Morningstar | Positive Equity Flows, Improving Momentum Leave AllianceBernstein Better Positioned in 2019
We're likely to increase our fair value estimate for no-moat-rated AllianceBernstein following slightly better-than-expected fourth-quarter results. AB closed out the December quarter with $516.4 billion in assets under management, down 6.2% sequentially and 6.9% year over year. Net inflows of $800 million during the period were far better than our forecast of $5.5 billion in outflows. That said, equity inflows of $3.9 billion ($1.6 billion active/$2.3 billion passive) were offset by fixed-income outflows of $4.6 billion ($4.2 billion active/$400 million passive), with positive flows into AB's other AUM category (which includes certain multi-asset solutions and services and other alternative investments) accounting for the remainder. This left full-year organic AUM growth at negative 1.4% (better than our forecast of negative 2.6%). The company closed 2018 with $9.7 billion in its institutional pipeline, some of which crept into January results, with AB closing out last month with $538.0 billion in managed assets.While average AUM declined 2.3% year over year, adjusted fourth-quarter revenue declined 7.3% due to weaker performance fee income and shifting product mix. Full-year adjusted top-line growth of 5.0% was at the lower end of our forecast of mid- to high-single-digit revenue growth for 2018, but given where the firm is today, we envision 2019-22 results being stronger than we previously projected. With operating expenses increasing at a slower rate than revenue, adjusted full-year operating margins of 23.9% were more than 230 basis points higher year over year. We believe AB will gradually improve its margins, especially if it is able to continue to gain traction with its active equity offerings, but we doubt that profitability will move much on an adjusted basis, given the fee and margin pressures facing the industry; we do expect them to be closer to 22% longer term as opposed to our past forecast of 20%.
AllianceBernstein Holding provides research, investment management and related services to a range of clients. The company's principal services include: institutional, which services institutional clients, including private and public pension plans, foundations and endowments, insurance companies, and central banks and governments; retail, which services retail clients, primarily by means of retail mutual funds; private wealth management, which services private clients, including high-net-worth individuals and families, trusts and estates, and partnerships; and Bernstein research services, which services institutional investors, such as pension fund, and hedge fund and mutual fund managers.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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