with Societe Generale announced last November is proceeding. The timeframe for closing has been extended Into the first half of twenty twenty four, and we remain highly confident that we will obtain necessary regulatory approvals. The economics are essentially unchanged and we anticipate disclosing further financial details closer to that time. I'll conclude by reviewing the status of our strategic initiatives on Slide 11.

Speaker 2

Performance in fixed income improved, while equities near term performance lagged versus capitalization weighted benchmarks. The Q2 was led by 9% annualized organic growth in fixed income, and we gained market share across retail taxable and municipal categories, including muni SMA. We had several active equity wins, Which grew the institutional pipeline. In private markets, we progressed toward the imminent close of AB CarVal's latest Clean Energy Fund At $1,500,000,000 3 times its predecessor fund. We were pleased to participate in Equitable's May Investor Day, At which Equitable announced its second $10,000,000,000 permanent capital commitment to growth of our private markets platform.

Speaker 2

Additionally, we outlined at that meeting that at current market levels, we have visibility to 350 basis points to 500 basis points of margin expansion Through the 2027 horizon period. This reflects the margin benefit of the Bernstein Research deconsolidation About 200 basis points to 250 basis points, the completion of the Nashville relocation about 100 basis points to 150 basis points in addition to savings already realized and the growth of private markets and other investments about 50 to 100 basis points. 2nd quarter financial comparisons reflected lower assets under management versus the prior year period. Adjusted operating income declined by 3%, Adjusted operating margin was 27% and adjusted earnings and unitholder distributions were $0.61 per unit, down 14% versus the prior year. Now, I'll turn the call over to Bill Seamers to discuss the financials.

Speaker 2

Bill? Thanks, Seth. Let's start with

Speaker 3

the GAAP income statement on Slide 13. 2nd quarter GAAP net revenues of 1,000,000,000 Increased 4% from the prior year period. Operating income of $189,000,000 decreased 2% And operating margin of 18.4 percent decreased by 4 20 basis points. GAAP EPU of $0.53 in the quarter decreased by 23% year over year. I'll focus my remarks from here on our adjusted results, which remove the effect of certain items that are not considered part of our core operating business.

Speaker 3

Our adjusted results now reflect interest expense below the operating income line, Whereas previously interest expense was above the operating income line. This was done to improve the comparability of our adjusted operating margins with our peer group. We base our distribution to unitholders on our adjusted results, which we provide in addition to and not as a substitute for our GAAP results. Our standard GAAP reporting and reconciliation of GAAP to adjusted results are in our presentation appendix, press release and 10 Q. Our adjusted financial highlights are shown on Slide 14, which I'll touch on as we talk through the P and L shown on Slide 15.

Speaker 3

On Slide 15, beginning with revenues. Net revenues of $823,000,000 increased 1% versus the prior year period And we're down 1% sequentially. Base fees were flat versus the prior year period as 2% lower average AUM was offset by a higher fee rate. The 2nd quarter fee rate of 40.0 basis points increased 2% year over year, driven primarily by the addition of Higher fee rate carve out base fees. Sequentially, the fee rate was down less than 1%, as we experienced Unfavorable mix shift in a risk off environment with net inflows in lower fee rate fixed income AUM including money markets.

Speaker 3

Looking forward, we expect the fee rate to improve sequentially based on asset mix, reflecting improved markets. 2nd quarter performance fees of $15,000,000 declined by $3,000,000 from the prior year period due to lower real estate equity and strategic equity fees, partially offset by higher fees on private credit services. Given current market conditions, we continue to see full year 2023 performance fees roughly in line with the prior year level. 2nd quarter revenues for Bernstein Research Services decreased 14% from the prior year period, Driven by a decline in customer trading activity in the U. S, Europe and Asia, as investors remain cautious given the macroeconomic backdrop.

Speaker 3

This quarter, we are breaking out dividend and interest revenue, which at $46,000,000 increased by $34,000,000 year over year, reflecting the higher interest rate environment and higher average balances. Netting against this is broker dealer related interest expense associated with our private wealth brokerage clients. Interest expense of $26,000,000 increased by $17,000,000 year over year due to higher interest rates And was down $2,000,000 sequentially. Moving to adjusted expenses, all in our total Total comp and benefit expense increased by 4% from the prior year period, reflecting a higher compensation ratio of 49.5 percent of adjusted net revenues as compared with 48.0 percent in the prior year period and a 1% increase in revenues. Regarding headcount, excluding the 284 previously outsourced India staff whom we onboarded in the Q1 And the CarVal acquisition, headcount declined year over year, reflecting the previously announced 4% reduction in February 2023.

