AllianceBernstein Q4 2024 Earnings Report

AllianceBernstein EPS Results

• Actual EPS: $1.05
• Consensus EPS: $0.87
• Beat/Miss: Beat by +$0.18
• One Year Ago EPS: N/A

AllianceBernstein Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $895.69 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

AllianceBernstein Announcement Details

• Quarter: Q4 2024
• Date: 2/6/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 11:00AM ET

AllianceBernstein (NYSE:AB) is a publicly owned investment manager. The firm is a related adviser The firm manages separate client focused portfolios for its clients. The firm primarily invests in common and preferred stocks, warrants and convertible securities, government and corporate fxed-income securities, commodities, currencies, real estate-related assets and infation-protected securities. The firm employs quantitative analysis along with long-term purchases, short-term purchases, trading, short sales, margin transactions, option strategies including writing covered options, uncovered options and spread strategies to make its investments. The firm obtains external research to complement its in-house research. The firm was formerly known as Alliance Capital Management Holding LP. AllianceBernstein Holding L.P. was founded in 1967 and is based in Nashville,Tennessee.

AllianceBernstein Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by and welcome to the AllianceBernstein fourth quarter twenty twenty four 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 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, Vice President of Investor Relations for AD, Mr.

[Operator]

Yanis Jurgali. Please go ahead.

[Ioanis Jorgali, Vice President of Investor Relations at AllianceBernstein]

Good morning, everyone, and welcome to our fourth quarter twenty twenty four 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, President and CEO and Jacky Marks, CFO. Onur Erzane, Head of Global Client Group and Private Wealth will join us for questions after our prepared remarks. Some of the information we'll present today is forward looking and subject to certain SEC rules and regulations regarding disclosure.

[Ioanis Jorgali, Vice President of Investor Relations at AllianceBernstein]

So I would like to point out the safe harbor language on Slide two of our presentation. You can also find our safe harbor language in the MD and A of our 10 ks, which we will file on February 14. 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 a reconciliation of GAAP to adjusted results are in our presentation appendix, press release and our 10 K. Under Regulation FD, management may only address questions of material nature from the investment community in a public forum.

[Ioanis Jorgali, Vice President of Investor Relations at AllianceBernstein]

So please ask all such questions during this call. Now, I'll turn it over to Seth.

[Seth Bernstein, President and CEO at AllianceBernstein]

Good morning, and thank you for joining us today. 2024 was a transformative year for AllianceBernstein. We executed successfully on key initiatives that enhance our financial profile, while also expanding our investment in distribution capabilities. AD's unique value proposition is highlighted on Slide three. We have a differentiated distribution platform, which includes our proprietary plus private wealth business.

[Seth Bernstein, President and CEO at AllianceBernstein]

Our platform gives us an edge in growing markets like Asia, U. S. High net worth and global insurance. In 2024, we captured market share across all three of these segments. We can also deliver our clients' distinctive investment capabilities across traditional and alternative asset classes.

[Seth Bernstein, President and CEO at AllianceBernstein]

Our versatile skill set allows us to capitalize on asset reallocation trends as we've seen in fixed income. This also includes our growing private markets platform, which is supported by our strategic relationship with Equitable. I will briefly cover our progress towards our 2027 targets later in my presentation. In addition, as Jackie will discuss in further detail, we have a clear line of sight for further margin improvement, which will reflect on our results as we move into 2025, assuming markets do not deteriorate. Finally, AB has a tax efficient partnership structure that prioritizes capital returns to shareholders, ensuring a disciplined approach to growth investments.

[Seth Bernstein, President and CEO at AllianceBernstein]

Moving to Slide four, I'll review our business highlights from the quarter and the year. First, we closed the Bernstein joint venture with SocGen and we relocated our New York City office. The JV allowed us to monetize the value in the business and eliminate a margin drag for AB while putting Bernstein Research in the hands of a leading industry player with a vision to grow it. Our New York City relocation will contribute approximately $50,000,000 in annual occupancy related savings that we intend to flow through the bottom line. Those initiatives enhance our margin profile, lower the capital intensity of our business and enable us to focus on our core investment and wealth management capabilities.

[Seth Bernstein, President and CEO at AllianceBernstein]

Second, our active platform delivered over $4,000,000,000 of net inflows in 2024 and two of our three channels, retail and private wealth, grew organically. Despite resurgent rates volatility in the fourth quarter, our active fixed income platform grew at a 9% annual organic growth rate, exceeding $24,000,000,000 in inflows in 2024, our highest year on record. Inflows exceeded $13,000,000,000 for tax exempt and approached $11,000,000,000 for taxable, growing 225% respectively. Taxable flows moderated in the fourth quarter, particularly for our barbell American Income strategy as the portfolio's intermediate duration exposure was impacted by higher rates. Active equity outflows persisted, totaling $7,000,000,000 in the fourth quarter and $24,000,000,000 throughout the year.

[Seth Bernstein, President and CEO at AllianceBernstein]

Redemptions remain concentrated within institutions. Fourth quarter outflows were driven by European and emerging market strategies, while global core and concentrated led full year equity redemptions. Partially offsetting the negative trends, our U. S. Large cap growth strategy continues to resonate with clients across the globe, netting over $3,000,000,000 in inflows in 2024.

[Seth Bernstein, President and CEO at AllianceBernstein]

Third, our firm wide fee rate is holding steady. This relative stability results in symmetrical growth between our management fees and our assets under management. Fourth, we continue to expand our investment capabilities and distribution coverage via team lift outs and vehicle versatility. Our European growth strategy now manages over $700,000,000 since launching approximately one year ago. We also launched five new active ETFs and converted two, wrapping up the year with 17 strategies and $5,500,000,000 in assets under management, 70% of which was net new assets.

