There are three things that AllianceBernstein Investments
] chief executive Peter Kraus
wants you to know about his company's earnings this year, and one thing he doesn't.
read through a transcript provided by Seeking Alpha
of the third quarter earnings call for AllianceBernstein that took place on October 24.
These are the three major messages that MFWire
took from Kraus' comments in the transcript:
His first major point: The AllianceBernstein ship has been turned.
Kraus reported that AB during the third quarter had gross sales of $21 billion, nearly double the sales achieved in the third quarter of 2011 and the company's highest since the second quarter of 2008. The company suffered outflows of about $4 billion, which were higher than the second quarter, but less than one-third of net outflows from last year's third quarter.
Moreover, the company's third quarter gross retail sales of $15.2 billion were its highest since 2000, and its quarterly inflows of $5 billion were not only positive for a third straight quarter, but they were also the company's highest since 2000. RFPs were up 30 percent.
AllianceBernstein's gross sales in the institution channel were slightly down in the quarter due to $5 billion in value equity terminations. Yet gross institution sales were up 30 percent year-to-date and gross redemptions were down 19 percent, hence net outflows declined by about one-third.
Kraus had this to say:
Sales trends are improving for one simple reason. We're pitching and winning more new business. Year-to-date, we've completed more than 300 new business RFPs. In fixed income, US and global high yield RFP acidity has tripled on an annualized basis.
Kraus has been working to cut costs on a number of fronts, especially compensation. During the third quarter, he has managed compensation to remain at roughly 50 percent of adjusted revenues, a ratio he has managed to keep in that range over the past year.
One of the ways he accomplished this was via job cuts. AllianceBernstein ended the third quarter with 3364 employees, down 11 percent year-to-date.
Partially as a result of these and other expense cuts, AB saw a margin of 19.1 percent during the quarter.
His second point: The Future is Alts.
Kraus' comments are rife with buzz words from the alternative investing playbook like "market neutral," "low vol," and "risk off."
Who could blame him. His company, through the portion formerly known as Sanford Bernstein
, has a decades-long tradition of deep value, heavily researched, fundamentally-driven equity investing. This portion of the business has taken hits during the market volatility that has occurred since the financial crisis of 2008.
This is how Kraus described it in his own words:
You can add to that our own performance, which has been, as you know, challenged on the value side, which was a big part of our business. We've adjusted that risk profile and private clients to effectively keep clients exposed to value but not have an overabundance of that risk.
As a result, Alliance Bernstein has been actively developing alt products, among them a line of products that Kraus described as stability equity services
such as market natural, low vol and select equities. For example, the company recently launched a Select Equity Lux Fund
, which has gathered $700 million in assets as well as an Absolute Alpha Fund
that has reached $150 million since its March launch.
This innovation was important for sales. New products year-to-date 2012 versus year-to-date 2011 was up 94 percent in sales for new products.
Regarding product development, Kraus said that, "We will continue to develop new products but at a much slower pace and we have said that, that we basically had to change the step or change the direction of the ship, which we did,…"
Moreover, "we think we are on a much more stable platform in terms of the future growth of that new product effort, and therefore, the frequency of new product initiatives will be much less."
His third point: They are not "blinking."
During much of the presentation, Kraus noted that AB had faced challenges "from many different places." Such factors included "market conditions in general, the lack of interest on the part of individual investors to move money from place to place in a tough market environment, the lack of new money being created through mergers and acquisitions."
Consequently, there have been discussions on whether AllianceBernstein should stay the course with their deep value philosophy.
We're in constant dialogue with our value clients and I'll tell you that they're more concerned we'll blink and back away from our deep value discipline than they are about our more recent investment performance. We're not blinking. At this point it's a matter of when and not if the markets will once again wear these factors.
Kraus added, "Our discussions with our, for example, value clients where we've had performance challenges has focused more about our commitment, consistency and the discipline of our process and less about the specific performance."
Finally, there was one thing Kraus didn't want you to know about, given the dancing performance he gave during the analyst call: fee compression.
For example, when analyst Marc Irizarry
from Goldman Sachs
asked Kraus whether he was seeing "any renewed pressure on fees, either on the institutional side in equities in particular or anywhere else across the organization," Kraus had this to say:
In a word, Marc, no. I think there continues to be dialogues with clients that in some cases prefer lower base fees and performance fees.
But I don't see incidents of that discussion.
Kraus added that "it's hard for me to report that there's any discernible trend towards fee pricing," and later said "it's hard for me to identify any series issues that we are taking into consideration s we plan our business that relate to fee compression."
Read more in Seeking Alpha transcript
of the conference call.
Stay ahead of the news ... Sign up for our email alerts now