AllianceBernstein Holding L.P. (NYSE: AB) is a leading global investment management firm that offers high-quality diversified investment services to institutional investors, individuals, and private wealth clients in major world markets. The company has demonstrated impressive financial performance, with annual net income of $264,184,000, annual revenue of $299,781,000, annual operating cash flow of $293,975,000, and annual free cash flow of $260,348,000.
In the second quarter of 2024, AB's diversified global offering continued to drive sustained organic growth, led by strength in both taxable and tax-exempt fixed income. The company saw further market share gains in U.S. retail Japan equities and APAC ex-Japan fixed income. AB's private markets business grew to $64 billion with fundings driven by private credit and real estate equity as well as Equitable's initial $10 billion commitment. Notably, the firm's Private Wealth business had its strongest alternative raise ever.
Investment performance also improved in equities and remained healthy in fixed income. AB's adjusted operating margin was 30.8% in the second quarter, up 380 basis points year-over-year, as the company executed on its multi-year margin improvement plan. The firm is benefiting from the progress made in its long-term strategy of building out distribution in U.S. retail and investing in private wealth.
Business Overview
AllianceBernstein provides a wide range of investment services, including institutional services, retail services, and private wealth services. The firm's institutional services cater to private and public pension plans, foundations and endowments, insurance companies, central banks, and governments worldwide, as well as affiliates such as Equitable Holdings, Inc. The retail services segment serves retail clients primarily through retail mutual funds, sub-advisory relationships, separately managed account programs, and other investment vehicles. The private wealth services segment serves high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities.
AB's research disciplines include economic, fundamental equity, fixed income, and quantitative research. The firm has expertise in multi-asset strategies, wealth management, environmental, social, and corporate governance (ESG), and alternative investments. AB provides a broad range of investment services, including actively managed equity and fixed income strategies, actively managed alternative investments, multi-asset services and solutions, and passively managed equity and fixed income strategies.
Geographic Breakdown and Revenue Drivers
AllianceBernstein has a global footprint, with a significant presence in the United States, Europe, and Asia-Pacific. In the second quarter of 2024, the firm saw strong growth in its retail channel, particularly in the U.S. and Japan. Retail gross sales were $23.2 billion, up 41% year-over-year, driven by both active fixed income and equities. The institutional channel saw gross sales of $3.3 billion, while the private wealth channel had gross sales of $5.4 billion, up 20% year-over-year.
The company's revenue is primarily driven by base fees, which increased by 9% year-over-year in the second quarter, and performance fees, which increased by $27 million from the prior year period. The increase in base fees was driven by an 11% increase in average assets under management, while the increase in performance fees was primarily due to higher fees from U.S. select equity long, short, and private credit strategies.
Liquidity and Financial Position
AllianceBernstein maintains a strong financial position, with ample liquidity to support its operations and growth initiatives. The company's net cash provided by operating activities was $172.0 million in the first half of 2024, compared to $152.3 million in the same period of 2023. This increase was primarily due to higher distributions received from AB.
The firm's capital resources and liquidity are supported by the cash flow it realizes from its investment in AB. AB Holding's cash inflow is comprised entirely of distributions from AB, which are subsequently distributed (net of taxes paid) in their entirety to AB Holding's Unitholders. As a result, AB Holding has no liquidity risk as it only pays distributions to AB Holding's Unitholders to the extent of distributions received from AB (net of taxes paid).
Risks and Challenges
AllianceBernstein faces various risks, including market risk, equity securities risk, foreign investment risk, currency risk, capitalization risk, derivatives risk, and management risk. The company's financial condition and ability to access the public and private capital markets are also subject to factors beyond its control, such as the performance of the capital markets and its ability to maintain and grow client assets under management.
For the full year 2024, the company expects performance fees to be up slightly from 2023 levels. AB also anticipates that promotion and servicing expenses will decline by approximately 18% to 20% on a year-over-year basis, and that G&A expenses will decline in the mid to high single-digit range. The firm expects to achieve the targeted incremental 100 to 150 basis points of year-over-year margin improvement from its relocation strategy in the fourth quarter of 2024, one quarter earlier than previously planned.
Conclusion
AllianceBernstein Holding L.P. is a well-diversified global investment management firm that has demonstrated strong financial performance and a commitment to driving sustainable organic growth. The company's diversified global offerings, improved investment performance, and targeted operational initiatives have positioned it for continued success. With a robust liquidity position, a focus on expanding its private markets and alternative offerings, and a positive outlook for fixed income flows, AllianceBernstein is well-equipped to navigate the evolving investment landscape and deliver value for its clients and shareholders.