[Seth Bernstein, President and CEO at AllianceBernstein]

Finally, we continue to expand our private markets platform through deepening existing partnerships and forging new ones. Our private markets AUM stands at $70,000,000,000 as of year end, up 14% in 2024. We have now deployed approximately 20% of Equitable's second ten billion dollars commitment and we continue to leverage our expertise and capabilities, tailoring them to insurance oriented solutions. We're pleased with the momentum of our newly formed insurance vertical led by Jeff Cornell. ADI's investment in Ruby Rhee and our partnership of RGA represents significant milestones in the firm's strategy to become a leader in insurance asset management.

[Seth Bernstein, President and CEO at AllianceBernstein]

Slide five reflects the summary page with our key financial metrics. Jackie will follow-up with more commentary on our results. Turning to Slide six, I'll review our investment performance starting with fixed income. Long term interest rates backed up considerably during the fourth quarter, driven by higher growth, persistent inflation and fewer rate cut expectations. The Bloomberg U.

[Seth Bernstein, President and CEO at AllianceBernstein]

S. Aggregate Index returned negative 3% in the fourth quarter with intermediate and long duration selling off in response to fluctuating inflation rates and uncertainty over the Fed's future actions. Within credit, returns were driven by lower quality debt with U. S. Dollar hedge Bloomberg global high yield returning 1.1% in the fourth quarter.

[Seth Bernstein, President and CEO at AllianceBernstein]

Our one year performance softened during the fourth quarter, both in relative and absolute terms given our yield curve position and are underway to the lowest rated issuers. 57% of our assets under management is outperforming over the past year, while 6157% of our AUM outperformed over the three and five year periods. Although rates volatility continues to affect sentiment and appetite for duration, we remain constructive as the steeper curve means extended duration is finally out yielding cash. Credit remains an area of strong interest off the back of a solid 2024. Despite narrow spreads, yields remain high and fundamentals are supportive.

[Seth Bernstein, President and CEO at AllianceBernstein]

As the market re prices future expectations, it creates opportunities for new investors. We remain optimistic on the outlook for fixed income demand into 2025 and we have the right strategies to compete for the next wave of the reallocation. Our marquee income strategies including American Income, Global High Yield and our fast growing mortgage income product, our growing active fixed income ETFs and our industry leading municipal platform. Turning to equities, in The U. S, the S and P 500 returned 2.4% during the fourth quarter with growth outperforming value by 900 basis points.

[Seth Bernstein, President and CEO at AllianceBernstein]

Small caps ended flat as momentum waned in December. Global equities lagged The U. S. In the fourth quarter. Performance for equity strategies remain challenged with 40% of our AUM outperforming over the one year, while 35% outperformed over three years and 65% over the five year period.

[Seth Bernstein, President and CEO at AllianceBernstein]

Although we are encouraged by recent sides of improving market breadth, the headwinds from highly concentrated equity gains continue to impact some of our largest services. While performance has softened on account of this concentration, our client conversations around being underweight the MAG7 are healthy and our investment philosophy still resonates with those who seek an active approach to investing. More than 20 strategies of funds across value, equity income, China, strategic core and select U. S. Outperform their respective benchmarks or composites over the one, three and five year periods.

[Seth Bernstein, President and CEO at AllianceBernstein]

Finally, I would highlight that our active strategies have had a robust start to the year. Diversification and equity allocations has become increasingly crucial and an active approach that emphasizes company fundamentals can offer the necessary diversification. Moving on to Slide seven to cover our retail highlights. Our retail channel extended its organic growth streak to six consecutive quarters, rounding out our second straight year of positive channel flows and growing five percent annually in 2024. Channel annual sales reached record 2021 levels, while annual flows were the highest in three years.

[Seth Bernstein, President and CEO at AllianceBernstein]

Fourth quarter activity was led by $5,000,000,000 in tax exempt inflows. As much as the channel's total munis gains for the entirety of 2023. This was the highest ever quarterly gain for Retail Munis, making twelve consecutive years of organic growth. Flows were negative for all other asset classes during the fourth quarter, reflecting seasonality trends and elevated rates volatility. For the year, retail demand was driven by $19,000,000,000 in active fixed income with tax loan tax exempt growing at 1234% respectively.

[Seth Bernstein, President and CEO at AllianceBernstein]

Equity outflows during 2024 were largely concentrated within passive, while active also saw a 1% attrition rate. Versus the prior year, base management fees grew 24% during the fourth quarter and 17% during the full year 2024, reflective of market growth, net channel inflows and base fee growth. Organic base fee growth exceeded 3% in 2024 and was slightly negative in the fourth quarter. Moving to Slide eight. Institutional redemptions accelerated in the final quarter of the year with active equities continuing to drive channel outflows.

[Seth Bernstein, President and CEO at AllianceBernstein]

Additionally, fixed income's positive momentum reverted in response to higher interest rates resulting in modest outflows during the fourth quarter. Net inflows in private placements, real estate debt and private credit were offset by realizations from maturing vintages. For the full year, institutional demand was constructed for taxable fixed income growing 3% annually. Net deployment into alternatives exceeded $2,000,000,000 with modest multi asset outflows partially offsetting the trend. We had $2,000,000,000 in pipeline fundings during the fourth quarter with the pipeline now standing at $10,700,000,000 as of year end.

[Seth Bernstein, President and CEO at AllianceBernstein]

The pipeline fee rate ticked higher to 45 basis points, reflecting $2,700,000,000 in new additions, predominantly in alternatives. This included $1,000,000,000 in commitments from RGA across residential mortgages, private placements, NAV lending and middle market loans. These commitments reinforced our strategy of initiating and scaling insurance oriented products in partnership with Equitable. A prime example is our NAV lending strategy, which we launched fourteen months ago and is already garnering solid interest. We're seeing momentum start to build in our insurance vertical and continue to view it as an important growth driver for the enterprise.

