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AllianceBernstein Holding (NYSE:AB)
Q4 2019 Earnings Call
Feb 12, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Thank you for standing by, and welcome to the AllianceBernstein fourth-quarter 2019 earnings review. [Operator instructions] As a reminder, this conference is being recorded and will be available for replay for one week. I would now like to turn the conference over to your host for this call, head of investor relations for AB, Mr. Mark Griffin.

Please go ahead.

Mark Griffin -- Head of Investor Relations

Thank you, Jody. Good morning, everyone, and welcome to our fourth-quarter 2019 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website, www.alliancebernstein.com. Seth Bernstein, our president and CEO; John Weisenseel, our CFO; and Jim Gingrich, our COO, will present our results and take questions after our prepared remarks.

Some of the information we will present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So I'd like to point out the safe harbor language on Slide 1 of our presentation. You can also find our safe harbor language in the MD&A of our 2019 10-K, which we filed earlier this morning. Under Regulation FD, management may only address questions of material nature from the investment community in a public forum.

So please ask all such questions during this call. Now I will turn it over to Seth.

Seth Bernstein -- President and Chief Executive Officer

Good morning. Thank you for joining us today. I'm pleased to report our 2019 results reflected broad-based strength across AB. Firmwide active net inflows were $8.1 billion in the fourth quarter bringing full year active net inflows to $29.7 billion, which translates to a 6.5% active annualized organic growth rate, our best year in more than a decade.

Flows were driven by a very strong year in fixed income and the continuing success with active equities, which were well diversified across channels and regions. And in an environment of declining fee rates, AB's overall portfolio fee rate remained fairly stable, thanks to a favorable mix change. Now let's get into the specifics. Starting with a firmwide overview on Slide 3.

Annual gross sales of $103.7 billion in 2019 were up $10 billion or 11% from 2018. The retail channel was robust, reflecting high demand for global fixed-income products throughout 2019. Total firmwide net inflows were $25.2 billion for the year, comprised of $29.7 billion in active net inflows and 4.5 billion in our passive net outflows. Combined with strong markets and strong -- solid investment performance, our year-end assets under management of $623 billion increased 21% from the prior year.

We also reported strong net inflows for January this morning, a continuation of trends we saw in 2019. Slide 4 shows our quarterly flow trend by channel. Firmwide net inflows of $6.5 billion consisted of $8.1 billion in active net inflows, partially offset by $1.6 billion of passive net flows. Net inflows were positive for the sixth consecutive quarter driven by healthy retail and solid Institutional results, while the private wealth flows were essentially flat.

In retail, gross sales of $18.9 billion were the second highest in our retail history, eclipsed only in the prior quarter. And retail net inflows of $5.2 billion exceeded $5 billion for the fourth consecutive quarter. In the bottom left chart, you can see Institutional gross sales of $5.4 billion increased sequentially, resulting in net inflows of $1.4 billion as active equity inflows of $2.6 billion grew at an annualized rate of 27%. And in private wealth, gross sales and redemptions both improved relative to sequential and prior year periods.

Slide 5 is an annual flows view. Firmwide net inflows of $25.2 billion were the best we produced since before the global financial crisis and were led by retail, which had net inflows of $23.8 billion. Institutional had net inflows of $2.4 billion, and private wealth flows contracted by $1 billion, following three years of growth. Now let's turn to investment performance beginning on Slide 6.

In fixed income, global diversified approach has continued to drive highly competitive risk-adjusted returns with 81% of assets outperforming over three years and 92% of assets outperforming over five years. Our one-year performance improved to 86% of assets outperforming, led by our global high-yield fund, AB income and global bond funds. The barbell approach in our multi-sector funds, which includes exposure to high-yield combined, with outperformance of risk assets in the fourth quarter, contributed to these results. In Equities, our long-term investment performance also remained strong with 62% of assets outperforming over three years and 84% over five years.

In the most recent one-year period, 43% of assets outperformed. The large-cap growth of the [Inaudible] and in quality bias, combined with its higher cash position, led to underperformance. In our strategic equities portfolio, lower beta caused us to trail the market as it did in our -- as did under exposure to more cyclical sectors such as semiconductors. Slides 7 and 8 provide more insight on retail, fixed income, and equity investment performance.

