UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________________________________________________________________________
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2017
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-09818
________________________________________________________________________________________________________________________________
ALLIANCEBERNSTEIN HOLDING L.P.
(Exact name of registrant as specified in its charter)
Delaware | 13-3434400 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1345 Avenue of the Americas, New York, N.Y. | 10105 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (212) 969-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Class | Name of each exchange on which registered | |
units representing assignments of beneficial ownership of limited partnership interests | New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company o |
Emerging growth company o | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the units representing assignments of beneficial ownership of limited partnership interests held by non-affiliates computed by reference to the price at which such units were last sold on the New York Stock Exchange as of June 30, 2017 was approximately $2.2 billion.
The number of units representing assignments of beneficial ownership of limited partnership interests outstanding as of December 31, 2017 was 96,461,989. (This figure includes 100,000 general partnership units having economic interests equivalent to the economic interests of the units representing assignments of beneficial ownership of limited partnership interests.)
DOCUMENTS INCORPORATED BY REFERENCE
This Form 10-K does not incorporate any document by reference.
Table of Contents
Glossary of Certain Defined Terms | ii | |
Part I | ||
Item 1. | ||
Item 1A. | ||
Item 1B. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Part II | ||
Item 5. | ||
Item 6. | ||
Item 7. | ||
Item 7A. | ||
Item 8. | ||
Item 9. | ||
Item 9A. | ||
Item 9B. | ||
Part III | ||
Item 10. | ||
Item 11. | ||
Item 12. | ||
Item 13. | ||
Item 14. | ||
Part IV | ||
Item 15. | ||
Item 16. | ||
i
Glossary of Certain Defined Terms
“AB” – AllianceBernstein L.P. (Delaware limited partnership formerly known as Alliance Capital Management L.P., “Alliance Capital”), the operating partnership, and its subsidiaries and, where appropriate, its predecessors, AB Holding and ACMC, Inc. and their respective subsidiaries.
“AB Holding” – AllianceBernstein Holding L.P. (Delaware limited partnership).
“AB Holding Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB Holding, dated as of October 29, 1999 and as amended February 24, 2006.
“AB Holding Units” – units representing assignments of beneficial ownership of limited partnership interests in AB Holding.
“AB Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB, dated as of October 29, 1999 and as amended February 24, 2006.
“AB Units” – units of limited partnership interest in AB.
“AUM” – AB's assets under management.
“AXA” – AXA (société anonyme organized under the laws of France) is the holding company for the AXA Group, a worldwide leader in financial protection. AXA operates primarily in Europe, North America, the Asia/Pacific regions and, to a lesser extent, in other regions, including the Middle East, Africa and Latin America. AXA has five operating business segments: Life and Savings, Property and Casualty, International Insurance, Asset Management and Banking.
“AXA Equitable” – AXA Equitable Life Insurance Company (New York stock life insurance company), a subsidiary of AXA Financial, and its subsidiaries other than AB and its subsidiaries.
“AXA Equitable Holdings” – AXA Equitable Holdings, Inc. (Delaware corporation), a subsidiary of AXA S.A., and its subsidiaries other than AB and its subsidiaries.
“AXA Financial” – AXA Financial, Inc. (Delaware corporation), a subsidiary of AXA.
“Bernstein Transaction” – AB's acquisition of the business and assets of SCB Inc., formerly known as Sanford C. Bernstein Inc., and the related assumption of the liabilities of that business, completed on October 2, 2000.
“Exchange Act” – the Securities Exchange Act of 1934, as amended.
“ERISA” – the Employee Retirement Income Security Act of 1974, as amended.
“General Partner” – AllianceBernstein Corporation (Delaware corporation), the general partner of AB and AB Holding and a subsidiary of AXA Equitable, and, where appropriate, ACMC, LLC, its predecessor.
“Investment Advisers Act” – the Investment Advisers Act of 1940, as amended.
“Investment Company Act” – the Investment Company Act of 1940, as amended.
“NYSE” – the New York Stock Exchange, Inc.
“Partnerships” – AB and AB Holding together.
“SEC” – the United States Securities and Exchange Commission.
“Securities Act” – the Securities Act of 1933, as amended.
PART I
Item 1. Business
The words “we” and “our” in this Form 10-K refer collectively to AB Holding and AB and its subsidiaries, or to their officers and employees. Similarly, the words “company” and “firm” refer to both AB Holding and AB. Where the context requires distinguishing between AB Holding and AB, we identify which company is being discussed. Cross-references are in italics.
We use “global” in this Form 10-K to refer to all nations, including the United States; we use “international” or “non-U.S.” to refer to nations other than the United States.
We use “emerging markets” in this Form 10-K to refer to countries included in the Morgan Stanley Capital International (“MSCI”) emerging markets index, which are, as of December 31, 2017, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Pakistan, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates.
Clients
We provide research, diversified investment management and related services globally to a broad range of clients through our three buy-side distribution channels: Institutions, Retail and Private Wealth Management, and our sell-side business, Bernstein Research Services. See “Distribution Channels” in this Item 1 for additional information.
As of December 31, 2017, 2016 and 2015, our AUM were approximately $554 billion, $480 billion and $467 billion, respectively, and our net revenues as of December 31, 2017, 2016 and 2015 were approximately $3.3 billion, $3.0 billion and $3.0 billion, respectively. AXA, our parent company, and its subsidiaries, whose AUM consist primarily of fixed income investments, together constitute our largest client. Our affiliates represented approximately 23%, 24% and 24% of our AUM as of December 31, 2017, 2016 and 2015, and we earned approximately 5% of our net revenues from services we provided to our affiliates in each of those years. See “Distribution Channels” below and “Assets Under Management” and “Net Revenues” in Item 7 for additional information regarding our AUM and net revenues.