[Seth Bernstein, President and CEO at AllianceBernstein]

Moving to Slide nine. Private Wealth ended the year on a strong foothold, growing at 1% annualized rate in the fourth quarter when tax off hard vesting typically weighs on channel flows. 2024 marks our fourth consecutive year of organic growth for Bernstein, driven by strong client demand for all its multi asset and tax exempt growing at 138% respectively. As a reminder, our private wealth net flows exclude reinvested dividends and interest income, which is typically reported within net new assets across key wealth management peers. The channel's revenue surged during the fourth quarter reflecting the three pillars of our platform's earnings power: base fees growing roughly in line with assets, spread based interest growing with cash and margin balances and performance fees resilient for private market strategies with the added benefit of potential upside from public markets.

[Seth Bernstein, President and CEO at AllianceBernstein]

This upside leverage was on full display in 2024. Working wealth management has been a pioneer in bringing alternative assets to The U. S. High net worth segment. During 2024, we raised over 2,500,000,000 across our proprietary and third party private alternative strategies.

[Seth Bernstein, President and CEO at AllianceBernstein]

Off the back of a strong fundraising year, we deployed approximately $1,300,000,000 in net equity commitments, primarily driven by real estate equity. Ending with Slide 10, I'd like to provide a brief update on our private markets business targets. We're pleased with the progress toward our goal of reaching $90,000,000,000 to $100,000,000,000 of private markets AUM by 2027, at which point these products should generate more than 20%

[Seth Bernstein, President and CEO at AllianceBernstein]

of our asset management revenues.

[Seth Bernstein, President and CEO at AllianceBernstein]

As of year end 2024, our platform had reached $70,000,000,000 in fee earning and fee eligible AUM, representing over 16% of our total asset management revenue for the year. Over the past several years, we've successfully expanded our business, leveraging existing capabilities and market presence into new growth areas such as NAB lending, asset based finance and residential mortgages. Additionally, we've continued to deliver strong growth in corporate middle market direct lending. We're building upon our strategic partnership with Equitable to expand our capabilities in private investment grade, including specialty finance, NAV lending, mortgages and other insurance oriented vehicles. The pace of our collaboration with Equival and our vision to build the business together has accelerated having now deployed $12,000,000,000 out of the $20,000,000,000 commitment.

[Seth Bernstein, President and CEO at AllianceBernstein]

This helps attract investment talent and scales our business faster as we are able to offer borrowers a range of solutions across the cost of capital spectrum and match those assets to the unique risk reward profiles of our diversified client base. I'm very proud of the progress we've made as an organization and I would like to thank our colleagues, clients and unitholders for their support as we make continued progress toward our commitments. Now I'll pass it to Jackie to cover our financial results.

[Jackie Marks, CFO at AllianceBernstein]

Thank you, Seth, and everyone joining our call today. AB's next chapter is built on a strong foundation as evidenced by our solid fourth quarter and full year results. Fourth quarter adjusted earnings of $1.05 per unit were up 36% versus the prior year and full year adjusted earnings of $3.25 were up 21% versus prior year. Strong markets, a stable fee rate, improved operating leverage and robust performance fees drove EPU growth. Distributions and EPU grew uniformly as we distribute 100% of our adjusted earnings to unitholders.

[Jackie Marks, CFO at AllianceBernstein]

On Slide 11, we show our adjusted results, which remove the effect of certain items not considered part of our core operating business. For a reconciliation of GAAP and adjusted financials, please refer to our presentation appendix. Fourth quarter net revenues of $973,000,000 were up 12% versus the prior year and up 26% on a like for like basis, excluding Bernstein Research Services revenue. Full year revenues of $3,500,000,000 were up 5% versus prior year and up 15% excluding Bernstein Research Services. Fourth quarter base fees increased 17% versus prior year, in line with the average AUM.

[Jackie Marks, CFO at AllianceBernstein]

Full year base management fees of approximately $3,000,000,000 were up 12%. Fourth quarter performance fees of $133,000,000 surged versus the prior year period, reflecting strong alpha generation across our public and private alternative strategies. Full year performance fees of $227,000,000 increased 80% year over year, coming in well above our guidance of $145,000,000 to $155,000,000 I will follow-up with more details shortly. Dividend and interest revenue along with the broker dealer related interest expense declined in the first quarter and full year, reflecting lower client cash and margin balances within Private Wealth. Moving to expenses.

[Jackie Marks, CFO at AllianceBernstein]

Fourth quarter total operating expenses of $619,000,000 were roughly flat versus the prior year with higher compensation offset by lower non comp expenses. Full year operating expenses of $2,400,000,000 were down 1%. Fourth quarter total compensation and benefits expenses increased 7% versus prior year in absolute terms, but our compensation ratio of 46% of adjusted net revenues in the quarter was below the prior year of 47.7% ratio and better than our guidance of 48%. Full year revenues landed at a higher level than we had anticipated earlier in the year, allowing us to reduce the fourth quarter compensation ratio. Hence, our full year compensation ratio landed at 47.9% versus the 48.5% implied in our prior guidance.

[Jackie Marks, CFO at AllianceBernstein]

We will begin to accrue at a 48.5 compensation ratio in the first quarter of twenty twenty five, below last year's first quarter level of 49%, and we may adjust throughout the year depending on market conditions. Promotion and servicing costs decreased 20% in the fourth quarter and 18% in the full year, reflecting the significant reduction of trade execution clearance expenses from Bernstein Research Services. The decline in full year 2024 promo and servicing came in at the lower end of our prior guidance, reflecting a pickup in travel and client meetings during the fourth quarter. Fourth quarter G and A expenses declined 14% year over year, largely driven by lower occupancy costs following the relocation of our New York City office, partially offset by a one time charitable contribution of $5,000,000 Full year G and A was down 7% versus prior year, in line with our guidance for a mid to high single digit decrease. For the full year 2024, our Nashville relocation generated approximately $23,000,000 in savings or $0.08 per unit.

