AB Q3 2024: Guides 33% Adjusted Margin in FY25, Drives Lease Savings
- Recurring Performance Fees Growth: AB expects to generate $70–75 million of recurring hurdle‐based performance fees in 2025, driven by its predictable private alternative strategies (e.g., AB-PCI), which underscores a sustainable revenue stream.
- Robust Private Markets Expansion: With private markets AUM at $68 billion and a strategic Equitable commitment of $20 billion (with about $11 billion already deployed), the firm is well positioned to achieve its long-term target of $100 billion AUM through organic and channel-driven growth.
- Active ETF Momentum: The active ETF business, now two years old, has amassed over $5 billion in AUM across 15 products with 70% being new money, demonstrating strong client adoption and considerable expansion potential both domestically and into international markets.
- Performance Fee Compression Risk: In a declining rate environment, lower base rates and compressed spreads could negatively impact the profitability and predictability of performance fees—especially for the AB-PCI strategy—as highlighted in the Q&A where executives discussed potential fee compression and headwinds from lower rates.
- Institutional Outflows and Redemptions: Persistent outflows from key institutional channels, particularly in active equity strategies and fixed income, may hinder overall fee generation and limit net inflows, as executives noted significant institutional redemptions and challenges in these areas.
- Reliance on Continued Market Strength for Margin Expansion: The company’s margin guidance and ambitious growth targets, such as reaching $100 billion in private markets AUM, are contingent on stable or improving market conditions. Any market deterioration or lower-than-expected organic growth could jeopardize the anticipated 2‐basis point margin expansion and overall performance.
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Margin Guidance
Q: What is FY ’25 margin guidance?
A: Management expects a 33% adjusted operating margin in 2025 assuming flat markets, reflecting strong cost discipline and business scale ( ). -
Lease Expense Savings
Q: How does lease expiry boost margins?
A: The expiration of the $50 million lease expense will flow to the bottom line, supporting an extra 100–150 bps margin expansion ( ). -
Performance Fees (AB-PCI)
Q: What drives AB-PCI fee performance?
A: They generate predictable fee income tied to AUM and base rates, though a declining rate environment could pose challenges ( ). -
Private Markets Future Drivers
Q: What fuels private market fee growth?
A: New product launches and extended channel penetration—in insurance and retail—should drive high-teen growth in performance fees ( ). -
Private Markets Growth
Q: How will $100bn private AUM be reached?
A: A blend of organic growth, robust private wealth inflows, and Equitable’s commitment (with $11bn deployed of a $20bn target) charts the course to $100bn ( ). -
APAC Strategy
Q: What’s the focus in APAC markets?
A: Strong organic momentum in Japan coupled with a cautious, long-term play in China signals promising regional growth through diversified channels ( ). -
Active ETF Opportunity
Q: How are active ETFs performing?
A: Two years into the journey, active ETFs now exceed $5 billion AUM across 15 products, driven mainly by new money inflows ( ). -
CarVal & Alternatives
Q: How is CarVal performing post-acquisition?
A: Over two years post-close, CarVal shows steady traction in alternative credit strategies with strong CLO pricing, reinforcing its market position ( ).
Research analysts covering ALLIANCEBERNSTEIN HOLDING.