The fixed income table on Slide 7 reflects that our track records are compelling across the near, mid and long-term horizons. Performance in our income portfolios have been particularly very strong, both American income and European income are well within the top quartile for each of the one-, three- and five periods. The income fund is top decile for the one-, three- and five periods. And our municipal strategy show consistent outperformance with municipal bond inflation and intermediate diversified muni strategies in the top decile for each of their comparable periods and the high-income portfolio in the top quartile for the one-, three- and five-year periods.

Moving to equities on Slide 8, among our offshore offerings, our concentrated global, global core in select U.S. long-short strategies continue to place in the top quartile in all-time periods. And global low-vol was in the top decile for the three- and five-year time periods. Of our U.S.

retail funds, our concentrated U.S. and international growth portfolios were both in the top decile over the 1-year period while maintaining strong performance over the three- and five-year periods. And our large-cap growth [Inaudible] to be maintained top quartile performance over the three- and five-year period. And within our value offerings, we continued to underperform.

While emerging markets growth service experienced to rebound in one year performance. Let's move on to our client channels, beginning with retail on Slide 9. We enjoyed tremendous success this year following years of investment in our retail platform. Our overall sales of 75.3 billion were up 39% year over year and surpassed our prior record by $19 billion or 34%.

As the top left chart shows, while also exhibiting particular strength in Asia, sales grew in all regions versus the prior period, and net flows were positive in each region as well. Full year active net inflows were $27.2 billion, exceeding $5 billion in each quarter of 2019. These results were led by our fixed income platform, which saw active net inflows of $23.6 billion or a 31% organic growth. We have ranked third out of 412 peers in cross-border retail net fixed income flows.

Turning to Equities. Our active equity platform grew its net flows $3.4 billion, the third consecutive year of organic growth. We've demonstrated consistency with active equity net inflows in 11 of the past 12 quarters. We continued to show significant diversity inflows of 33 funds, attracted net inflows of $100 million or more in the year, 17 of them equities, 14 fixed income and on two multi-asset.

At year-end, AB retail assets under management were $239 billion, an all-time high, up 32% versus the prior year. And 55 retail offerings had more than $1 billion in assets under management. Our U.S. retail active equity net inflows for the year were excellent.

AB ranked six out of 455 asset managers. The international equity and taxable fixed income platforms, both ranked in the top decile of flows and our municipal bond and liquid alt strategies placed in the mid-teen percentiles for net flows versus peers. These are distinguished results. We also continued to see success in our multi-asset strategies, and particularly those oriented toward income, as exemplified by our all-market Lux fund, which had -- we approved for 15 platforms in 2019 and just surpassed over $1 billion in AUM with over $700 million in gross sales during the year.

Now I will discuss institutional on Slide 10. Gross sales for the year were $17.1 billion, with net flows of $2.4 billion, comprised of $3.8 billion active net inflows, partially offset by $1.4 billion of passive outflows. Our sales continued to be led by our active equity platform, which is $9.2 billion, were up 25% versus the prior year, our best year since 2008. It's worth noting that gross sales have exceeded $1 billion for nine of the past 10 quarters.

Net inflows of $2.9 billion in active equities translated into a 9% organic growth rate, led by our global core and global concentrated growth strategies. Over the past two years, our institutional equities business has grown at an average organic growth rate of 11%, very strong results, given the landscape. Our institutional pipeline grew to $15.1 billion at year-end, with $9.2 billion in pipeline additions in the fourth quarter. That's up 30% sequentially and 56% year on year.

This is in the second quarter in a row that our pipeline's annual fee base has exceeded $40 million and shows diversification across asset classes and geography. New additions in the fourth quarter of 9.2 billion included a $5 billion low-fee passive strategy. Excluding that, the average fee rate remains more than twice the channel average. One additional note, as stated in our earnings release and 10-K, we were sorry recently to receive notification from AXA of its intent to terminate approximately $14 billion of fixed income mandates during the first half of 2020.

However, the fees we earned from managing these assets are low and the revenue impact is not significant. Moving to private wealth management on Slide 11. Full-year sales of $11.3 billion reflected some softness due to the broader geopolitical environment. In some cases, inflows from clients expecting to sell their businesses did not materialize when small business transactions were put on hold due to growing economic uncertainty and some clients with cash to invest turned cautious awaiting resolution of the China trade situation and clarification of Fed interest rate policy.