[Jackie Marks, CFO at AllianceBernstein]

In 2025, we expect to realize roughly $50,000,000 in occupancy related savings from our relocation to Hudson Yards, which we intend to fully drop to the bottom line. We have achieved our target of $75,000,000 of annual savings, which we delivered despite elevated inflation pressures since the time of our relocation announcement. In 2025, we anticipate full year non compensation expense to fall within the range of $600,000,000 to $625,000,000 We expect promotion and servicing to make up 20% to 25% of the non comp expense and G and A to account for 70% to 75%. We do not anticipate significant quarterly fluctuations in G and A or promo and servicing following the deconsolidation of Bernstein Research Services. Please note that promo and services includes transfer fees, which move directionally with the markets.

[Jackie Marks, CFO at AllianceBernstein]

Our non comp expense guide of $600,000,000 to $625,000,000 includes $50,000,000 in go forward annual savings from occupancy related expenses, while accounting for modest inflationary pressures. Interest on borrowings decreased by $6,000,000 in the fourth quarter and $11,000,000 in the full year 2024 compared to prior year period, reflecting the lower interest rates in the quarter and lower debt balances following debt repayments we made using the proceeds from the Bernstein joint venture and the private unit issuance. We intend to leverage the incremental debt capacity to fund our commitment to the Ruby Re sidecar and take advantage of any other potential growth opportunities that may arise. ABLP's effective tax rate was 5.2% in 2024, in line with the low end of our 5% to 6% prior guidance, reflecting a favorable mix of earnings and increased income at the Partnership level. Our guidance for ABLP's effective tax rate in 2025 is 6% to 7%, reflecting a more normalized taxable mix of earnings.

[Jackie Marks, CFO at AllianceBernstein]

Moving on to Slide 12. I will review the trajectory of our firm wide base fee rate. As of 4Q twenty twenty four, the firm wide fee rate was 39.8 basis points, marginally lower than the previous quarter following two consecutive quarters of sequential increases. As we mentioned on our last call, the fee rate is influenced by numerous factors. We can't cover all of them, but some of the key trends in 4Q twenty twenty four included.

[Jackie Marks, CFO at AllianceBernstein]

In alternative, planned distributions from returning vintages outweighed net deployments across other strategies. In fixed income, elevated rates volatility affected our taxable fixed income flows and AUM. We observed outflows and AUM contraction within the high fee services such as American Income. The majority of our active fixed income inflows were driven by muni SMAs in the fourth quarter, which typically have lower fees. Equity markets gains were concentrated within The U.

[Jackie Marks, CFO at AllianceBernstein]

S, while non U. S. Equities suffered losses. Although active equity outflows remain mainly concentrated at the institutional level, we also experienced some outflows within retail and private wealth during the fourth quarter. Institutional active equity redemptions were concentrated in higher fee non U.

[Jackie Marks, CFO at AllianceBernstein]

S. Services. While our fee rate will remain mix dependent in the near term, we are selective with our growth initiatives, evolving our product capabilities and regional sales mix to mitigate some of the fee erosion witnessed across the industry. Slide 13 reflects a breakdown of our performance fees by private versus public strategies. Full year performance fees up $227,000,000 rose 80% versus prior year, exceeding our prior guidance of $150,000,000 dollars The fourth quarter rally in U.

[Jackie Marks, CFO at AllianceBernstein]

S. Equities was a significant contributor to the upside. In our public alternative strategies, the Financial Services Opportunities Fund generated over $35,000,000 in performance fees that crystallized in December, thanks to strong idiosyncratic and sector performance. Our private alternative strategies also supported the beat, mainly driven by AB Carvao and AB Private Credit investors. Within AB Carvao, performance fees came in higher due to stronger than expected investment performance, while certain funds were in catch up.

[Jackie Marks, CFO at AllianceBernstein]

Within AB PCI, our performance fees benefited from higher base rates and solid credit performance. Overall, our performance fees in 2024 were primarily driven by our private alternative strategies, but we also saw significant contribution from public strategies. Although public alpha is volatile and more difficult to predict, our public alternative strategies improve our market leverage profile and provide additional upside tied to public markets. This complements our more dependable private performance fees, creating a robust performance fee stream for our business. We maintain our guidance of $70,000,000 to $75,000,000 of recurring hurdle based performance fees for 2025, driven by our private markets capabilities.

[Jackie Marks, CFO at AllianceBernstein]

These strategies include commercial real estate debt, Carval and middle market lending, also known as AB Private Credit Investors or AB TCI. Turning to Slide 14. In 2024, we delivered on key transformative initiatives that enhance the operating leverage of our platform. The fourth quarter of twenty twenty four marked our first full quarter with both the JV And Hudson Yards completed. 4Q adjusted operating margin stood at 36.4%, up seven twenty basis points year on year, demonstrating the strong operating leverage of our platform aided by seasonal tailwinds.

[Jackie Marks, CFO at AllianceBernstein]

In robust market years, the fourth quarter margin typically benefits from crystallization of performance fees and a compensation ratio true up as annual expenses and revenues are realized. While we do not expect 36% to be the steady margin state going forward, we are very pleased with the robust operating leverage of our platform. Excluding Bernstein Research revenues, our year over year incremental margin was 50% as of 4Q at the higher end of our targeted 45% to 50% range. Our full year 2024 margin came in at 32.3%, up four ten basis points, reflecting strong markets and benefits from performance fees, a lower compensation ratio on higher realized revenues and improved operating leverage. Based on current market levels, we continue to forecast a baseline adjusted operating margin of 33% for 2025 with upside potential from favorable markets.

