Business Overview AllianceBernstein's roots trace back to 1967 when Bernstein was founded. In 1971, Alliance Capital was established, and the two firms operated independently until their landmark combination in 2000. This merger brought together Alliance Capital's expertise in growth equity and corporate fixed income investing, as well as its retail mutual fund business, with Bernstein's expertise in value equity investing, tax-exempt fixed income management, and its Private Wealth Management and Bernstein Research Services businesses.
The company's structure evolved over time, with AB Holding going public as a master limited partnership in 1988. In 1999, AB Holding underwent a significant reorganization, transferring its business and assets to a newly formed operating partnership, AB. This restructuring allowed AB to conduct the business formerly operated by AB Holding while maintaining its status as a publicly-traded entity.
Throughout its history, AllianceBernstein has demonstrated resilience in the face of challenges. In 2015, the company faced negative media attention and regulatory scrutiny related to a mutual fund market timing scandal. AB cooperated fully with authorities and implemented enhanced compliance controls to address the issues, ultimately weathering this challenge and maintaining its focus on delivering strong investment performance and client service.
The company has continued to expand its capabilities through strategic acquisitions, such as the 2022 acquisition of CarVal Investors, which further diversified its business mix and enhanced its investment offerings. AllianceBernstein has also successfully navigated periods of market volatility, including the COVID-19 pandemic in 2020, by maintaining a strong financial position and adapting its operations to serve clients effectively during challenging times.
Today, AB operates through three primary distribution channels: Institutional, Retail, and Private Wealth Management. The company's diversified investment capabilities span a wide range of asset classes, including actively managed equity, fixed income, and alternative strategies, as well as passively managed index and enhanced index solutions. AB's research-driven approach, underpinned by its global team of investment professionals, is a key competitive advantage, enabling the firm to provide innovative, high-quality investment solutions to its clients.
Financial Snapshot In the fiscal year 2024, AB reported net revenues of $4.48 billion, a 7.7% increase from the previous year. The company's adjusted net income attributable to AB Unitholders was $423.37 million, resulting in diluted earnings per unit (EPU) of $3.71. AllianceBernstein's adjusted operating margin for the year stood at 32.3%, reflecting a 410 basis point improvement from 2023.
The company's assets under management (AUM) as of December 31, 2024, reached $792.2 billion, up 9.2% from the previous year. This growth was driven by market appreciation of $68.5 billion, partially offset by net outflows of $2.2 billion. By distribution channel, the Retail and Private Wealth Management segments experienced net inflows, while the Institutional channel saw net outflows.
Diversified Investment Capabilities AllianceBernstein's investment services span a range of asset classes and strategies, catering to the diverse needs of its institutional, retail, and private wealth clients. The company's actively managed equity strategies, including value, growth, and core equities, have delivered mixed performance, with 45% of equity assets outperforming their respective benchmarks over the one-year period ended December 31, 2024.
In fixed income, the company's actively managed strategies have demonstrated more consistent outperformance, with 57% of fixed income assets outperforming their benchmarks over the one-year, three-year, and five-year periods. This strong performance was driven by the firm's expertise in areas such as taxable and tax-exempt fixed income, as well as its growing active exchange-traded fund (ETF) platform.
AllianceBernstein has also been actively expanding its alternative and multi-asset capabilities, including private credit, real estate debt, and private equity strategies. These alternative offerings have gained traction with clients, contributing to the firm's growing private markets AUM, which reached $70 billion as of the end of 2024.
Strategic Initiatives and Outlook In 2024, AllianceBernstein made significant progress on several strategic initiatives designed to enhance its competitive position and operating leverage. The company successfully completed the joint venture transaction with Societe Generale, monetizing the value of its Bernstein Research Services business while maintaining a majority stake in the combined entity. Additionally, the firm relocated its New York City office to the Hudson Yards development, which is expected to generate approximately $50 million in annual occupancy-related savings.
Looking ahead, AllianceBernstein is focused on further expanding its private markets capabilities, particularly in areas like insurance-focused products, to capitalize on growing client demand. The company's partnership with Equitable Holdings, its largest client, has been a key driver of growth in this segment, with the two firms now having deployed $12 billion of the $20 billion commitment.
Risks and Challenges As with any asset management firm, AllianceBernstein faces a variety of risks and challenges, including market volatility, competitive pressures, regulatory changes, and the potential for client redemptions. The company's reliance on performance-based fees also introduces some volatility into its revenue stream.
Additionally, the firm's partnership structure and status as a publicly traded limited partnership can present unique considerations, such as the need to maintain its status as a private partnership for tax purposes and the potential impact of changes in the tax treatment of master limited partnerships.