Generally, we are compensated for our investment services on the basis of investment advisory and services fees calculated as a percentage of AUM. For additional information about our investment advisory and services fees, including performance-based fees, see “Risk Factors” in Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.
Research
Our high-quality, in-depth research is the foundation of our business. We believe that our global team of research professionals, whose disciplines include economic, fundamental equity, fixed income and quantitative research, gives us a competitive advantage in achieving investment success for our clients. We also have experts focused on multi-asset strategies, wealth management and alternative investments.
Investment Services
Our broad range of investment services includes:
• | Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and investment strategies, including value, growth and core equities; |
• | Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies; |
• | Passive management, including index and enhanced index strategies; |
• | Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct real estate investing and direct lending); and |
• | Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds. |
Our services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term (e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging markets, regional and local), in major markets around the world.
1
Our AUM by client domicile and investment service as of December 31, 2017, 2016 and 2015 were as follows:
By Client Domicile ($ in billions):
By Investment Service ($ in billions):
Distribution Channels
Institutions
We offer to our institutional clients, which include private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and various of our affiliates, separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles (“Institutional Services”).
We manage the assets of our institutional clients pursuant to written investment management agreements or other arrangements, which generally are terminable at any time or upon relatively short notice by either party. In general, our written investment management agreements may not be assigned without the client's consent. For information about our institutional investment advisory and services fees, including performance-based fees, see “Risk Factors” in Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.
AXA and its subsidiaries together constitute our largest institutional client. AXA's AUM accounted for approximately 34%, 35% and 33% of our institutional AUM as of December 31, 2017, 2016 and 2015, respectively, and approximately 25%, 28% and 26% of our institutional revenues for 2017, 2016 and 2015, respectively. No single institutional client other than AXA and its subsidiaries accounted for more than approximately 1% of our net revenues for the year ended December 31, 2017.
As of December 31, 2017, 2016 and 2015, Institutional Services represented approximately 48%, 50% and 51%, respectively, of our AUM, and the fees we earned from providing these services represented approximately 14% of our net revenues for each of those years. Our AUM and revenues are as follows:
2
Institutional Services Assets Under Management
(by Investment Service)
December 31, | % Change | ||||||||||||||||
2017 | 2016 | 2015 | 2017-16 | 2016-15 | |||||||||||||
(in millions) | |||||||||||||||||
Equity Actively Managed: | |||||||||||||||||
U.S. | $ | 10,521 | $ | 8,792 | $ | 9,156 | 19.7 | % | (4.0 | )% | |||||||
Global & Non-US | 22,577 | 18,215 | 16,705 | 23.9 | 9.0 | ||||||||||||
Total | 33,098 | 27,007 | 25,861 | 22.6 | 4.4 | ||||||||||||
Equity Passively Managed(1): | |||||||||||||||||
U.S. | 18,515 | 16,135 | 15,573 | 14.8 | 3.6 | ||||||||||||
Global & Non-US | 3,521 | 3,467 | 4,250 | 1.6 | (18.4 | ) | |||||||||||
Total | 22,036 | 19,602 | 19,823 | 12.4 | (1.1 | ) | |||||||||||
Total Equity | 55,134 | 46,609 | 45,684 | 18.3 | 2.0 | ||||||||||||
Fixed Income Taxable: | |||||||||||||||||
U.S. | 103,073 | 97,610 | 88,997 | 5.6 | 9.7 | ||||||||||||
Global & Non-US | 60,233 | 52,598 | 54,897 | 14.5 | (4.2 | ) | |||||||||||
Total | 163,306 | 150,208 | 143,894 | 8.7 | 4.4 | ||||||||||||
Fixed Income Tax-Exempt: | |||||||||||||||||
U.S. | 1,051 | 1,819 | 1,920 | (42.2 | ) | (5.3 | ) | ||||||||||
Global & Non-US | — | — | — | — | — | ||||||||||||
Total | 1,051 | 1,819 | 1,920 | (42.2 | ) | (5.3 | ) | ||||||||||
Fixed Income Passively Managed(1): | |||||||||||||||||
U.S. | 66 | 1,305 | 64 | (94.9 | ) | 1,939.1 | |||||||||||
Global & Non-US | 20 | 15 | 18 | 33.3 | (16.7 | ) | |||||||||||
Total | 86 | 1,320 | 82 | (93.5 | ) | 1,509.8 | |||||||||||
Total Fixed Income | 164,443 | 153,347 | 145,896 | 7.2 | 5.1 | ||||||||||||