[Jackie Marks, CFO at AllianceBernstein]

It is worth noting that when we first issued our 33% guidance for full year 2025 on our 3Q call, our AUM was at a higher level. A 33% operating margin will put us above the midpoint of our 2027 estimated margin range target of 30% to thirty five percent two years ahead of schedule with further potential for margin expansion over time as we scale our business. While we are keenly focused on margins, we are also committed to investing to drive earnings growth and long term value. We are therefore budgeting for some strategic growth investments, including bringing on new investment teams and launching new products that we expect to enhance returns over time. Before opening the line for questions, I want to express my gratitude to our colleagues for their considerable efforts and unwavering commitment to our clients, unitholders and all stakeholders.

[Jackie Marks, CFO at AllianceBernstein]

With that, we are pleased to answer your questions. Operator?

[Operator]

At this time, the floor is now open for questions. In order to ask a question, simply press star followed by the number one on your telephone keypad. Your first question comes from the line of Craig Siegenthaler with Bank of America. Please go ahead.

[Craig Siegenthaler, Managing Director at Bank of America]

Hey, good morning, Seth, Jackie. Hope everyone is doing well.

[Seth Bernstein, President and CEO at AllianceBernstein]

We're good. Thank you.

[Craig Siegenthaler, Managing Director at Bank of America]

So my question is actually a follow-up to Jackie's comments earlier today on the EQH call on your corporate structure. So, in my coverage, AB is the only remaining company that still doesn't exist in a C corp structure. And now there's lots of examples across my coverage of companies that gained more passive ownership, more lonely active ownership and more importantly, a much higher stock valuation. So I'm curious to how AB thinks about this, the pros and the cons because it looks like tax dilution is only something like 10% or low teens or LPs and EQH can keep their load tax rate in an up CC corporate structure. So, really should be a win win for everyone.

[Jackie Marks, CFO at AllianceBernstein]

Sure. Thank you, Craig, for the follow-up. As I mentioned on the call this morning, the tax hurdle is a big one for us, bigger than the passive alternative asset managers who had converted. So that's one factor to consider. Also in the UPCE, the, sorry, the UPCE, example, we looked at that as well.

[Jackie Marks, CFO at AllianceBernstein]

And in that one, we would have to retain the general partnership. That in turn makes us ineligible for the major indices, another big factor. So at this time, there's something that we thought was too big a bet to make when you sort of need to enter the indices to really count on that multiple overall.

[Seth Bernstein, President and CEO at AllianceBernstein]

I think, Craig, just adding to it, I think it's important to note that the alts managers had a very different partnership structure than we have. And much of their income was taxed at a higher rate than ours is. So the hurdle for them to equalize the tax drag they were creating was significantly lower. And I think it's important for people to recognize that because we have a fiduciary obligation to make sure we're not disadvantaging our taxable unitholders today. And at the moment, in what we see, given that getting index inclusion and having a higher hurdle to cross than others, it just the math didn't really add up for us as we consider the pros and cons of the trade.

[Seth Bernstein, President and CEO at AllianceBernstein]

And so we're not closed minded to the idea, but we just haven't been convinced that the upside of this offset the risks to us and more importantly to our taxable unitholders, changing our corporate structure, recognizing that the partnership structure does limit the appetite for nontaxable investors to step into it and foreign investors. So, let me just stop there.

[Craig Siegenthaler, Managing Director at Bank of America]

Thank you for the comments. And I'll jump on to your question. But, I think the tax debate is definitely a real one. Although, I do think if EQH remains to the GP, they can your float can get in major indexes because that is an FCC Corp. We've seen that a lot over the last eight years.

[Craig Siegenthaler, Managing Director at Bank of America]

But I'm going to circle up my index team on that and let me jump on to bond reallocations. So there was some noise in 4Q and the ten year rose a lot, which definitely didn't help. But I wanted your updated high level thoughts on the pace of some of this record money market AUM could move off the sidelines via duration extensions and how AB is positioned to win in both taxable and munis where you're already doing really well?

[Seth Bernstein, President and CEO at AllianceBernstein]

Well, let me start. And Onur may jump in on the question. He's on the phone as well. Yes, the backup in rates in December certainly didn't help. I think it reminded everybody that tariffs are inflationary.

[Seth Bernstein, President and CEO at AllianceBernstein]

And the Fed's pause in activity, I think, reinforces more uncertainty as to the direction of rates. All of that being said, we continue to see, at least through January, pretty strong interest in fixed income. And it's important to note on an after tax basis from a muni perspective, you are better off much better off than sitting in cash in a taxable money market fund. I think that's been an important ingredient in people's interest there. And also, I see it as a benefit to us in sort of short and intermediate duration funds and ETFs we have where we continue to see interest in those funds.

[Seth Bernstein, President and CEO at AllianceBernstein]

Owner, you want to add something?

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Yes, sure. Craig, thanks for the question. I will add two things. One, the rearview view, rearviewed in 2024, we were one of the biggest beneficiaries of the rate normalization, right. That's how we generated almost $25,000,000,000 of net flows.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So we definitely do very well in the favorable interest rate environment. To Seth's point, in January, we continue to see fixed income demand. Obviously, given the recent volatility, still there is some money sitting on the sidelines. But if you look at the shape of the yield curve, there is opportunity to add yield by going a little longer on the duration and that tends to help our flagship products. So all in all, we are relatively bullish about our ability to benefit from the fixed income environment and we are relatively hedged quote unquote from a business perspective.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

As Ted mentioned, we have different solutions that can do well under different environments. Our mini SMA business continues to do well in the New Year. And then we have the short duration products, particularly as part of our growing ETF lineup that continues to get traction.

[Craig Siegenthaler, Managing Director at Bank of America]

Thanks, Oner.

[Operator]

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

[Alexander Blostein, Managing Director at Goldman Sachs]

Good morning. Thank you for the question. I was hoping to spend a couple of minutes on your organic base year growth. I think it's the first time where you started to disclose that perhaps more kind of officially in the deck, three plus percent for the year, so helpful there. I was wondering if you could take a step back and I know you don't have an explicit target, but as you look through the building blocks in the business, what you're trying to achieve, where you're seeing traction, how durable do you think this mid- or low single digit organic base fee growth is for the company, what do you hope we could go over the next couple of years?