Speaker 3

Taking a step back, global equity markets continue to rally throughout the Q2, which is encouraging. That said, there is a lag effect as average AUM and revenues catch up, particularly when comparing on a year over year basis. As well, we continue to manage the business with a balanced perspective, recognizing uncertainty remains in the current environment. We continue to believe that our full year 2023 compensation to revenue ratio will be towards the higher end of the historical 47 percent range. We plan to accrue at a 49.5% compensation ratio in the 3rd quarter.

Speaker 3

And as we typically do, We'll true up the full year ratio in the Q4 as full year revenues crystallize. We plan to pay competitively based on performance, giving our people are the most important asset. Promotion and servicing costs decreased by 10% from the prior year period due to lower trade execution, marketing, advertising and transfer fees. Promotion and servicing costs increased 11% sequentially, driven by higher T and E, Seasonal firm meetings, including the Bernstein Strategic Decisions Conference in early June. For the full year, we continue to target promotion and servicing spend to be up lower single digits.

Speaker 3

G and A expenses increased 3% in the Q2 versus the prior year period Due to higher office related expenses and professional fees, which were partially offset by a favorable foreign exchange impact. Sequentially, G and A expenses increased 5% due to an unfavorable foreign exchange impact. Higher portfolio services related expenses, Office related expenses, technology related expenses and professional fees. For the full year, we continue to target G and A growth below inflation levels, up low single digits. 2nd quarter adjusted operating income of 222,000,000 Decreased by 3% versus the prior year period and was down 7% sequentially.

Speaker 3

2nd quarter operating margin of 27.0% Was down 100 basis points year on year. As shown in footnote 2 on this slide, interest expense, Which is now below the adjusted operating margin line, increased by $12,000,000 from the prior year period, reflecting higher interest rates and higher average debt balance, And increased $1,000,000 sequentially, reflecting higher interest rates. As outlined in the appendix of our presentation, 2nd quarter Earnings exclude certain items which are not part of our core business operations. In the 2nd quarter, adjusted operating earnings were $33,000,000 above GAAP operating earnings due to acquisition related expenses, including carve out intangible amortization and due to interest expense. Non GAAP EPU was $0.08 above GAAP EPU, primarily reflecting acquisition related expenses.

Speaker 3

The 2nd quarter effective tax rate for ABLP was 5.3%. Our guidance for effective tax rate in 2023 remains approximately 5.5% to 6%. We continue to expect Nashville relocation will be accretive for the full year 2023, With compensation related savings more than offsetting increased occupancy costs. With that update, we are pleased to answer your questions. Operator?

Operator

Our first question comes from the line of Daniel Fannon with Jefferies. Please go ahead.

Speaker 4

Thanks. Good morning. I wanted to follow-up on The longer term margin outlook as you highlighted at the Investor Day, and maybe if you could bifurcate the segments that And as I think about the timeframe, given the quarter push out of Bernstein as well as I believe most of the Nashville savings should be done by next year, Shouldn't we really see this kind of transition closer to 2024 and 2025 as we just think about the natural evolution of those things flowing through your income statement?

Speaker 5

Hey, Dan, it's Bill. Yes, just to there's definitely a timing difference there and that's what when we said that in the Investor Day, These are end targets by 2027. But yes, the Bernstein Pickup of 200 basis points to 2.50 basis points. Now that's not going to be fully realized next year. So there will only be a piece of that next year according to when we close.

Speaker 5

But then going forward in 2025 and beyond, that would take effect. As to the relocation of 100 to 150 basis points, most of the Nashville is done. We're still fitting that out, but Primarily the big pickup there is all predicated on the New York move when we get out of 1345 and go to Hudson Yards. And so that's going to happen in the Q4 of 2024. So again, same thing.