Redemptions in 2019 were below our long-term average, and resulting in full-year net outflows of $1 billion. An important element of our strategy is to continue to grow the high-end portion of our business. In 2019, client accounts of assets greater than $20 million grew by 1.1% and alternatives committed and deployed now comprise $11.2 billion, having grown by $1.9 billion or 20% versus the prior year. These products are supportive of continued growth in our targeted affluent and highly complex client base.

We grew our advisor base by 6%, which is at the high end of our target due to lower-than-expected advisor turnover. And we also saw strong growth in ESG strategies, which grew to $2.7 billion, up 80% from the prior year. A few comments regarding our firm's ESG strategy. As a fiduciary, responsible investor and research firm, we believe that being a responsible company and investing responsibly go hand-in-hand.

Our theme noted in our corporate responsibility reports published this past quarter. We've invested in several tools to extend and integrate our ESG capabilities into our investing platforms, including a proprietary digital platform called ESIGHT to help teams formalize their ESG evaluations and share insights from company engagement, our fixed income Prism research platform includes proprietary ESG scores that directly impacts analyst ratings for each issuer. And our sell-side research teams integrate ESG factors into their stock and company analysis. I will finish our business overview with the sell-side on Slide 12.

Bernstein research continues to feel the effects of a difficult environment as customer activity remained depressed in most geographies. Fourth-quarter and full-year revenues declined by 4% and 7%, respectively, as compared with the prior year period. In 2019, we continued to focus on our efforts on a few of the select growth opportunities while taking appropriate steps to manage the business to ensure that it continues to contribute to AB's profitability. Accomplishments in 2019 included: we remained on plan with our integration of autonomous, achieving our cost savings targets, while our cross-selling efforts are on track with more than 100 potential new clients on trial; the launch of both Indian trading and build-out of an Indian research and sales team in Mumbai; focused Asian research investments, including seven sector launches; and increased pre-IPO research.

Importantly, we had another strength showing in the institutional investor, AART survey with 18 top-ranked sectors. I will close by highlighting some of our 2019 accomplishments on Slide 13. We continued delivering strong differentiated investment returns for clients across fixed income, equities, multi-asset and alternatives, which, combined with our global distribution capabilities drove 6.5% active organic growth for the full year. Retail had record results with active organic growth of 20% for the full year, we've achieved through diversified net inflows across a diverse number of products.

Institutional saw strength in active equity flows and growing pipeline of higher-fee business. New alternative offerings in 2019 included a fund-to-funds JV as well as our third commercial real estate fund. We built the CLO management business, leveraging on our existing high-yield and middle-market direct lending platforms. All of this was done while simultaneously relocating key functions to Nashville, where we now expect to employ 1,250 people, resulting in meaningful expense savings.

In summary, we had a strong year across our global platform, and we are well positioned for continued growth of 2020. Now I will turn it over to John to review the financials.

John Weisenseel -- Chief Financial Officer

Thank you, Seth. Let's start with the GAAP income statement on Slide 15. Fourth-quarter GAAP net revenues of $987 million increased 23% from the prior year period. Operating income of $268 million increased 35% and a 26.4% operating margin increased by 140 basis points.

GAAP EPU of $0.84, compared to $0.63 in the fourth quarter of 2018. As always, I will focus our remarks from here on our adjusted results, which we removed the effect of certain items that are not considered part of our core operating business. We base our distribution to unitholders upon our adjusted results, which we provide in addition to, and not as substitute, for our GAAP results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results are in the presentation's appendix, press release and 10-K.

Our adjusted financial highlights are included on Slide 16. Fourth-quarter revenues of $817 million, operating income of $264 million and our margin of 32.3% all increased year on year. We earned and will distribute to our unitholders $0.85 per unit, compared to $0.64 for last year's fourth quarter. Higher base and performance fees, combined with flat promotion and servicing expenses primarily drove the stronger results.

For this year, revenues decreased by $10 million to $2.9 billion, operating income decreased by $50 million to $802 million, and operating margin decreased by 160 basis points to 27.5%. Adjusted EPU decreased to $2.52 and from the prior year's $2.57. Lower performance fees, Bernstein Research service revenues, combined with higher G&A expenses were the primary drivers of the weaker results. We will delve into these items in more detail on the adjusted income statement on Slide 17.