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Yes, sure. Alex, I'm going to let me take that question and others can chime in as needed. I mean, ultimately, as you well know, the fee rate is very business mix dependent and not all of that is within our control given the cyclical nature of the markets and the shift in client demand based on what happens with the macro environment, etcetera. I mean, that being said, if you focus on the things that are relatively more controllable and maybe focusing on those, obviously we disclose our institutional pipeline. If you look at the fee rate there, it went up in the last quarter with the additional private alts mandates we won.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

And if you look at the effective fee rate there, the effective fee rate on the institutional pipeline is more than double our effective fee rate for the rest of the institutional business. So that gives you a positive, I think, indicator in terms of ability to add fee accretive strategies and benefiting from the organic revenue growth. The other thing I think which is probably more Matt, given we had pressure on institutional equities for the last couple of years, if you look at our institutional equity product base, the at risk assets are lower. And from an outflow risk perspective, you will have a little bit of a protection from a denominator perspective, if you will, on the active equities. I mean, that being said, we have a large retail business and you can face volatility as well.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So overall, I think our diverse business mix will make our fee rate relatively resilient vis a vis our competitors. We definitely have a very robust distribution platform, which should help with the net flows as we have demonstrated with our sales momentum in 2024. It was our second best ever year from an overall sales perspective and our retail sales almost hit $100,000,000,000 So even when periods where we have some challenges on one channel, the other channel comes into basic offset the softness and we continue to get active net flows. So combining the active net flows with a favorable fee embedded in the pipeline, definitely there are things that can help with our fee accretion. That said, you know the markets are volatile and we have some risks intrinsic to this industry and our business.

[Alexander Blostein, Managing Director at Goldman Sachs]

All right. Fair enough. And maybe as a quick follow-up to Greg's question around the corporate structure and what sounds like index conversion that's or sorry, C Corp conversion that's relatively off the table for now. As you kind of take a step back and we've spoken about this in the past, probably not a lot of debates with the valuation of the stock is probably not overly reflective of the growth in the business. Are there other things you might consider whether it's changed to your capital allocation process or broader ownership of AllianceBernstein that could unlock shareholder value if CECOFT conversion is off the table?

[Seth Bernstein, President and CEO at AllianceBernstein]

So when you'd say capital allocation process, what can you just clarify for me what you mean by that? Because we already distribute everything we earn,

[Alexander Blostein, Managing Director at Goldman Sachs]

essentially. Right. Just share repurchases versus dividends.

[Seth Bernstein, President and CEO at AllianceBernstein]

Oh, sorry. Well, I mean, we need to go and do some thinking around it. But the truth is we can't really retain anyway. So by the nature of the structure, we have to distribute it. So to do share repurchase, we effectively have to borrow to fund them.

[Seth Bernstein, President and CEO at AllianceBernstein]

So I mean, we can think about it, but it's a volatile business to start with and we like having a fairly conservative balance sheet to deal with that volatility.

[Alexander Blostein, Managing Director at Goldman Sachs]

Right. All righty. Fair

[Alexander Blostein, Managing Director at Goldman Sachs]

enough.

[Operator]

Your next question comes from the line of Bill Katz with TD Please go

[Craig Siegenthaler, Managing Director at Bank of America]

ahead.

[William Katz, Senior Equity Analyst at TD Cowen]

Okay. Thank you. Just coming back to C Corp discussion for a moment. Could you tell us what you're penciling out for dilution related to the taxes? If I simply say roughly 10% hit, you're back to 11% multiple, which to Alex's argument is in line despite differentiated storyline.

[William Katz, Senior Equity Analyst at TD Cowen]

So my broader question is, if you're unwilling to convert to a C Corp, what is the appetite to potentially sell the franchise to unlock value?

[Jackie Marks, CFO at AllianceBernstein]

Sorry. We're modeling, about a mid-20s tax rate, so you can just back into the impact of that. And effectively, that would require a minimum of a two times multiple expansion.

[Seth Bernstein, President and CEO at AllianceBernstein]

Look, I think, thinking about it, Phil, I don't think we have any interest necessarily in selling the business in order to unlock value.

[Jackie Marks, CFO at AllianceBernstein]

I need that. She's experienced a lot of stuff. Alexi?

[Seth Bernstein, President and CEO at AllianceBernstein]

I'm sorry, I don't know what that was, but I don't think we have any interest in selling the business. We think we're operating the business very effectively and we really think that the partnership with Equitable is a critical component of the success that we've had and that partnership continues to expand and grow. And I think it has resulted in benefit to our third party unitholders, significant benefit to them. So we like the model we have. We like how it positions us, particularly in the insurance space and in our ability to have a compelling story to new investment teams, particularly in private alts, to be a platform that allows them to scale more quickly than they could do it on their own.

[Seth Bernstein, President and CEO at AllianceBernstein]

So we think it is a very tax efficient and very capital structure efficient model that we have in place and are comfortable functioning within it. Let me stop there, Bill, and make sure I fully answered your question.

[William Katz, Senior Equity Analyst at TD Cowen]

Yes. Thank you. This is a follow-up maybe to change the tone of the question. You mentioned that you're seeing a little bit better vibrancy in terms of the first month of New Year. I know AUM will be out shortly.