Speaker 5

It's going to be 2025 forward. And then the private Altson growth investments, I mean, should start slowly taking effect As soon as we can, this year into next year and all that, but we can't really say when exactly that's going to be fully realized.

Speaker 4

Understood. Okay, that's helpful. And then following up on your comments on the fee rate outlook, I think you said near term some improvement and clearly beta is going to help with the flow through of end of period versus average. But As you look at the backlog, you look at kind of investor trends with fixed income potentially being a bigger source of flows with higher rates, Even as your kind of private markets business picks up, do you is there as those trends change and investor dynamics shift, do you still see Kind of a longer term fee rate backdrop being constructive if we see more of that fixed income demand pickup?

Speaker 5

I mean, currently, we're seeing we think we'll modestly improve throughout the year. I mean, that's based on the pipeline Split between higher fee, active equities and alternatives. Right now, the pipeline is at 59 bps, which is about 3 times higher than The normal fee rate in the institutional channel? I mean, but at the same time, you have to worry about It's all on timing of the fundings. There could be a funding in there of low fee custom target date mandate, which definitely has lower fees.

Speaker 5

I mean, so there is risk in there that it's not all perfect of active equities and alternatives. Anybody want to add anything further to that?

Speaker 6

Yes. Thanks, Bill. It's Onur. I'll add 2 minor points. Number 1, in fixed income, obviously, we have a Strong Asia taxable fixed income franchise and retail that tends to be pretty high fees in the About 50 basis points level for American Income and definitely even higher for global high yields.

Speaker 6

Within fixed income, We participate in high fee categories, particularly in Asia. So that should be factored in, number 1. Number 2, As you might have followed, our U. S. Retail continues to grow at a very high organic rate.

Speaker 6

So even though we might be adding at times lower fee assets like muni SMAs, On an overall basis, it lifts the overall revenue. So we are very pleased with the net revenue additions in U. S. Retail, which comes through Very high organic growth rate. So that's the other overlay I would add.

Speaker 3

Great. Thank you.

Operator

Your next question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead. Alex, your line may be on mute. Your next question will come from the line of Craig Siegenthaler with Bank of America. Please go ahead.

Speaker 7

Good morning, Seth. Hope you and the team are doing well.

Speaker 3

Thank you.

Speaker 2

Craig?

Speaker 7

I got a bond question for you. The Fed is still raising rates And this looks like it's partially delaying the recovery in bond flows, although yours have been improving. So if the Fed needs to keep raising rates, How do you then think about the bond reallocation trend in the second half? And any commentary across channel Or product including tax loss, munis and vehicle will be helpful too?

Speaker 2

Okay. Thank you, Craig for the question. In my view, we're much closer to the end than to the beginning, of course, stating the obvious in the Fed's cycle. And as Wednesday's comments from Chair Powell, I think indicated, and so I do think People are increasingly confident. We're seeing interest not just from Asian investors, Asian retail investors To begin to reallocate back and it's been pretty consistent for us for a while now.

Speaker 2

But we're also seeing Interestingly, public institutional demand as well. And we're seeing it Even in the insurance space where we see opportunities for them to extend duration and credit. But that being said, Craig, to your point, if we should have a nasty surprise with subsequent inflation readings and the Fed needs to continue raising, That will put off that bonds are back by 1 or more quarters. But actually just given the trends in the economic reporting That we've seen of late, it seems less likely that that's the risk we're facing. I guess one final point I'd raise, and I may turn it over to Onur to add, If you had some comments, we continue to see muni interest by U.

Speaker 2

S. Retail much strong not as strong as it was in the Q1, but continues Positive and strong for us and performance is quite good there. And remember, we really haven't seen as an industry strong mini Demand for a long time. And I do think that continues because the thirst for income is really unquenchable.

Speaker 6

Yes. Thanks, Seth. It's Onur again. I will just add, obviously, market share gains matter. As Seth pointed out, We continue to gain market share in segments of fixed income, parts security tax exempt in U.

Speaker 6

S. Retail And our expansion of vehicles should only help that both on the different flavors of SMAs, particularly the customized SMAs and Text exempt that has strong distribution followership as well as the growing range of ETFs, which are off to a very good start, as Seth mentioned in his remarks, so for instance, in fixed income, we expect to end The year with a larger number of fixed income ETFs, even greater than the 3 fixed income ETFs we have today. So that will help With the vehicle expansion as well.