Beginning with revenues, net revenues increased 17% for the fourth quarter but also relatively flat for the full year versus the same prior year periods. Base fees increased 15% for the fourth quarter and 5% for the full year due to higher average AUM across all three distribution channels and a stable portfolio of fee rate of approximately 41 basis points. Fourth-quarter performance fees increased by $39 million to $74 million as a result of higher performance fees earned on our U.S. concentrated growth of $14 million; securitized assets, $11 million; and Arya, $8 million strategies.

Full-year performance fees of $97 million, compared to $196 million for the same prior year period. As discussed on our prior earnings call, the 2018 performance fees included approximately $129 million of fees related to two funds: the financial Services Opportunity Fund I and real estate equity fund I, which were either liquidated or mostly liquidated in 2018. Fourth quarter and full-year revenue for Bernstein Research services decreased 4% and 7%, respectively, from the same prior year period. The current year period includes revenue from the Autonomous acquisition, which closed on April 1.

Excluding Autonomous, Berstein Research revenues decreased 19% for the fourth quarter and 15% for the full year due to lower global client activity and trading commissions. Fourth-quarter and full-year net distribution expenses increased $8 million and $18 million, respectively, and as a result of higher Asia retail fund sales and AUM. Fourth-quarter and full-year investment gains of $3 million and $16 million, respectively, results from higher seed investment gains and, compared to investment losses in the same prior year periods, which included a $6 million realized loss on the sale of a seat capital investment and a private equity fund in the fourth quarter of 2018. Moving to adjusted expenses.

All-in, our total fourth-quarter operating expenses of $553 million increased 12%. Full-year operating expenses of $2.1 billion increased 2% from the prior year. Total compensation and benefits expenses have  increased 15% in the fourth quarter due to higher base and incentive compensation and increased 1% for the full year due to higher base compensation and fringe benefits, which were mostly offset by lower incentive compensation. Compensation was 44.8% of adjusted net revenues for the fourth quarter versus 45.2% in the prior year period.

The full-year 2019 comp ratio was 47.9%, up 40 basis points from the prior year. Going forward, we expect to continue to manage to a comp ratio that will not exceed 50% in any given year. Given current market conditions, we plan to accrue compensation at a 48.5% ratio in the first quarter of 2020, with the option to adjust accordingly throughout the year if market conditions change. Promotion and servicing was down slightly versus the same prior-year periods also due to lower marketing expenses, which were partially offset by higher T&E.

Lower trade execution expenses also contributed to the full-year decline. G&A expenses increased 10% in the fourth quarter and 7% for the full year versus the same prior year period due to: Higher technology expenses related to our business initiatives; increased occupancy, primarily related to our headquarters relocation; and some unfavorable foreign exchange translation. Higher errors also contributed to the full-year increase. Excluding the headquarters relocation and unfavorable foreign exchange effects, G&A increased by 5% in the fourth quarter and 4% for the full year when the increased errors are excluded as well.

Fourth-quarter operating income of $264 million increased 29% versus the prior year period as revenue growth outpaced expense growth. Full-year 2019 operating income of $802 million decreased 6% from the prior year primarily as a result of lower performance fees and Bernstein Research revenues. Fourth-quarter operating margin of 32.3% was up 300 basis points year on year, reflecting the operating leverage of our business. Our full-year 2019 operating margin of 27.5% was down 160 basis points from 2018.

Of the 160 basis-point decline, 80 points is due to the lower performance fees discussed earlier. 25 basis points is due to the headquarters relocation and the remaining 55 basis points is primarily attributed to the autonomous acquisition, increased the trading errors and unfavorable foreign exchange translation. You may have noticed that our fourth-quarter adjusted EPU was $0.01 higher than our GAAP EPU, while our adjusted operating income was $4 million lower than our GAAP operating income. This is due to the exclusion of the following three items, which are now part of our core business operations.

