AllianceBernstein L.P.(US:AB)2024-07-26 17:15Financial Data and Key Metrics Changes - In Q2 2024, AllianceBernstein's adjusted operating margin was 30.8%, up 380 basis points year-on-year, reflecting the execution of a multi-year margin improvement plan [6][19] - Gross sales for the quarter were $31.9 billion, an increase of $9.5 billion or 42% year-over-year [7] - Assets under management (AUM) reached $770 billion, up 11% year-over-year and 1% sequentially [7] Business Line Data and Key Metrics Changes - The private markets business grew to $64 billion, driven by private credit and real estate equity [6] - Retail gross sales were $23.2 billion, up 41% year-over-year, with net inflows of $2.8 billion [8][12] - Institutional gross sales were $3.3 billion, with net outflows of $1.8 billion, as active equity outflows outweighed fixed income growth [8][14] Market Data and Key Metrics Changes - The firm saw a 9% annualized organic growth in fixed income assets, with double-digit growth in institutional taxable and municipals [10] - In equities, 68%, 65%, and 64% of equity assets outperformed over the one-year, three-year, and five-year periods, respectively [11] - The firm experienced a slowdown in equity outflows, with recent trends showing increased interest in value strategies [12][46] Company Strategy and Development Direction - The company is focused on building out distribution in U.S. retail and investing in private wealth, which has contributed to sustained organic growth [6][25] - The firm is expanding its suite of services, including launching new active ETFs and enhancing its private markets offerings [25] - The company is optimistic about its insurance vehicle and its initial foray into the Chinese market, despite local market challenges [6] Management's Comments on Operating Environment and Future Outlook - Management expressed enthusiasm about the potential for fixed income flows as the Federal Reserve approaches interest rate cuts, with $6.4 trillion in cash on the sidelines [10][29] - The firm anticipates continued demand for its fixed income strategies, particularly from liability-driven investors like insurance companies [38] - Management noted that while retail trends remain strong, institutional flows are mixed, with a focus on improving performance in specific strategies [73] Other Important Information - The effective tax rate for ABLP was 6.0%, lower than expected, reflecting a favorable mix of earnings [24] - The company expects promotion and servicing expenses to decline by approximately 18% to 20% year-over-year in 2024 [21] Q&A Session Summary Question: Where do you think the money for fixed income demand will come from? - Management indicated that some funds will likely come from the $6.5 trillion sitting in money market funds, as retail investors become more comfortable with easing [29] Question: How should we think about the end state for margins? - Management reaffirmed commitment to margin improvement guidance, noting that the deconsolidation of Bernstein Research Services has already streamlined costs [32] Question: Can you provide perspective on the size and timing of elevated bond inflows? - Management noted that while timing is difficult to predict, there is strong demand from liability-driven investors and expectations for money to flow from money market funds into higher-yielding strategies [36][38] Question: What are the cash sweep options offered inside Bernstein? - Management stated that over 90% of revenue comes from advisory and service fees, with competitive cash rates between 4.5% to 5% offered to clients [40] Question: How did past rate cutting cycles affect high yield funds distributed in Asia? - Management indicated that the impact depends on the size and speed of rate cuts, but they expect strong demand for their strategies in a declining rate environment [55] Question: What is the focus on Japan and what products are marketed there? - Management highlighted Japan as a historical focus with strong demand for systematic fixed income and global high yield strategies [58][59]