Other(2): | |||||||||||||||||
U.S. | 5,258 | 3,831 | 2,939 | 37.2 | 30.4 | ||||||||||||
Global & Non-US | 44,442 | 35,477 | 41,683 | 25.3 | (14.9 | ) | |||||||||||
Total | 49,700 | 39,308 | 44,622 | 26.4 | (11.9 | ) | |||||||||||
Total: | |||||||||||||||||
U.S. | 138,484 | 129,492 | 118,649 | 6.9 | 9.1 | ||||||||||||
Global & Non-US | 130,793 | 109,772 | 117,553 | 19.1 | (6.6 | ) | |||||||||||
Total | $ | 269,277 | $ | 239,264 | $ | 236,202 | 12.5 | 1.3 | |||||||||
Affiliated | $ | 91,903 | $ | 82,721 | $ | 78,048 | 11.1 | 6.0 | |||||||||
Non-affiliated | 177,374 | 156,543 | 158,154 | 13.3 | (1.0 | ) | |||||||||||
Total | $ | 269,277 | $ | 239,264 | $ | 236,202 | 12.5 | 1.3 | |||||||||
________________________________________________________________________________________________________________________
(1) | Includes index and enhanced index services. |
(2) | Includes certain multi-asset solutions and services and certain alternative investments. |
3
Revenues from Institutional Services
(by Investment Service)
Years Ended December 31, | % Change | ||||||||||||||||
2017 | 2016 | 2015 | 2017-16 | 2016-15 | |||||||||||||
(in thousands) | |||||||||||||||||
Equity Actively Managed: | |||||||||||||||||
U.S. | $ | 53,352 | $ | 49,369 | $ | 54,150 | 8.1 | % | (8.8 | )% | |||||||
Global & Non-US | 88,676 | 75,815 | 88,096 | 17.0 | (13.9 | ) | |||||||||||
Total | 142,028 | 125,184 | 142,246 | 13.5 | (12.0 | ) | |||||||||||
Equity Passively Managed(1): | |||||||||||||||||
U.S. | 3,721 | 2,964 | 2,824 | 25.5 | 5.0 | ||||||||||||
Global & Non-US | 1,882 | 2,345 | 4,295 | (19.7 | ) | (45.4 | ) | ||||||||||
Total | 5,603 | 5,309 | 7,119 | 5.5 | (25.4 | ) | |||||||||||
Total Equity | 147,631 | 130,493 | 149,365 | 13.1 | (12.6 | ) | |||||||||||
Fixed Income Taxable: | |||||||||||||||||
U.S. | 107,262 | 101,874 | 94,272 | 5.3 | 8.1 | ||||||||||||
Global & Non-US | 112,294 | 111,602 | 125,888 | 0.6 | (11.3 | ) | |||||||||||
Total | 219,556 | 213,476 | 220,160 | 2.8 | (3.0 | ) | |||||||||||
Fixed Income Tax-Exempt: | |||||||||||||||||
U.S. | 1,989 | 2,591 | 2,361 | (23.2 | ) | 9.7 | |||||||||||
Global & Non-US | — | — | — | — | — | ||||||||||||
Total | 1,989 | 2,591 | 2,361 | (23.2 | ) | 9.7 | |||||||||||
Fixed Income Passively Managed(1): | |||||||||||||||||
U.S. | 202 | 322 | 68 | (37.3 | ) | 373.5 | |||||||||||
Global & Non-US | 16 | 1 | 81 | 1,500.0 | (98.8 | ) | |||||||||||
Total | 218 | 323 | 149 | (32.5 | ) | 116.8 | |||||||||||
Fixed Income Servicing(2): | |||||||||||||||||
U.S. | 13,597 | 12,718 | 13,510 | 6.9 | (5.9 | ) | |||||||||||
Global & Non-US | (14 | ) | 1,530 | 1,715 | (100.9 | ) | (10.8 | ) | |||||||||
Total | 13,583 | 14,248 | 15,225 | (4.7 | ) | (6.4 | ) | ||||||||||
Total Fixed Income | 235,346 | 230,638 | 237,895 | 2.0 | (3.1 | ) | |||||||||||
Other(3): | |||||||||||||||||
U.S. | 62,287 | 34,577 | 23,130 | 80.1 | 49.5 | ||||||||||||
Global & Non-US | 38,153 | 25,162 | 24,070 | 51.6 | 4.5 | ||||||||||||
Total | 100,440 | 59,739 | 47,200 | 68.1 | 26.6 | ||||||||||||
Total Investment Advisory and Services Fees: | |||||||||||||||||
U.S. | 242,410 | 204,415 | 190,315 | 18.6 | 7.4 | ||||||||||||
Global & Non-US | 241,007 | 216,455 | 244,145 | 11.3 | (11.3 | ) | |||||||||||
Consolidated company-sponsored investment funds | (8,717 | ) | 27 | — | n/m | n/m | |||||||||||
474,700 | 420,897 | 434,460 | 12.8 | (3.1 | ) | ||||||||||||
Distribution Revenues | 1,047 | 684 | 248 | 53.1 | 175.8 | ||||||||||||
Shareholder Servicing Fees | 488 | 479 | 497 | 1.9 | (3.6 | ) | |||||||||||
Total | $ | 476,235 | $ | 422,060 | $ | 435,205 | 12.8 | (3.0 | ) | ||||||||
Affiliated | $ | 120,925 | $ | 116,392 | $ | 113,187 | 3.9 | 2.8 | |||||||||
Non-affiliated | 355,310 | 305,668 | 322,018 | 16.2 | (5.1 | ) | |||||||||||
Total | $ | 476,235 | $ | 422,060 | $ | 435,205 | 12.8 | (3.0 | ) | ||||||||
________________________________________________________________________________________________________________________
(1) | Includes index and enhanced index services. |
(2) | Fixed Income Servicing includes advisory-related services fees that are not based on AUM, including derivative transaction fees, capital purchase program-related advisory services and other fixed income advisory services. |
(3) | Includes certain multi-asset solutions and services and certain alternative services. |
4
Retail
We provide investment management and related services to a wide variety of individual retail investors, both in the U.S. and internationally, through retail mutual funds we sponsor, mutual fund sub-advisory relationships, separately-managed account programs (see below), and other investment vehicles (“Retail Products and Services”).