Financials AllianceBernstein's financial performance in fiscal year 2024 demonstrated solid growth and improved profitability. The company's net revenues increased by 7.7% year-over-year to $4.48 billion, driven by higher base fees and performance-based fees. Adjusted net income attributable to AB Unitholders grew to $423.37 million, resulting in diluted earnings per unit (EPU) of $3.71. The company's adjusted operating margin expanded by 410 basis points to 32.3%, reflecting improved operational efficiency and cost management.
For the most recent quarter (Q4 2024), AB reported revenue of $973 million, a 12% increase from $866.76 million in Q4 2023. Net income for the quarter was $105.43 million, up 81% from $58.07 million in the same period last year. The revenue increase was primarily driven by higher base advisory fees and performance fees, while the net income increase was due to higher revenues, lower expenses, and a one-time gain on the Bernstein Research Services divestiture.
The company's operating cash flow for fiscal year 2024 was $340.5 million, which was also its free cash flow for the year. AB has a global presence, with 27% of clients domiciled outside the US, primarily in Europe, Asia, and the Americas. Additionally, 38% of AUM is from non-US investment services.
Liquidity AllianceBernstein maintains a strong liquidity position to support its operations and strategic initiatives. As of December 31, 2024, the company reported cash and cash equivalents of $832.04 million, providing ample financial flexibility. The firm's robust cash flow generation, combined with its disciplined approach to capital allocation, enables it to invest in growth opportunities, return capital to unitholders through distributions, and maintain a solid balance sheet.
AB has no debt, resulting in a debt-to-equity ratio of 0. The company has an $800 million committed revolving credit facility, which was undrawn as of December 31, 2024. Additionally, AB has a $900 million credit facility with its parent company EQH, of which $710 million was drawn as of the end of 2024.
Industry Trends and Competitive Landscape The asset management industry has seen a continued shift towards passive/index investing, putting pressure on fees. However, AB has maintained a stable firm-wide fee rate. The compound annual growth rate (CAGR) of the global asset management industry was 5.8% from 2020 to 2024, indicating overall growth in the sector despite competitive pressures.
Guidance and Future Outlook For 2025, AB has provided the following guidance:
- Compensation ratio: The company will begin accruing at a 48.5% compensation ratio in Q1 2025, which is below the prior year's Q1 ratio of 49%. - Non-compensation expenses: Guidance of $600 million to $625 million for the full-year 2025, which includes $50 million in annual savings from occupancy-related expenses. - Effective tax rate: Guidance of 6% to 7% for 2025. - Recurring hurdle-based performance fees: Guidance of $70 million to $75 million for 2025, driven by the company's private markets capabilities.
AB has also reiterated its 2027 target of achieving an adjusted operating margin of 30% to 35%. The company noted that the 33% operating margin guidance for 2025 would put them above the midpoint of that 2027 target range, two years ahead of schedule.
Investment Services AB provides a wide range of investment services and solutions across multiple asset classes and distribution channels to meet the diverse needs of its clients globally.
Institutional Services: As of December 31, 2024, Institutional Services represented approximately 41% of AB's total AUM. Institutional base fees increased 1.1% in 2024 primarily due to a 6.0% increase in average AUM, partially offset by a lower portfolio fee rate. Performance-based fees earned from institutional clients increased 50.9% in 2024, driven by higher performance-based fees on certain alternative investment strategies.
Retail Services: As of December 31, 2024, Retail Services represented approximately 42% of AB's total AUM. Retail base fees increased 17.9% in 2024, primarily due to a 20.4% increase in average AUM, partially offset by a lower portfolio fee rate. Performance-based fees earned from retail clients increased significantly in 2024 due to strong performance in certain alternative investment strategies.
Private Wealth Management Services: As of December 31, 2024, Private Wealth Management Services represented approximately 17% of AB's total AUM. Private Wealth Management base fees increased 11.2% in 2024, primarily due to a 14.6% increase in average AUM, partially offset by a lower portfolio fee rate. Performance-based fees earned from private wealth clients increased 89.1% in 2024.
Across AB's distribution channels, the firm experienced net inflows of $2.2 billion in 2024, an improvement from net outflows of $7.0 billion in 2023. The retail channel generated net inflows of $13.4 billion, partially offset by net outflows of $16.5 billion in the institutional channel. The private wealth channel had net inflows of $0.9 billion.
Research Services Effective April 1, 2024, AB deconsolidated its Bernstein Research Services (BRS) business and contributed it to a joint venture with Societe Generale. Prior to the deconsolidation, BRS revenue decreased 75.1% in 2024 compared to the prior year.
Conclusion AllianceBernstein's diversified investment capabilities, strategic initiatives, and strong financial performance position the firm well to navigate the challenging market environment. The company's commitment to innovation, focus on private markets growth, and continued collaboration with its largest client, Equitable Holdings, suggest that AllianceBernstein is poised to deliver long-term value for its unitholders and clients alike. With a solid financial foundation, strong liquidity position, and clear strategic direction, AB appears well-equipped to capitalize on growth opportunities in the evolving asset management landscape.