First, we recorded $3 million real estate charge for GAAP reporting, most of which was to write-off a floor, which we had vacated in our White Plains office as a result in the Nashville relocation. Going forward, this charge will also be deducted from our adjusted earnings on a straight-line basis over the remaining two-year lease term and has been included in our headquarters relocation guidance. Second, we recorded a $3 million GAAP P&L credit to reduce the contingent payment liability and a $3 million GAAP P&L intangible asset impairment charge related to a previous acquisition. Finally, we deconsolidated certain C investments in our adjusted results that we had consolidated for GAAP reporting.

Consolidating these investments increased operating income by $8 million, but did not affect net income or EPU. For the year, our adjusted EPU was $0.03 higher than our GAAP EPU, while our adjusted operating income was $21 million lower than the GAAP operating income. Here, in addition to the real estate charge and contingent payment liability reduction discussed earlier, we excluded $7 million in acquisition costs, which includes the intangible asset impairment charge recorded in the fourth quarter, and a $30 million in consolidated variable interest entities operating income. These non-GAAP adjustments are outlined in the appendix of this presentation.

The full-year 2019 effective tax rate for AllianceBernstein LP was 5.1%, about as expected. Going forward, we expect an effective tax rate of approximately 5.5% for 2020, based upon current forecasted mix of domestic versus foreign pre-tax earnings. Also, in 2020, intangible assets resulting from Alliance Capital acquisition of Bernstein 20 years ago are about to be fully amortized. We have had an annual amortization charge of approximately $21 million for these assets, primarily investment contracts.

$16 million remains to be amortized in the first three quarters of 2020 and then the charge will end. I will finish with an update on our planned corporate headquarters relocation in Nashville. Our relocation is also going very well. Last month, we announced that we plan to relocate 200 additional positions to Nashville, increasing the total planned relocated positions to 1,250.

At year-end, we had over 600 Nashville-based employees. For the fourth quarter, transition costs related to our Nashville corporate headquarters relocation totaled $8 million, compared to estimated expense savings of $4 million, resulting in a net $4 million reduction in operating income and about a net $0.02 reduction in EPU. Of the net $4 million, and approximately $1 million is compensation related and the remaining $3 million representing increased occupancy costs. For the full year of 2019, transition cost totaled $33 million, compared to estimated expense savings of $16 million, resulting in a net $17 million reduction in operating income.

That is about a net $0.06 reduction in EPU, which is $0.02 less than we had expected. Of the net $17 million, approximately $9 million is compensation now related with substantially all included in the comp ratio calculation and the remaining $8 million representing increased occupancy costs. We expect a similar $0.06 reduction in full-year 2020 EPU due to the relocation, breakeven-to-slightly positive EPU accretion in 2021, and then EPU accretion for each year thereafter. We now estimate that the ongoing expense savings beginning in 2025, once the transition period is over, to be approximately $5 million higher than we previously discussed and will be in the range of $75 million to $80 million per year.

There's currently no change to our estimates of ranges for cumulative transition costs, $155 million to $165 million or expense savings, $180 million to $190 million to be realized over the transition period 2018 through 2024 when our New York City building lease expires. Our estimates for the transition costs and the corresponding expense savings are based upon our best current assumptions of employee relocation costs, severance, recruitment and overlapping compensation and occupancy costs. Estimates for the timing of both incurring transition cost and realizing the related expense savings are based on our current relocation implementation plan and the timing for the execution of each phase. The actual total charges that we recorded and the related expense savings realized and timing of our EPU impact are likely to differ from our current estimates as we implement each phase of our headquarters relocation.

And with that, Seth, Jim and I are pleased to answer your questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Dan Fannon of Jefferies. Please go ahead. Your line is open.

James Steele -- Jefferies -- Analyst

Hey. Good morning. This is actually James Steele filling in for Dan. So my question is on the comp ratio. I'm curious as to kind of what might drag this kind of toward the high end or above your range.

And I guess we would have expected it might have come in a bit higher, just given where performance fees were this quarter.

John Weisenseel -- Chief Financial Officer

This is John. In terms of where we came in for the fourth quarter, we were able to leverage that down with the increased rise in the market. And also, as we got into the fourth quarter, we true-up our compensation requirements on an individual -- the individual basis for each SPU. So that allowed us to actually bring the ratio down.