We distribute our Retail Products and Services through financial intermediaries, including broker-dealers, insurance sales representatives, banks, registered investment advisers and financial planners. These products and services include open-end and closed-end funds that are either (i) registered as investment companies under the Investment Company Act (“U.S. Funds”), or (ii) not registered under the Investment Company Act and generally not offered to U.S. persons (“Non-U.S. Funds” and, collectively with the U.S. Funds, “AB Funds”). They also include separately-managed account programs, which are sponsored by financial intermediaries and generally charge an all-inclusive fee covering investment management, trade execution, asset allocation, and custodial and administrative services. In addition, we provide distribution, shareholder servicing, transfer agency services and administrative services for our Retail Products and Services. See “Net Revenues – Investment Advisory and Services Fees” in Item 7 for information about our retail investment advisory and services fees. See Note 2 to AB’s consolidated financial statements in Item 8 for a discussion of the commissions we pay to financial intermediaries in connection with the sale of open-end AB Funds.
Fees paid by the U.S. Funds are reflected in the applicable investment management agreement, which generally must be approved annually by the boards of directors or trustees of those funds, including by a majority of the independent directors or trustees. Increases in these fees must be approved by fund shareholders; decreases need not be, including any decreases implemented by a fund’s directors or trustees. In general, each investment management agreement with the U.S. Funds provides for termination by either party at any time upon 60 days’ notice.
Fees paid by Non-U.S. Funds are reflected in management agreements that continue until they are terminated. Increases in these fees generally must be approved by the relevant regulatory authority, depending on the domicile and structure of the fund, and Non-U.S. Fund shareholders must be given advance notice of any fee increases.
The mutual funds we sub-advise for AXA and its subsidiaries together constitute our largest retail client. They accounted for approximately 19%, 21% and 22% of our retail AUM as of December 31, 2017, 2016 and 2015, respectively, and approximately 4% of our retail net revenues in each of 2017, 2016 and 2015.
Certain subsidiaries of AXA, including AXA Advisors, LLC (“AXA Advisors”), a subsidiary of AXA Financial, were responsible for approximately 1%, 2% and 4% of total sales of shares of open-end AB Funds in 2017, 2016 and 2015, respectively. HSBC was responsible for approximately 9% and 12% of our open-end AB Fund sales in 2017 and 2016, respectively. Neither our affiliates nor HSBC are under any obligation to sell a specific amount of AB Fund shares and each also sells shares of mutual funds that it sponsors and that are sponsored by unaffiliated organizations. No other entity accounted for 10% or more of our open-end AB Fund sales.
Most open-end U.S. Funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out of assets of the fund, distribution and service fees for the distribution and sale of its shares (“Rule 12b-1 Fees”). The open-end U.S. Funds have entered into such agreements with us, and we have entered into selling and distribution agreements pursuant to which we pay sales commissions to the financial intermediaries that distribute our open-end U.S. Funds. These agreements are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares.
As of December 31, 2017, retail U.S. Fund AUM were approximately $47 billion, or 25% of retail AUM, as compared to $41 billion, or 26%, as of December 31, 2016, and $45 billion, or 29%, as of December 31, 2015. Non-U.S. Fund AUM, as of December 31, 2017, totaled $76 billion, or 40% of retail AUM, as compared to $59 billion, or 37%, as of December 31, 2016, and $52 billion, or 33%, as of December 31, 2015.
Our Retail Services represented approximately 35%, 33% and 33% of our AUM as of December 31, 2017, 2016 and 2015, respectively, and the fees we earned from providing these services represented approximately 43%, 42% and 45% of our net revenues for the years ended December 31, 2017, 2016 and 2015, respectively. Our AUM and revenues are as follows:
5
Retail Services Assets Under Management
(by Investment Service)
December 31, | % Change | ||||||||||||||||
2017 | 2016 | 2015 | 2017-16 | 2016-15 | |||||||||||||
(in millions) | |||||||||||||||||
Equity Actively Managed: | |||||||||||||||||
U.S. | $ | 37,720 | $ | 31,717 | $ | 31,481 | 18.9 | % | 0.7 | % | |||||||
Global & Non-US | 20,274 | 12,514 | 14,810 | 62.0 | (15.5 | ) | |||||||||||
Total | 57,994 | 44,231 | 46,291 | 31.1 | (4.5 | ) | |||||||||||
Equity Passively Managed(1): | |||||||||||||||||
U.S. | 23,294 | 20,997 | 19,483 | 10.9 | 7.8 | ||||||||||||
Global & Non-US | 8,758 | 7,025 | 6,664 | 24.7 | 5.4 | ||||||||||||
Total | 32,052 | 28,022 | 26,147 | 14.4 | 7.2 | ||||||||||||