[William Katz, Senior Equity Analyst at TD Cowen]

I was wondering if you could just give us a sense of how net volumes are trending maybe across the different distribution channels or the asset classes? And within that, where do you think you are in terms of the runoff risk associated with the institutional equity book? Thank you.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Sure. Happy to take that one, Onur here again. We had a positive start to the year, definitely seeing continued strength in multiple geographies and distribution channels. U. S.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Retail continues on a very strong trajectory. We continue to get very good traction in fixed income with our major distribution partners, large wires and independent broker dealers. Very pleased with that. We are looking to add couple of more large strategic relationships from a retail distribution perspective in the New Year. So that will be hopefully additive to our January start.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Secondly, it was very encouraging to see our Japan business continue to do very well despite the Japanese Central Bank actions and some of The U. S.-Japanese dynamics. Our Japan business continued on a strong trajectory, so that's a positive. Definitely seeing some momentum in Southern Europe on back of some of the economic strength in that geography. We historically had strong equity followership with the broadening of the markets a bit.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

We are seeing some appetite in strategies that has not been that popular until recently, some of the more defensive strategies, low vols type of strategies, for instance. And then on the institutional side, all the hard work that went into and the investments we put to build our insurance business is now delivering strong benefits and we expect it to accelerate. We obviously talked a lot about our new partnership with RGA, but beyond that, we continue to win new insurance mandates domestically and internationally. And that gives me a strong confidence in terms of our ability to grow insurance with equitable as well as large insurance clients. In terms of the institutional equities, as I mentioned in my previous comments, if you look at some of the relatively performance challenged products that sits in our institutional equities.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

The AUM in those is relatively more modest now. As a result, if you look at our assets at risk kind of forecast, those show a more favorable picture. I mean, obviously, generating new sales is different than outflows, but at least on the outflow front, I see a positive trend. So when you added up, I think it's a relatively positive outlook and we continue to have again diverse ways to win by asset class as well as by different channels. Last but not the least, obviously, we will have now more opportunities to distribute our private credit solutions.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

I touched on insurance, but the other exciting development is our first interval fund out of Carvel, AB Carvel, is in the market now. It has been active in all of the large custodian platforms, I. E. Available to RIA distribution. And starting with the second quarter, we are turning on some broker dealer partners as well as we approach the AUM threshold.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So very pleased with the momentum with our internal fund, which now has 200 in assets and we expect that to expand significantly as we add more distribution with large distribution partners.

[Seth Bernstein, President and CEO at AllianceBernstein]

I guess I would just add, Oner, that performance in equities has picked up quite a bit in the start of the year as we've seen more dispersion in performance among names and our growth portfolios are performing pretty well and gaining back some traction. And we've seen institutional equity search and win activities. So, it's hard to call when the tide turns. We're not going to do it today, but it's going in the right direction.

[William Katz, Senior Equity Analyst at TD Cowen]

Can I

[William Katz, Senior Equity Analyst at TD Cowen]

ask a third question?

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Sure.

[William Katz, Senior Equity Analyst at TD Cowen]

Okay. Thank you. Maybe it's a fourth question. I know it's just long queue. You had mentioned, Seth, in your prepared comments about some investment spending, including possibly for new products and or teams.

[William Katz, Senior Equity Analyst at TD Cowen]

I'm wondering if you could just update us maybe what you're thinking about on the M and A side. And then for Jackie, you mentioned the guidance. Thank you for that. And then you mentioned that if markets go up, if markets were to go down, how much flex do you have on some of the fixed costs within the non comp OpEx side? Thank you.

[Seth Bernstein, President and CEO at AllianceBernstein]

So that was really two questions. But let me answer the first one and Jackie will answer the second. We look, we look at traditional where we see opportunistically, where we see a really distinctive team or capability that we think needs a client demand. But we spend more of our time focused both on alts and in the wealth management area, we look in that segment as well, mindful of the multiples that are out there. But I guess where I would say in the private alt sector, we continue to look at strategies that fit into the needs of liability managers like insurance companies.

[Seth Bernstein, President and CEO at AllianceBernstein]

So if not private credit infrastructure, areas like that, that we would be interested in filling out our capabilities. And Jackie, why don't you take the next part of the question?

[Jackie Marks, CFO at AllianceBernstein]

Sure. Thank you. Yes, look, I mean, we remain very disciplined about our cost base. We, as I mentioned, we're investing for future and for growth, but we are very disciplined about our options and our optionality in both comp and non comp. So whether it's in terms of how quickly we hire or do not hire or whether it's on non comp, we know exactly what's discretionary and what's fixed.

[Jackie Marks, CFO at AllianceBernstein]

And we have all those levers to us if we should need to pull them. But as of right now, we're very much focused on investing for the future.

[William Katz, Senior Equity Analyst at TD Cowen]

Thank you.

[Operator]

Your next question comes from the line of John Dunn with Evercore ISI. Please go ahead.

[John Dunn, Analyst at Evercore]

Thanks. You mentioned active ETFs have come up a couple of times. Just maybe give us a flavor of how you're seeing those scale and how big a roster do you want that to be? And then maybe the profile of the investors you're marketing them to?

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Sure. Hi, John. I can comment on that. We now have 17 active ETFs. These ETFs are all in The U.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

S. And covers a large range of investment areas, fixed income equities as well as some of the more buffered strategies. If you think about the scale, already six out of our 17 ETFs cleared more than $500,000,000 mark. So if you think about the $5,500,000,000 that we ended the $24,000,000,000 6 of the funds have already more than $500,000,000 So we are really pleased with having multiple winners in that product set and it's diversified. We have large fixed income products, equity products, buffered products.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So it allows us to play into different areas. In terms of the profile, we benefit from obviously our proprietary wealth channel, but more importantly, the larger opportunity remains in the third party channels. And we have seen great opportunities opening up for us, particularly with the RIAs, because until you get to certain AUM thresholds and some time in the market, you're not typically on the shelf of the large broker dealers. So as a result, you're first buyers and the first several hundred million dollars typically focuses on the RIA channel. And we really benefited from using ETFs as well as our other high net worth oriented strategies like SMS to open a lot of new doors in the RIA channel.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

And in terms of investments in distribution, RA channel and specialization and the new specialist resources, we put on the ground for that along with our ETF specialists and our ETF team is definitely helping us to unlock those new opportunities. And if I reflect on the last five, six weeks, we see the continued momentum with those ETF strategies and we are on a very positive trajectory. And in terms of the future expansion sort of your other question, we are looking at two dimensions. One, obviously we have a very strong Asia distribution as Asia becomes more viable for active ETFs, definitely it's on our radar. We have very strong distribution in multiple markets as you know.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So that could be a venue for us as an expansion. And then in terms of our product lineup, given some of the relative value opportunities in emerging markets and some of the other extensions in fixed income with the rate outlook, etcetera, so emerging markets and some of the fixed income categories are on our radar for the domestic lineup.