Then starting off for the year, again, we are going to start at 48.5%, which is actually a full percentage point lower and then where we had started a year ago. And it's really a function of where we are starting off with the AUM. Our AUM, starting this year, it's about $110 billion higher than where we had ended the prior year, and that's translating into much higher base fees, much higher revenue and allowing us to leverage that comp ratio down.

James Steele -- Jefferies -- Analyst

Got it. And then secondly, just on the AXA mandate termination, just curious on, I guess, where those assets are going. If you know why it was terminated and then if you could just kind of help us where those assets currently sit. Is it taxable fixed income or somewhere else?

Seth Bernstein -- President and Chief Executive Officer

Yes. As you may or may not know, AXA has its own in-house money manager AXA investment managers, and our understanding is that they will move back in-house. It was all taxable fixed income. Was there any [Inaudible]

Operator

Your next question comes from the line of Mike Carrier of Bank of America. Please go ahead. Your line is open.

Mike Carrier -- Bank of America Merrill Lynch -- Analyst

Good morning and thanks for taking the questions. So, overall, just from the flow side, you guys pointed out, like the flows are strong, both on the retail and institutional side, and the pipeline looks good. I guess, just one follow-up on the AXA, just given maybe their relationship or your guys' relationship with them and what remains, like is there and like more of the assets that potentially go like in-house or was this sort of like a one-off? I know the fees are low, but just so we kind of can gauge what that relationship is now going forward.

Seth Bernstein -- President and Chief Executive Officer

Well, look, as I said -- Mike, it's Seth. Thanks for the question. As we've discussed in the past, ultimately, AXA having sold out its ownership stake would, over time, we thought moved to more of an arm's-length business partnership. And we -- while we have continued to enjoy inflows and specific strategies with them in 2019, we knew that it was a potential possibility that they would begin to bring assets in-house, which they've decided to do.

We don't know what the long-term plans will be. But as I said to you earlier, I think it will move to be more of an arm's-length relationship. So they are pleased with the overall level and service performance which we are providing today.

John Weisenseel -- Chief Financial Officer

And, Mike, it's John. Just to add to Seth's comments, we've looked at the total combined AXA and Equitable relationship, and we've disclosed that it's roughly 25% of the total AUM, about 5% of our fees, but when you break that down, the Equitable piece now is much larger than the AXA piece, both in terms of assets under management as well as revenues that we derived from those assets.

Mike Carrier -- Bank of America Merrill Lynch -- Analyst

Got it. OK. That's helpful. And then maybe just one more on expenses and margins.

I think this is a while back, but you guys, I think, had like a 2020 range. I think it was around that 30%. Then you got the kind of the Nashville efficiencies will come in over the next couple of years. Just maybe bigger picture, and just given what you are seeing in terms of the momentum on the flows and even the fee rates and where you are investing and where you think you can get some incremental operating leverage, how are you thinking about maybe the margin over the next few years based on the core business plus with the Nashville synergies coming into play?

John Weisenseel -- Chief Financial Officer

So, Mike, it's John again. Again, we are still committed to the 30% margin. And we are going to definitely get there. We just don't think it's likely in 2020, unless you get markets like we had last year.

And if we had markets like we had last year, we will definitely be there. But the markets are much more of a driver than the flows in terms of bringing up the AUM in the base fees and the performance fees as well. So we are still targeting that 30%. We are going to get there.

Again, if we get really strong markets, in 2020, that we could potentially get there, but we just don't think it's likely.

Seth Bernstein -- President and Chief Executive Officer

I guess, what I would say also is that, look, nobody is happy with 27.5% margin. We think the margins can be higher. And we've always talked around a 50% incremental margin as we can drive revenue, and we also remain committed to that. So as John is saying, to the extent that we can see higher revenues, that's the easiest path to get to a higher margin level, be it like 30% or higher.

Mike Carrier -- Bank of America Merrill Lynch -- Analyst

All right. Thanks a lot.

Operator

Our next question comes from the line of Alex Blostein of Goldman Sachs. Please go ahead. Your line is open.

Alex Blostein -- Goldman Sachs -- Analyst

Hey. Good morning. Thanks, guys, for taking the question. Seth, a little bit of a bigger-picture question for you.

So when we take a step back, AllianceBernstein has been one of the best flowing AXA managers in the space with pretty attractive fee rates. So one could argue that your organic fee growth is top decile. Yes, when you look at the valuation, it's -- stock has been sort of stuck here at around 11 times earnings. So anything you guys could do to help unlock shareholder value given this strong top-line growth?