Total Equity | 90,046 | 72,253 | 72,438 | 24.6 | (0.3 | ) | |||||||||||
Fixed Income Taxable: | |||||||||||||||||
U.S. | 7,699 | 6,175 | 5,905 | 24.7 | 4.6 | ||||||||||||
Global & Non-US | 65,963 | 54,328 | 47,891 | 21.4 | 13.4 | ||||||||||||
Total | 73,662 | 60,503 | 53,796 | 21.7 | 12.5 | ||||||||||||
Fixed Income Tax-Exempt: | |||||||||||||||||
U.S. | 15,654 | 13,579 | 11,601 | 15.3 | 17.1 | ||||||||||||
Global & Non-US | 53 | 10 | 12 | 430.0 | (16.7 | ) | |||||||||||
Total | 15,707 | 13,589 | 11,613 | 15.6 | 17.0 | ||||||||||||
Fixed Income Passively Managed(1): | |||||||||||||||||
U.S. | 5,173 | 5,216 | 5,010 | (0.8 | ) | 4.1 | |||||||||||
Global & Non-US | 4,250 | 4,041 | 4,492 | 5.2 | (10.0 | ) | |||||||||||
Total | 9,423 | 9,257 | 9,502 | 1.8 | (2.6 | ) | |||||||||||
Total Fixed Income | 98,792 | 83,349 | 74,911 | 18.5 | 11.3 | ||||||||||||
Other(2): | |||||||||||||||||
U.S. | 2,799 | 3,229 | 5,116 | (13.3 | ) | (36.9 | ) | ||||||||||
Global & Non-US | 1,311 | 1,339 | 1,903 | (2.1 | ) | (29.6 | ) | ||||||||||
Total | 4,110 | 4,568 | 7,019 | (10.0 | ) | (34.9 | ) | ||||||||||
Total: | |||||||||||||||||
U.S. | 92,339 | 80,913 | 78,596 | 14.1 | 2.9 | ||||||||||||
Global & Non-US | 100,609 | 79,257 | 75,772 | 26.9 | 4.6 | ||||||||||||
Total | $ | 192,948 | $ | 160,170 | $ | 154,368 | 20.5 | 3.8 | |||||||||
Affiliated | $ | 36,965 | $ | 33,774 | $ | 33,364 | 9.4 | 1.2 | |||||||||
Non-affiliated | 155,983 | 126,396 | 121,004 | 23.4 | 4.5 | ||||||||||||
Total | $ | 192,948 | $ | 160,170 | $ | 154,368 | 20.5 | 3.8 | |||||||||
________________________________________________________________________________________________________________________
(1) | Includes index and enhanced index services. |
(2) | Includes certain multi-asset solutions and services and certain alternative investments. |
6
Revenues from Retail Services
(by Investment Service)
Years Ended December 31, | % Change | ||||||||||||||||
2017 | 2016 | 2015 | 2017-16 | 2016-15 | |||||||||||||
(in thousands) | |||||||||||||||||
Equity Actively Managed: | |||||||||||||||||
U.S. | $ | 204,363 | $ | 186,442 | $ | 182,802 | 9.6 | % | 2.0 | % | |||||||
Global & Non-US | 114,277 | 92,953 | 107,787 | 22.9 | (13.8 | ) | |||||||||||
Total | 318,640 | 279,395 | 290,589 | 14.0 | (3.9 | ) | |||||||||||
Equity Passively Managed(1): | |||||||||||||||||
U.S. | 8,508 | 7,670 | 8,187 | 10.9 | (6.3 | ) | |||||||||||
Global & Non-US | 6,636 | 5,267 | 5,268 | 26.0 | — | ||||||||||||
Total | 15,144 | 12,937 | 13,455 | 17.1 | (3.8 | ) | |||||||||||
Total Equity | 333,784 | 292,332 | 304,044 | 14.2 | (3.9 | ) | |||||||||||
Fixed Income Taxable: | |||||||||||||||||
U.S. | 23,142 | 16,993 | 15,842 | 36.2 | 7.3 | ||||||||||||
Global & Non-US | 454,613 | 373,997 | 397,731 | 21.6 | (6.0 | ) | |||||||||||
Total | 477,755 | 390,990 | 413,573 | 22.2 | (5.5 | ) | |||||||||||
Fixed Income Tax-Exempt: | |||||||||||||||||
U.S. | 54,106 | 52,847 | 44,917 | 2.4 | 17.7 | ||||||||||||
Global & Non-US | 121 | 63 | 73 | 92.1 | (13.7 | ) | |||||||||||
Total | 54,227 | 52,910 | 44,990 | 2.5 | 17.6 | ||||||||||||
Fixed Income Passively Managed(1): | |||||||||||||||||
U.S. | 6,055 | 6,105 | 5,663 | (0.8 | ) | 7.8 | |||||||||||
Global & Non-US | 7,567 | 7,815 | 8,198 | (3.2 | ) | (4.7 | ) | ||||||||||
Total | 13,622 | 13,920 | 13,861 | (2.1 | ) | 0.4 | |||||||||||
Total Fixed Income | 545,604 | 457,820 | 472,424 | 19.2 | (3.1 | ) | |||||||||||
Other(2): | |||||||||||||||||
U.S. | 59,751 | 52,025 | 71,129 | 14.9 | (26.9 | ) | |||||||||||
Global & Non-US | 6,583 | 6,672 | 8,456 | (1.3 | ) | (21.1 | ) | ||||||||||
Total | 66,334 | 58,697 | 79,585 | 13.0 | (26.2 | ) | |||||||||||
Total Investment Advisory and Services Fees: | |||||||||||||||||
U.S. | 355,925 | 322,082 | 328,540 | 10.5 | (2.0 | ) | |||||||||||
Global & Non-US | 589,797 | 486,767 | 527,513 | 21.2 | (7.7 | ) | |||||||||||
Consolidated company-sponsored investment funds | 1,005 | 105 | — | 857.1 | n/m | ||||||||||||
946,727 | 808,954 | 856,053 | 17.0 | (5.5 | ) | ||||||||||||
Distribution Revenues | 405,939 | 379,881 | 423,410 | 6.9 | (10.3 | ) | |||||||||||
Shareholder Servicing Fees | 71,225 | 73,072 | 83,078 | (2.5 | ) | (12.0 | ) | ||||||||||
Total | $ | 1,423,891 | $ | 1,261,907 | $ | 1,362,541 | 12.8 | (7.4 | ) | ||||||||
Affiliated | $ | 50,162 | $ | 46,045 | $ | 47,650 | 8.9 | (3.4 | ) | ||||||||
Non-affiliated | 1,373,729 | 1,215,862 | 1,314,891 | 13.0 | (7.5 | ) | |||||||||||
Total | $ | 1,423,891 | $ | 1,261,907 | $ | 1,362,541 | 12.8 | (7.4 | ) | ||||||||
________________________________________________________________________________________________________________________
(1) | Includes index and enhanced index services. |
(2) | Includes certain multi-asset solutions and services and certain alternative investments. |
7
Private Wealth Management
We offer to our private wealth clients, which include high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities, separately-managed accounts, hedge funds, mutual funds and other investment vehicles (“Private Wealth Services”).
