Morningstar | Positive Flows and Improving Momentum Leave AB Solidly Positioned in 2019
A confluence of several issues--poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel--has made it increasingly difficult for asset managers running predominantly active portfolios to generate organic growth, leaving them more dependent on market gains to drive assets under management higher. While we still believe there will always be room for active management, we believe the advantage when it comes to getting placement on platforms will go to asset managers with greater scale, established brands, solid long-term performance, and reasonable fees.With $554.7 billion in managed assets at the end of March 2019, AllianceBernstein has the size and scale necessary to be competitive in the asset-management industry, and is structurally set up to hold on to assets regardless of market conditions, being diversified across its three main asset class segments--equities (38% of managed assets), fixed-income (51%), and other investments (made up of the firm's asset allocation services and certain other alternative investments) accounting for the remainder--it has not always translated into solid organic growth or above-average profitability, with AllianceBernstein's adjusted operating margins of 21.4% on average during 2014-18 being well below the group average of 30%.During the 2014-18 (2009-18), AB's organic growth rate averaged positive 0.1% (negative 4.9%) with a standard deviation of 2.0% (6.7%). This was worse than its peers, which generated negative 0.3% (positive 0.9%) average annual organic growth with a standard deviation of 6.0% (7.6%). Given that we expect the industry to continue to face stiff headwinds as we move forward, we envision AllianceBernstein's organic growth averaging positive 0.2% (with a standard deviation of 0.7%) annually during 2019-23, with revenue growth and operating margins affected by industry fee compression and the need to spend more to enhance performance and distribution.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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