Seth Bernstein -- President and Chief Executive Officer

Got it. That's what we were already trying to do that with the results we are generating. Look, I don't think there are obvious levers for us to pull that we aren't pulling today. We have been proactive in addressing what we think is a structural cost challenge, and be it long-only industry by trying to utilize technology to automate lots of processes.

So I think more importantly, in the short term, relocating our headquarters to Nashville. I think those were important steps that are still in execution and people are working very hard to achieve our objectives there. But, Alex, from our perspective, we think we are doing what we are supposed to do. Also, we are focusing on blocking and tackling, focusing on finding new teams that can help supplement the suite of strategies we currently feel and continuing to retain and attract really talented people.

But beyond that, I think there's not a lot we can do.

Alex Blostein -- Goldman Sachs -- Analyst

Yes. That was kind of the point. Sorry if the question didn't come up that way. You guys are executing on the initiatives that you outlined.

It's yes, not resonating in much of a multiple improvement and it feels like a lot of it ultimately has to do with the structure with the K-1 and obviously, the ownership. So any updated thoughts around, I guess, on that front would be very helpful.

John Weisenseel -- Chief Financial Officer

Alex, it's John. I think in terms of when you look at the folks that have converted the alt managers and you look at us, we are very different, right? So our trading, market cap is about $3 billion. And of that $3 billion, roughly a third of that is held with employees and directors. So it just doesn't trade so much.

Some of the other folks that have converted their trading market caps are going from $12 billion up to $80 billion. They are trading several million shares a day. We are trading $300,000. And we also have -- and we are controlled.

We have a controlling parent that has an economic interest of 65%. So much different than the other folks. And so it's not clear to me that a conversion actually helps our unitholders from that perspective. And there's incredible tax leakage involved in something like that.

And then with an election coming up, once you convert, you can't go back. And last time I checked, I think it's all of the Democrat. Democratic candidates accounts for increased corporate taxes. And so, I just don't think this is something that makes sense for us.

Alex Blostein -- Goldman Sachs -- Analyst

Got it. All right. Fair enough. My second question is around the expenses.

I think you guys talked about the margins overall but help maybe dissect what's going on in G&A. I gave -- also you gave a couple of bullet points on kind of core G&A growth. We -- I think, it was around 4% for 2019 when you X out some of the errors in the FX dynamics. But as you are looking out into 2020, what sort of a reasonable G&A growth and off of what base you would be, I guess, considering that?

John Weisenseel -- Chief Financial Officer

Yes -- no, I think, again, off the current base, when you strip out those items I mentioned, we would be looking to grow it around the rate of inflation. So I think we are talking 2% to 3%. And that growth in the G&A, I think, going forward, is primarily driven by many of our technology initiatives. And we are investing in technology across multiple business lines that we have for the client experience as well as for the portfolio manager to give them the tools to do their jobs.

Alex Blostein -- Goldman Sachs -- Analyst

Great. Perfect. Thanks very much.

Operator

Our next question comes from the line of Bill Katz of Citi. Please go ahead. Your line is open.

Bill Katz -- Citi -- Analyst

OK. Most of my questions have been asked. I guess, just on performance fees. Just wondering, can you give us a sense of where you are in terms of performance fee-eligible AUM.

How may have changed year on year and how do you think about any of the seasonal locks that -- as we think about 2020?

John Weisenseel -- Chief Financial Officer

Yes. So I think it's just over 5% of our total assets now are performance fee-based. The biggest part of that is in the private wealth, which is about 9%. And then the Institutional, about 8%; and retail is very small.

But that's where we are. It's been slowly creeping up. We are seeing some of the -- on the Institutional side, some of the recent equity mandates are coming in with perhaps a bit lower basic [Inaudible] in the past, but also it included a performance fee as well. So we are seeing, on the institutional side, more interest in performance fees.

We are also seeing more interest as well as on the private wealth side as well, but it's slowly creeping up.

Bill Katz -- Citi -- Analyst

OK. And then just as a follow-up, just within the other bucket. Could you maybe talk a little bit about your opportunity to sort of see for growth in the alternative segment as we look out to 2020 and also beyond?