We manage these accounts pursuant to written investment advisory agreements, which generally are terminable at any time or upon relatively short notice by any party and may not be assigned without the client's consent. For information about our investment advisory and services fees, including performance-based fees, see “Risk Factors” in Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.
Our Private Wealth Services represented approximately 17%, 17% and 16% of our AUM as of December 31, 2017, 2016 and 2015, and the fees we earned from providing these services represented approximately 24%, 23% and 23% of our net revenues for 2017, 2016 and 2015, respectively. Our AUM and revenues are as follows:
8
Private Wealth Services Assets Under Management
(by Investment Service)
December 31, | % Change | ||||||||||||||||
2017 | 2016 | 2015 | 2017-16 | 2016-15 | |||||||||||||
(in millions) | |||||||||||||||||
Equity Actively Managed: | |||||||||||||||||
U.S. | $ | 26,492 | $ | 23,857 | $ | 22,873 | 11.0 | % | 4.3 | % | |||||||
Global & Non-US | 21,880 | 16,851 | 15,595 | 29.8 | 8.1 | ||||||||||||
Total | 48,372 | 40,708 | 38,468 | 18.8 | 5.8 | ||||||||||||
Equity Passively Managed(1): | |||||||||||||||||
U.S. | 130 | 193 | 177 | (32.6 | ) | 9.0 | |||||||||||
Global & Non-US | 51 | 208 | 210 | (75.5 | ) | (1.0 | ) | ||||||||||
Total | 181 | 401 | 387 | (54.9 | ) | 3.6 | |||||||||||
Total Equity | 48,553 | 41,109 | 38,855 | 18.1 | 5.8 | ||||||||||||
Fixed Income Taxable: | |||||||||||||||||
U.S. | 6,772 | 6,674 | 6,742 | 1.5 | (1.0 | ) | |||||||||||
Global & Non-US | 4,141 | 3,528 | 3,053 | 17.4 | 15.6 | ||||||||||||
Total | 10,913 | 10,202 | 9,795 | 7.0 | 4.2 | ||||||||||||
Fixed Income Tax-Exempt: | |||||||||||||||||
U.S. | 23,636 | 21,501 | 19,973 | 9.9 | 7.7 | ||||||||||||
Global & Non-US | 18 | 3 | 3 | 500.0 | — | ||||||||||||
Total | 23,654 | 21,504 | 19,976 | 10.0 | 7.6 | ||||||||||||
Fixed Income Passively Managed(1): | |||||||||||||||||
U.S. | — | 18 | 4 | (100.0 | ) | 350.0 | |||||||||||
Global & Non-US | 401 | 468 | 372 | (14.3 | ) | 25.8 | |||||||||||
Total | 401 | 486 | 376 | (17.5 | ) | 29.3 | |||||||||||
Total Fixed Income | 34,968 | 32,192 | 30,147 | 8.6 | 6.8 | ||||||||||||
Other(2): | |||||||||||||||||
U.S. | 3,606 | 2,650 | 2,439 | 36.1 | 8.7 | ||||||||||||
Global & Non-US | 5,139 | 4,816 | 5,429 | 6.7 | (11.3 | ) | |||||||||||
Total | 8,745 | 7,466 | 7,868 | 17.1 | (5.1 | ) | |||||||||||
Total: | |||||||||||||||||
U.S. | 60,636 | 54,893 | 52,208 | 10.5 | 5.1 | ||||||||||||
Global & Non-US | 31,630 | 25,874 | 24,662 | 22.2 | 4.9 | ||||||||||||
Total | $ | 92,266 | $ | 80,767 | $ | 76,870 | 14.2 | 5.1 | |||||||||
________________________________________________________________________________________________________________________
(1) | Includes index and enhanced index services. |
(2) | Includes certain multi-asset solutions and services and certain alternative investments. |
9
Revenues From Private Wealth Services
(by Investment Service)
Years Ended December 31, | % Change | ||||||||||||||||
2017 | 2016 | 2015 | 2017-16 | 2016-15 | |||||||||||||
(in thousands) | |||||||||||||||||
Equity Actively Managed: | |||||||||||||||||
U.S. | $ | 272,577 | $ | 255,902 | $ | 260,706 | 6.5 | % | (1.8 | )% | |||||||
Global & Non-US | 212,021 | 176,169 | 171,101 | 20.4 | 3.0 | ||||||||||||
Total | 484,598 | 432,071 | 431,807 | 12.2 | 0.1 | ||||||||||||
Equity Passively Managed(1): | |||||||||||||||||
U.S. | 206 | 423 | 1,229 | (51.3 | ) | (65.6 | ) | ||||||||||
Global & Non-US | 510 | 1,053 | 834 | (51.6 | ) | 26.3 | |||||||||||
Total | 716 | 1,476 | 2,063 | (51.5 | ) | (28.5 | ) | ||||||||||
Total Equity | 485,314 | 433,547 | 433,870 | 11.9 | (0.1 | ) | |||||||||||
Fixed Income Taxable: | |||||||||||||||||
U.S. | 34,173 | 35,756 | 36,689 | (4.4 | ) | (2.5 | ) | ||||||||||
Global & Non-US | 26,425 | 23,384 | 20,488 | 13.0 | 14.1 | ||||||||||||
Total | 60,598 | 59,140 | 57,177 | 2.5 | 3.4 | ||||||||||||
Fixed Income Tax-Exempt: | |||||||||||||||||
U.S. | 114,974 | 111,304 | 106,162 | 3.3 | 4.8 | ||||||||||||