Speaker 7

Thanks Yonar. For my follow-up, I just want to go a little deeper on the muni side, because you are gaining lots of Share there and industry flows are still a little negative, but you're putting up really impressive organic growth. So what factors are really driving that delta? And how sustainable do you think these share gains are into 2024?

Speaker 6

Absolutely. So we believe we have structural strengths and advantages. This is Supported by a number of factors. Number 1, we invested significantly in our fixed income technology, all the way from Trading on to the back end portfolio construction. So as a result, we believe we have a differentiated set of technologies that makes our SMA platform very competitive.

Speaker 6

On back of those technical capabilities and Frank, that's recognized by the market. We have been expanding our distribution relationships, not only in our traditional partners in the national wires as well as regional broker dealers, but there's definitely growing uptick from RIAs, which is definitely a high growth channel for us. And as I mentioned, adding more vehicles like ETFs will only So that opening new doors in channels like RIA. So feeling quite good about our Structural strengths and expanding capabilities to continue to drive market share. Again, it's hard to be very precise in terms of A quarter of 2, I'm very bullish on the long term prospects.

Speaker 6

I don't have any reasons to believe the next two quarters will be weaker, But hard to be very precise on the exact quarter dynamics.

Speaker 2

I think I would also add, Greg, that may be turning weakness into a strength. While our investment performance in munis is superb, nearly all of it is for a 5 star rated. The fact is we were quite under penetrated In the muni mutual fund space and it's there where you're seeing structurally much less interest with the advent of ETFs. And I think frankly more importantly, as wealthier people tend to be the buyers, the ad vendor growth, Widespread growth of separately managed accounts, which we manage in a predominantly automated fashion. And I think it's really provided a competitive edge for us.

Speaker 7

Thank you,

Operator

Our next question will come from the line of John Dunn with Evercore ISI. Please go

Speaker 7

ahead. Thanks. Good morning. You talked about in the retail channel, U. S.

Speaker 7

Equities Doing well. Can you kind of frame maybe if there's any difference between overseas redemptions? And is that going to continue going forward or was that kind of one time?

Speaker 6

I can take on that. Hi, Onur again. In terms of the retail equity strength, It goes back to some of the investments we are making across different vehicles. I touched on already SMAs and ETFs, but another structural strength category for us has been CITs, where we increasingly deploy Commingled investment trust kind of structures with our retail partners, which is a very persistent business with typically low Redemption rates, given the high duration of defined contribution assets in retail, so that is definitely contributing to some of the momentum in retail. Overseas, again, very broad.

Speaker 6

It's hard to generalize. I think The one geography that lost a little bit of momentum, particularly in the Q1 was Japan. We picked up more Sales momentum in the Q2, so like it will depend on a lot of different factors, what happens with the currency, obviously it matters, As well as some of the broader equity market outlook. But definitely structural strength in U. S.

Speaker 6

Retail with the vehicles. If you look at the institutional pipeline as we talked about, institutional pipeline has a healthy equity composition. And then pre pipeline, We're definitely having a lot of good dialogue on the institutional side with a wide range of equity strategies as well. So that's I think How I would summarize the outlook.

Speaker 7

Got you. And then just thinking about the second half for private wealth, you talked about muni. Can you kind of frame what other products you think are going to potentially drive positive growth in the back half of the year?

Speaker 6

Sure. We had a very good first half in terms of alternatives in our private wealth channel. As you know, we have been using alternatives, Particularly, private credit, private equity secondaries, real estate in our client portfolios for a long time. So we will have new strategies that we launched in our private wealth channel. For instance, our New interval fund that we will launch out of the CarVal platform will be available in the second quarter.

Speaker 6

So that will be one example, and we'll continue to see flows into our evergreen vehicles as well, whether it's our Real Estate REIT product or the private credit BDC, those are few examples. We saw Continued interest in our direct indexing platform, we call it PAT. We exceeded $3,000,000,000 in assets in that platform in private wealth. So that is a good tax management capability given the increase in the equity markets. That will continue to be a handy and useful strategy.