Seth Bernstein -- President and Chief Executive Officer

We continue to focus on private alternatives, in particular, Bill. And so we are continuing to uncover teams where we think they have really compelling investment propositions and a proven track record, and who we think we can get to scale fairly quickly. That's our appeal to them. And I think -- and we have nothing to report at the moment, but there are ongoing discussions.

So our goal is to add additional teams this year and each year going forward.

And I would just add, within our existing suite of services, the flows remain quite robust, Bill.

Bill Katz -- Citi -- Analyst

OK. Thank you.

Operator

And our next question comes from the line of Robert Lee of KBW. Please go ahead.  Your line is open.

Robert Lee -- KBW -- Analyst

Great. Thank you. Good morning, everyone. Maybe following up to Bill's question a little bit on the alternatives.

I'm just kind of curious, I guess, a lot of your alternative business, as you point out, comes from the private wealth segment, but can you talk a little bit about maybe what success or what you are seeing in broadening your alternatives, distribution, institutional channels, kind of what proportion of kind of your new business is coming from outside private wealth and kind of some of your initiatives there?

Seth Bernstein -- President and Chief Executive Officer

Let me start, then I'm going to actually refer to Jim later on. He may have something to add here. But for the private credit strategies, whether it's commercial real estate debt or middle-market lending, I believe, a preponderance of their flows are coming now from institutional clients. We've seen particular interest among insurers, both here in the United States, and -- but also outside the U.S.

for those assets, and they continue to be interested in different strategies that we are developing within those groups. Jim, so do you want -- do you have anything to add?

Jim Gingrich -- Chief Operating Officer

Yes. I guess I would say a couple of things. One is, is that in our wealth management business, our clients remain under exposed to alternatives. So it remains an essential part of our strategy to expand our Wealth Management business as well as in terms of attracting new clients as well as additional penetration within the client base that exists today.

As Seth said, whether or not what we are talking about Arya, which is our multi-PM long-short strategy, our securitized fund, our middle market lending capabilities or commercial lending capabilities in real estate space, all of those are experiencing very nice growth in Institutional. And so I guess, I would add we also think there's opportunity in traditional retail space for those types of strategies as well. So -- and as I indicated earlier, we are pretty excited about the opportunities we have within the set of services that we have today as well as our ability to add new services and scale them over time.

Robert Lee -- KBW -- Analyst

And maybe sticking with the private wealth channel, Seth, you mentioned 6% was kind of toward the high end of your expectations for advisor headcount. Can you maybe update us on kind of what you are thinking of that channel for advisor growth over the coming years? And maybe any current plans to go back to expanding the footprint somewhat or is it kind of just fill in within the existing footprint?

Seth Bernstein -- President and Chief Executive Officer

We think we have enormous opportunity within our existing footprint to expand beyond where we currently stand today. So we think we are underpenetrated in a number of cities outside of New York that we've grown in. We've just opened in Nashville, as you know, and we continue to see real -- interesting activity there as well as in our other offices. But with respect to the headcount, we are looking for, we are hoping to see five-odd percent kind of growth rate year over year there.

And we think that's about as fast as we can manage to grow organically just given the commitment to education we make on each of our new client financial advisor we bring in.

Jim Gingrich -- Chief Operating Officer

I guess, I I'd also say we remain very focused on growing the productivity of the advisors that we have in place. As outlined in the presentation, our track record is pretty strong there. And so we -- but we still think we have real opportunity for that to continue.

Robert Lee -- KBW -- Analyst

Great. Thanks for taking my questions.

Operator

There are no further questions at this time. Mr. Griffin, I turn the call back over to you.

Mark Griffin -- Head of Investor Relations

Thank you. Thank you, everyone, for participating in our conference call. Feel free to contact Investor Relations with any further questions. Have a great day.

Duration: 50 minutes

Call participants:

Mark Griffin -- Head of Investor Relations

Seth Bernstein -- President and Chief Executive Officer

John Weisenseel -- Chief Financial Officer

James Steele -- Jefferies -- Analyst

Mike Carrier -- Bank of America Merrill Lynch -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Bill Katz -- Citi -- Analyst

Robert Lee -- KBW -- Analyst

Jim Gingrich -- Chief Operating Officer

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