Global & Non-US | 88 | 31 | 34 | 183.9 | (8.8 | ) | |||||||||||
Total | 115,062 | 111,335 | 106,196 | 3.3 | 4.8 | ||||||||||||
Fixed Income Passively Managed(1): | |||||||||||||||||
U.S. | 58 | 38 | 11 | 52.6 | 245.5 | ||||||||||||
Global & Non-US | 4,059 | 3,336 | 4,299 | 21.7 | (22.4 | ) | |||||||||||
Total | 4,117 | 3,374 | 4,310 | 22.0 | (21.7 | ) | |||||||||||
Total Fixed Income | 179,777 | 173,849 | 167,683 | 3.4 | 3.7 | ||||||||||||
Other(2): | |||||||||||||||||
U.S. | 67,019 | 41,595 | 22,177 | 61.1 | 87.6 | ||||||||||||
Global & Non-US | 49,365 | 54,629 | 59,594 | (9.6 | ) | (8.3 | ) | ||||||||||
Total | 116,384 | 96,224 | 81,771 | 21.0 | 17.7 | ||||||||||||
Total Investment Advisory and Services Fees: | |||||||||||||||||
U.S. | 489,007 | 445,018 | 426,974 | 9.9 | 4.2 | ||||||||||||
Global & Non-US | 292,468 | 258,602 | 256,350 | 13.1 | 0.9 | ||||||||||||
Consolidated company-sponsored investment funds | (2,501 | ) | — | — | n/m | n/m | |||||||||||
Total | 778,974 | 703,620 | 683,324 | 10.7 | 3.0 | ||||||||||||
Distribution Revenues | 5,077 | 3,840 | 3,498 | 32.2 | 9.8 | ||||||||||||
Shareholder Servicing Fees | 3,311 | 4,139 | 3,031 | (20.0 | ) | 36.6 | |||||||||||
Total | $ | 787,362 | $ | 711,599 | $ | 689,853 | 10.6 | 3.2 | |||||||||
________________________________________________________________________________________________________________________
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services and certain alternative investments.
10
Bernstein Research Services
We offer high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options to institutional investors, such as pension fund, hedge fund and mutual fund managers, and other institutional investors (“Bernstein Research Services”). We serve our clients, which are based in the United States and in other major markets around the world, through our trading professionals, who primarily are based in New York, London and Hong Kong, and our sell-side analysts, who provide fundamental company and industry research along with quantitative research into securities valuation and factors affecting stock-price movements.
We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to a lesser extent by paying us directly for research through commission sharing agreements or cash payments. Bernstein Research Services accounted for approximately 14%, 16% and 16% of our net revenues as December 31, 2017, 2016 and 2015, respectively.
For information regarding trends in fee rates charged for brokerage transactions, see “Risk Factors” in Item 1A.
Our Bernstein Research Services revenues are as follows:
Revenues From Bernstein Research Services
Years Ended December 31, | % Change | ||||||||||||||||
2017 | 2016 | 2015 | 2017-16 | 2016-15 | |||||||||||||
(in thousands) | |||||||||||||||||
Bernstein Research Services | $ | 449,919 | $ | 479,875 | $ | 493,463 | (6.2 | )% | (2.8 | )% | |||||||
Custody
Our U.S.-based broker-dealer subsidiary acts as custodian for the majority of our Private Wealth Management AUM and some of our Institutions AUM. Other custodial arrangements are maintained by client-designated banks, trust companies, brokerage firms or custodians.
Employees
As of December 31, 2017, our firm had 3,466 full-time employees, representing a 0.8% increase compared to the end of 2016. We consider our employee relations to be good.
Service Marks
We have registered a number of service marks with the U.S. Patent and Trademark Office and various foreign trademark offices, including the mark “AllianceBernstein”. The logo set forth below and “Ahead of Tomorrow” are service marks of AB:
In January 2015, we established a new brand identity by prominently incorporating “AB” into our brand architecture, while maintaining the legal names of our corporate entities. With this and other related refinements, our company, and our Institutional and Retail businesses, now are referred to “AllianceBernstein (AB)” or simply “AB”. Private Wealth Management and Bernstein Research Services now are referred to as “AB Bernstein”. Also, we adopted the logo and “Ahead of Tomorrow” service marks described above.
