Morningstar | Positive Flows, Improving Momentum Leave AllianceBernstein Solidly Positioned for Year Ahead
There was little in no-moat-rated AllianceBernstein's first-quarter results that would alter our long-term view of the firm. AB closed out the March quarter with $554.7 billion in assets under management, up 7.4% sequentially and 0.9% year over year. Net inflows of $1.1 billion in the period marked the third straight quarter of positive flows from the firm. That said, most of the inflows came from AB's other portfolios, which include multiasset solutions/services and alternative investments, with positive flows from its equity platform offset by outflows from the fixed-income operations. More troubling was the fact that AB posted $1.1 billion in passive outflows during the period, contrary to what we've seen in the industry as a whole. After losing $4.7 billion to institutional outflows during the March quarter, management did note that the firm had $11.4 billion in its institutional pipeline at the end of the first quarter, $9.7 billion of which is committed to active strategies.While average AUM declined 3.2% year over year, adjusted first-quarter revenue declined 6.5% due to weaker performance fee and institutional research income as well as shifting product mix. While this was worse than our projection for a low- to mid-single-digit top-line decline this year, the company does face easier comps in the back half of the year. That said, we continue to believe that more volatile markets and a difficult environment for fees and performance will limit revenue growth longer term, with the net result being a negative 1.9% compound annual growth rate for revenue during 2019-23. AB's adjusted operating margin of 19.0% was in line with our full-year projections. 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 higher on an adjusted basis, given the fee and margin pressures facing the industry.
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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