Speaker 6

So I'm bullish about that in the second half of the year. And then we're continuously adding our ETFs into our platform, and definitely that will be another Kind of extension of the platform. So all in all, starting with July, we see good Interest from our clients, the big obviously unknown is how fast we can convert some of the money market and fund assets To higher yielding strategies, we have taken action on the money market pricing as well. So that's good news. But obviously, Whatever you do outside money market funds is even higher yielding from a revenue perspective.

Speaker 6

So that's the other backdrop here.

Speaker 7

Thanks very much. Appreciate it.

Operator

Your next question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Speaker 8

Hey, guys. Good morning. Sorry for phone issues earlier. The institutional pipeline continues to build pretty strongly and obviously the fee rate has Very robust as we've seen for the last couple of quarters. With the market getting a little bit on stronger footing and kind of the rally broadening out a little bit, How are you thinking about the timing of institutions funding this pipeline?

Speaker 8

Should we expect that to accelerate a little bit over the next 12 months? And maybe some color in terms of which strategies are likely to hit first would be helpful. Thanks.

Speaker 2

Why don't I start, but Onur I think is probably better positioned to give specific color on it. It was up the pipeline was up about 1,300,000,000 In the quarter and we funded about $1,200,000,000 Alex, which I think is important because We continue to see realizations there, which have been helpful. And it very much is comprised, Well, it's across the firm, but really all to predominate with certainly with respect to the fee rate, if not The actual AUM involved in it, we continue to see fundings moving forward. While it had slowed earlier in the year, we're beginning to see people funding on a pretty consistent basis. CarVal is just or is about to complete its clean energy fund.

Speaker 2

It's imminent. It's I think it's tripled the size of their original Fund, this is their second and we're launching their flagship fund, Credit Fund 6 Now and that's about a year. So those will be coming on slowly as they find opportunities to invest that money. But perhaps, Hunter, you Give some additional color.

Speaker 6

No, absolutely. Number 1, again, to be factual, in July, We found that that one large kind of mandate that we had talked about. So definitely that was deployed very quickly over a $1,000,000,000 Mandating equities, so that is a good sign to your point, Alex. In terms of the broader pipeline, I mean, in general, I think it's going to move ahead with like normal speed, I would say. I don't see anything that is Particularly accelerated or slowing down.

Speaker 6

A good chunk of the pipeline is also alternatives with equitable. Again, that's moving ahead with the commitments we have, which also Equitable made public in their Investor Day as you are well aware. So all in all, I think we are making good progress with the pipeline. So there are no speed bumps that I can see. And July, I think, had Couple of good data points that suggest that institutional investors are moving ahead with their equity commitments and funding them.

Speaker 8

Great. Thank you. And then for the follow-up, you mentioned Equitable XL is going to go there next. So, super encouraging, obviously, to get that $10,000,000,000 commitment from them for So the next tranche of the partnership, can you spend a couple of minutes on maybe how they're thinking about allocating the $10,000,000,000 and also about what timeframe you're realistically I think that could be deployed through the AllianceBernstein franchise. Thanks.

Speaker 2

Yes. To be specific and My team will correct me if I'm wrong, but I think the Equitable and its Investor Day cited through 2027, I believe, it was their timeframe and that is predicated on them growing their general account as well. We have been in active conversations about new structured credit strategies, for example, and new areas of investment That pickup are both CarVal as well as our middle Lending Group and others, they continue to be quite supportive in our commercial real estate debt area where we see Obviously, a much more interesting buyers market to play in. And so They will be very methodical and they will roll out progressively over the next several years. So it's hard for me to gauge Because it's not only the timing of getting it through their approval process and setting up the structure, but it's also the teams finding opportunities To deploy it.

Speaker 2

And finally, of course, there's a private placement debt element of that, which is investment grade principally, which has always been a part of our mix And we'll continue to be part of what Equitable is interesting in doing given their very strong quality orientation for the GA.

Speaker 8

Got it. Thanks so much.

Operator

And there are no further questions at this time. Mr. Griffin, I turn the call back over to you.

Speaker 1

Perfect. Thank you everyone for joining us today. We appreciate your time. If you have any additional questions, please reach out to Investor Relations and have a great day.

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Earnings Conference Call
AllianceBernstein Q2 2023
00:00 / 00:00