In connection with the Bernstein Transaction, we acquired all of the rights in, and title to, the Bernstein service marks, including the mark “Bernstein”.
In connection an acquisition we completed in 2013, we acquired all of the rights in, and title to, the W.P. Stewart & Co. service marks, including the logo “WPSTEWART”.
11
Regulation
Virtually all aspects of our business are subject to various federal and state laws and regulations, rules of various securities regulators and exchanges, and laws in the foreign countries in which our subsidiaries conduct business. These laws and regulations primarily are intended to protect clients and fund shareholders and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. Possible sanctions that may be imposed on us include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment adviser or broker-dealer, censures and fines.
AB, AB Holding, the General Partner and six of our subsidiaries (Sanford C. Bernstein & Co., LLC (“SCB LLC”), AllianceBernstein Global Derivatives Corporation, AB Custom Alternative Solutions LLC, AB Private Credit Investors LLC, W.P. Stewart & Co., LLC and W.P. Stewart Asset Management LLC) are registered with the SEC as investment advisers under the Investment Advisers Act. Additionally, AB Holding is an NYSE-listed company and, accordingly, is subject to applicable regulations promulgated by the NYSE. Also, AB, SCB LLC and AB Custom Alternative Solutions LLC are registered with the Commodity Futures Trading Commission (“CFTC”) as commodity pool operators and commodity trading advisers; SCB LLC also is registered with the CFTC as a commodities introducing broker.
Each U.S. Fund is registered with the SEC under the Investment Company Act and each Non-U.S. Fund is subject to the laws in the jurisdiction in which the fund is registered. For example, our platform of Luxembourg-based funds operates pursuant to Luxembourg laws and regulations, including Undertakings for the Collective Investment in Transferable Securities Directives, and is authorized and supervised by the Commission de Surveillance du Secteur Financier (“CSSF”), the primary regulator in Luxembourg. AllianceBernstein Investor Services, Inc., one of our subsidiaries, is registered with the SEC as a transfer and servicing agent.
SCB LLC and another of our subsidiaries, AllianceBernstein Investments, Inc., are registered with the SEC as broker-dealers, and both are members of the Financial Industry Regulatory Authority. In addition, SCB LLC is a member of the NYSE and other principal U.S. exchanges.
Many of our subsidiaries are subject to the oversight of regulatory authorities in the jurisdictions outside the United States in which they operate, including the European Securities and Markets Authority, the Financial Conduct Authority in the U.K., the CSSF in Luxembourg, the Financial Services Agency in Japan, the Securities & Futures Commission in Hong Kong, the Monetary Authority of Singapore, the Financial Services Commission in South Korea and the Financial Supervisory Commission in Taiwan. While these regulatory requirements often may be comparable to the requirements of the SEC and other U.S. regulators, they are sometimes more restrictive and may cause us to incur substantial expenditures of time and money related to our compliance efforts. For additional information relating to the regulations that impact our business, please refer to "Risk Factors" in Item 1A.
Iran Threat Reduction and Syria Human Rights Act
AB, AB Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act, nor were they involved in the AXA Group matters described immediately below.
The non-U.S. based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions in which they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see "Principal Security Holders" in Item 12.
AXA has informed us that AXA Konzern AG, an AXA insurance subsidiary organized under the laws of Germany, provides car, accident and health insurance to diplomats based at the Iranian Embassy in Berlin, Germany. The total annual premium of these policies is approximately $181,000 before tax and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $26,900. These policies were underwritten by a broker who specializes in providing insurance coverage for diplomats. Provision of motor vehicle insurance is mandatory in Germany and cannot be canceled until the policy expires.
In addition, AXA has informed us that AXA Insurance Ireland, an AXA insurance subsidiary, provides statutorily required car insurance under four separate policies to the Iranian Embassy in Dublin, Ireland. AXA has informed us that compliance with the
12
Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to assume the coverage. The total annual premium for these policies is approximately $6,094 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $914.
Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of Turkey, provides car insurance coverage for vehicle pools of the Iranian General Consulate and the Iranian Embassy in Istanbul, Turkey. Motor liability insurance coverage is mandatory in Turkey and cannot be canceled unilaterally. The total annual premium in respect of these policies is approximately $3,150 and the annual net profit, which is difficult to calculate with precision, is estimated to be $473.
Additionally, AXA has informed us that AXA Ukraine, an AXA insurance subsidiary, provides car insurance for the Attaché of the Iranian Embassy in Ukraine. Motor liability insurance coverage cannot be canceled under Ukrainian law. The total annual premium in respect of this policy is approximately $1,000 and the annual net profit, which is difficult to calculate with precision, is estimated to be $150.
AXA also has informed us that AXA Ubezpieczenia, an AXA insurance subsidiary organized under the laws of Poland, provides car insurance to two diplomats based at the Iranian embassy in Warsaw, Poland. Provision of motor vehicle insurance is mandatory in Poland. The total annual premium of these policies is approximately $676 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $101. This business had ceased by December 31, 2017.
In addition, AXA has informed us that AXA Winterthur, an AXA insurance subsidiary organized under the laws of Switzerland, provides Naftiran Intertrade, a wholly-owned subsidiary of the Iranian state-owned National Iranian Oil Company, with life, disability and accident coverage for its employees. The provision of these forms of coverage is mandatory for employees in Switzerland. The total annual premium of these policies is approximately $373,668 and the annual net profit arising from these policies, which is diffi