AllianceBernstein Holding L.P. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. AB Holding is a publicly traded limited partnership whose principal income and cash flow come from its investment in operating partnership AllianceBernstein L.P. (AB). Figures below distinguish AB’s operating results from AB Holding’s standalone results.
Financial performance and key metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| AB net revenues | $4.054 billion | $4.442 billion | Down 8.7% |
| AB operating income | $815.1 million | $1.216 billion | Down 33.0% |
| AB operating margin | 21.5% | 27.3% | Down 5.8 percentage points |
| AB net income attributable to AB Unitholders | $831.8 million | $1.149 billion | Down 27.6% |
| Diluted net income per AB Unit | $3.01 | $4.18 | Down 28.0% |
| AB Holding net income | $274.2 million | $385.8 million | Down 28.9% |
| Diluted net income per AB Holding Unit | $2.69 | $3.88 | Down 30.7% |
| AB cash provided by operating activities | $1.121 billion | $1.299 billion | Down $177.6 million |
AUM and flows: AUM ended the year at $646.4 billion, down 17.0% from $778.6 billion. Market depreciation of $140.4 billion and net outflows of $3.6 billion were partly offset by $12.2 billion added through the CarVal acquisition. Retail had $11.6 billion of net outflows; Institutions had $6.3 billion of inflows and Private Wealth Management had $1.7 billion of inflows. Average AUM declined 6.1%.
Revenue drivers: Investment advisory and services fees fell 7.0% to $2.971 billion, reflecting lower base fees and performance-based fees. Performance-based fees were $145.2 million, down 40.7%. Bernstein Research Services revenue declined 7.9% to $416.3 million. Investment losses were $102.4 million, compared with a $0.6 million loss in 2021. Higher dividend and interest income partly offset these declines.
Costs, margins and cash: Expenses were $3.239 billion, up 0.4%; lower compensation and distribution-related costs were offset by higher general and administrative costs, acquisition-related amortization and interest. Adjusted operating margin, a non-GAAP measure, was 28.4%, versus 33.6% in 2021. AB reported $1.1 billion of cash and cash equivalents on its balance sheet, excluding cash held by consolidated funds and cash classified as held for sale; the filing notes this includes broker-dealer customer-related cash and $497 million held by foreign subsidiaries.
Debt and liquidity: AB reported $990 million of debt at year-end: $900 million drawn under its committed EQH facility and $90 million under an uncommitted EQH facility. Its $800 million committed bank revolver had no borrowings outstanding and matures in October 2026. Management said operating cash flow and access to debt and unit issuance should meet general business needs. AB Holding reported $362.6 million of operating cash flow and expects distributions from AB to support its obligations.
Material changes versus the prior year
- Market depreciation, especially in equities and fixed income, was the main contributor to lower AUM; retail net outflows added pressure. Active alternatives and multi-asset strategies attracted net inflows.
- Operating income and net income fell substantially as revenues declined while expenses were broadly flat. Lower performance fees and investment losses were notable contributors.
- AB acquired CarVal Investors on July 1, 2022, adding approximately $12.2 billion of AUM and expanding private alternatives. Purchase consideration was $818.1 million, comprising $589.2 million in units and $228.9 million of contingent consideration.
- AB announced a planned joint venture with Société Générale combining their cash equities and research businesses. The BRS business was classified as held for sale; closing was expected before the end of 2023, subject to customary conditions. AB expected to own 49% at closing.
Outlook, management commentary and risks
- Management highlighted inflation, higher interest rates, the Ukraine conflict and volatile markets as significant operating conditions. The filing provides no formal earnings or AUM guidance.
- Equitable Financial indicated an intention to provide up to $10 billion of permanent capital for AB private alternatives and private placements, with more than half deployed by year-end. The filing states this is not a binding commitment and withdrawals may be possible under certain conditions.
- For the Nashville headquarters relocation, management estimated total transition costs of $145–$155 million and cumulative savings of $205–$215 million through 2024. It estimated ongoing annual savings of $75–$80 million beginning in 2025. These are forward-looking estimates dependent on assumptions; management cautioned that actual costs, savings and timing may differ.
- Key risks include market-driven AUM and fee volatility, investment performance and client withdrawals, the industry shift toward lower-fee passive products, reliance on EQH as the largest client, regulatory and litigation uncertainty, cybersecurity and operational disruption, and competition for investment talent.
- A December 2022 ERISA class action alleges fiduciary-duty and prohibited-transaction violations concerning proprietary investment options in AB’s employee profit-sharing plan. Damages are unspecified; management said the matter is at an early stage and does not currently expect a material adverse effect. Other proceedings are disclosed, but potential losses could not be estimated.
- Auditors issued unqualified opinions on the financial statements and internal controls. The CarVal acquisition’s intangible asset and contingent consideration valuations were identified as a critical audit matter involving significant management estimates. CarVal was excluded from the 2022 internal-control assessment because it was recently acquired.
Important facts for investors to verify
- Whether AUM and net flows stabilize, particularly retail outflows, and how market movements affect fee revenue.
- Performance-fee trends and the extent to which investment losses or fund consolidation affect reported earnings.
- Completion, terms and financial consequences of the Société Générale joint venture, including the final value of the BRS disposal.
- CarVal’s subsequent AUM, performance against contingent-payment targets, integration progress and dilution from units issued.
- Actual deployment and terms of Equitable Financial’s stated capital plans, and the balance of AB’s borrowings and available liquidity.
- Progress against relocation cost and savings estimates, plus developments in the ERISA litigation and other contingencies.