[John Dunn, Analyst at Evercore]

Makes sense. And then maybe extending from that, I think you guys said that there was a bunch of places outside The U. S. That where U. S.

[John Dunn, Analyst at Evercore]

Growth equities was thriving. You mentioned Japan. I think that's what most people associate with. Are there any other non Japanese regions where that strategy is in demand?

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Yes. So, in Europe, we definitely have seen good success by deepening our partnerships with five forty six regional banks and getting into multi product relationships and couple of also more wealth management type institutions. If I were to call out three markets where equities have been very dominant, it would be U. K, Italy and Spain if I take maybe last twelve to eighteen months view including 25.

[John Dunn, Analyst at Evercore]

Got you. Thank you.

[Operator]

Your next question comes from the line of Dan Fannon with Jefferies. Please go ahead.

[Daniel Fannon, Managing Director - Research Analyst at Jefferies]

Thanks. Just one question for me on Private Wealth. Obviously, a good year in the fourth quarter as you look at in Slide nine and the breakdown of the revenues. But do you think prospectively in the investments you're making, how should we think about growth in this business? How in terms of getting new advisors, attracting new advisors?

[Daniel Fannon, Managing Director - Research Analyst at Jefferies]

You mentioned even inorganic. So just curious about your thoughts around growth of this segment.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Sure. Yes. As you mentioned, we had record AUM in our private wealth business and record advisor productivity. We increased our advisor headcount by a couple of percentage points as well. And as you grow, obviously, the bar for growth goes even higher.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So that means we need to add more advisors to our platform. We have been gearing up for that for the last couple of years. That will take multiple forms. We're not constraining our flexibility by just aiming for one lever. The levers available to us are one, accelerating our traditional recruiting program.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

We tend to hire 35 or so advisors a year. We can definitely increase that. Second, looking at experienced advisors, we have added a couple already in the New Year from local RIAs in geographies where we are under penetrated. So we definitely have a very active recruiting program, including a dedicated organizational structure to go after those experienced advisors. And remember, we have not done that if you go back to our history.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So the experienced advisor recruiting program is net new. And then finally, we have the ability to do M and A and that will be more in the lower size RAA kind of market. We are not looking to be an RAA roll up or we are not after the mega RIAs. But given we are in only 20 markets and some of the markets that we are in, we are under penetrated. We have a lot of opportunity to grow our market share in a very scalable way by adding RIAs in a tuck in fashion.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

And definitely that's part of our playbook and we also made some hires to facilitate that strategy. So those are the things that will help us. And then finally, with our new chip marketing officer that joined us in 2024 from one of our competitors, we are also looking at other ways to continue to feed new client generation sources to our existing advisors as well. So definitely those are the investments we have made that will yield benefits in terms of sustaining and accelerating our growth.

[Daniel Fannon, Managing Director - Research Analyst at Jefferies]

Great. Thank you.

[Operator]

Your next question comes from the line of Benjamin Bittish with Barclays. Please go ahead.

[Benjamin Budish, Director at Barclays]

Hi, good morning and thanks for taking the question. Just one for me as well. Just curious on the institutional side, you comment a little bit about the pipeline. I'm curious if you could share any color on sort of known upcoming redemptions, deal wins, sort of things we should expect to impact in Q1? And more broadly for the year, what are your thoughts on sort of improving the overall redemption rate, which was a bit more challenged in the back half of the year versus the first?

[Benjamin Budish, Director at Barclays]

Thank you.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

Yes, sure. In terms of the outlook for the institutional business, you have the institutional pipeline. The one thing I always remind ourselves in these calls is our pipeline is only institutional, but we also have other sub advisory kind of wins that we tend to have in our retail channel and then sometimes quasi institutional business like small foundations and endowments or cash balance plans and things like that in our private wealth channel. So the institutional pipeline is only one lens into the institutional client base. In terms of what we are seeing, in terms of big outflows relative to previous two, three years, I think we're in a better spot as I also commented before.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So as a result, there isn't any massive kind of known mandates to depart that will have a disproportionate impact relative to our last two, three years of run rate, including the second half of last year. In terms of recent wins, we definitely saw an uptick in our win rate in insurance based on the investments we have made. That will be more in the taxable fixed income area. And then we continue to look for additional strategic opportunities in insurance that could be additive. Again, RGA was definitely a positive for us, and we continue to look for similar strategic relationships in insurance that could be additive to our institutional business.

[Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth at AllianceBernstein]

So those are a few things that I would highlight as the major kind of positives.

[Benjamin Budish, Director at Barclays]

All right, helpful.

[Benjamin Budish, Director at Barclays]

Thank you very much.

Participants

Executives

• Ioanis Jorgali, Vice President of Investor Relations
• Seth Bernstein, President and CEO
• Jackie Marks, CFO
• Onur Erzan, Head of Global Client Group & Head of Bernstein Private Wealth

Analysts

• Craig Siegenthaler, Managing Director at Bank of America
• Alexander Blostein, Managing Director at Goldman Sachs
• William Katz, Senior Equity Analyst at TD Cowen
• John Dunn, Analyst at Evercore
• Daniel Fannon, Managing Director - Research Analyst at Jefferies
• Benjamin Budish, Director at Barclays