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01/11 11:09
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary indicates strong financial performance with a 20% YoY increase in fee-eligible assets and a 10% rise in earnings per unit. The Q&A section reveals positive developments, like the partnership with Pacific Life, and a focus on scalable M&A opportunities. Despite some uncertainties in guidance, the company's robust AUM growth, strategic partnerships, and optimistic outlook for flagship strategies suggest a positive stock price movement over the next two weeks.
Assets Under Management (AUM) $829 billion, a record high, representing a post-financial crisis peak. This is a 20% year-over-year increase in private markets AUM, attributed to scale gains, improved operating leverage, and a durable fee rate.
Net Flows Firm-wide net flows turned negative in Q2 2025, with active strategies shedding $4.8 billion. Active equity shed $6 billion, primarily led by retail, while active fixed income experienced $1.5 billion in taxable outflows, offset by $1.2 billion in tax-exempt inflows. The downturn was due to market volatility and overseas demand reduction.
Operating Margin 33% operating margin expected for 2025, up 150 basis points year-over-year. This improvement is attributed to lower real estate expenses and enhanced operational efficiency.
Adjusted Earnings Per Unit (EPU) $0.76 per unit, a 7% increase year-over-year, driven by market-driven growth in asset management fees and expense discipline.
Net Revenues $844 million, a 2% increase year-over-year. Base fees increased by 4%, while performance fees decreased by $12 million due to lower public market performance fees.
Compensation and Benefits Expense $419 million, up 1% year-over-year, reflecting higher revenues but offset by a lower compensation ratio of 48.5%.
Private Markets AUM $77 billion, growing 20% year-over-year, driven by strong deployments into private placements, real estate debt, CLOs, mortgages, and middle market lending.
Retail Muni Platform Grew organically at a 14% annualized rate in Q2 2025, continuing to gain impressive market share.
Systematic Fixed Income Strategies Attracted over $1 billion in inflows in Q2 2025, reflecting increased client interest.
European Income Portfolio Attracted over $200 million in inflows in Q2 2025, driven by a barbell approach for euro-denominated assets.
Active ETFs: Launched new active ETFs, including an international low volatility equity strategy under the ticker ILOW and the first active ETF in emerging markets. Active ETFs have grown to 18 with nearly $8 billion in AUM, more than doubling from the prior year.
Private Alternatives Platform: Continued investment in private credit, real estate debt, and middle market lending. AB Private Credit Investors and AB CarVal are key contributors, with private markets AUM targeted to grow to $90-$100 billion by 2027, up from $77 billion currently.
Market Share Gains: Gained market share in insurance asset management, alternatives, and retirement. Retail Muni platform grew organically at 14% annualized in Q2 2025.
Geographic Diversification: Increased interest in European income portfolio, attracting over $200 million in inflows in Q2. Launched euro-denominated strategies to diversify geographical exposures.
Operational Efficiency: Achieved a 33% operating margin in 2025, ahead of the 2027 target range of 30%-35%. Relocation to Hudson Yards reduced real estate expenses, contributing to improved margins.
Expense Management: Non-compensation expenses are projected to fall within $600-$620 million for 2025, reflecting continued expense discipline.
Partnership with Equitable: Leveraged Equitable's $20 billion commitment to scale private alternative strategies. Developed new capabilities like residential mortgages and private ABS, which are being commercialized for other clients.
Client Relationships: Added 4 new general account relationships and 5 new mandates, emphasizing high-touch client service and unlocking incremental revenue opportunities.
Geopolitical tensions and policy uncertainty: Escalating geopolitical tensions and policy uncertainty are creating challenges for investors and could impact market stability and client sentiment.
Market volatility and net outflows: Market turbulence led to negative firm-wide net flows in Q2 2025, with active strategies shedding $4.8 billion, particularly in active equity and fixed income.
Decline in overseas demand for income strategies: Overseas demand for marquee income strategies declined, resulting in $1.5 billion in taxable outflows, which could impact revenue from international clients.
Fee rate pressure: The firm-wide fee rate decreased due to a mix shift in AUM and flows, with outflows from higher-fee retail services and growth in lower-fee categories like SMAs and ETFs.
U.S. dollar volatility: Volatility in U.S. dollar-denominated assets, coupled with concerns around fiscal and trade policies, has dampened demand for these assets.
Retail channel outflows: Retail flows turned negative due to macroeconomic turbulence and seasonal tax-related selling, with active equity shedding $3.7 billion.
Commercial real estate market risks: While showing signs of stabilization, the commercial real estate market remains a risk area, particularly for the firm's debt platform investments.
Operational cost pressures: Although expenses are being managed, there is a need for continued discipline to maintain operating margins amidst market volatility and investment in growth initiatives.
Operating Margin: We are on track to deliver a 33% operating margin in 2025, assuming flat markets versus the fourth quarter of 2024. This will put us above the midpoint of our 2027 margin range target of 30% to 35%, 2 years ahead of schedule. We see further potential for margin expansion over time as we scale our business.
Private Markets AUM Growth: We remain on target to grow our private markets AUM to $90 billion to $100 billion by 2027, up from $77 billion today.
Performance Fees Projection: We now project total performance fees for 2025 of $110 million to $130 million, up from our prior estimate of $90 million to $105 million. This upward revision is primarily driven by the flow-through of slight upside in public markets and the more active deployment outlook for our commercial real estate debt platform.
Fee Rate Trajectory: Looking forward, we expect the fee rate trajectory will continue to reflect the mix of organic growth and market movements, which have been more supportive in early 3Q.
Private Alternatives Strategies: For the remainder of the year, we expect our private alternative strategies will be the primary contributors to our performance fees as they have been in recent years. These strategies include commercial real estate debt, CarVal and middle market lending, also known as AB Private Credit Investors, or ABPCI, which is the largest contributor.
Debt Capacity Utilization: We plan to utilize the additional debt capacity in the future to support our commitment to the Ruby Re sidecar and capitalize on potential growth opportunities that may arise.
Dividend Distribution: Adjusted earnings for the second quarter came in at $0.76 per unit, representing a 7% increase compared to the prior year. Distributions and EPU grew uniformly as we distribute 100% of our adjusted earnings to unitholders.
Share Repurchase: No specific mention of a share repurchase program was identified in the transcript.
The earnings call summary and Q&A indicate strong financial performance, successful partnerships, and optimistic guidance. Management expressed excitement about new ventures, particularly in Asia and private credit, and highlighted margin expansion and cost savings. Despite some unclear responses, the overall sentiment is positive, with strategic plans and partnerships likely to boost stock price by 2% to 8%.
The earnings call summary indicates strong financial performance with a 20% YoY increase in fee-eligible assets and a 10% rise in earnings per unit. The Q&A section reveals positive developments, like the partnership with Pacific Life, and a focus on scalable M&A opportunities. Despite some uncertainties in guidance, the company's robust AUM growth, strategic partnerships, and optimistic outlook for flagship strategies suggest a positive stock price movement over the next two weeks.
The earnings call highlights strong financial performance, with EPS beating expectations, increased performance fees, and improved margins. Despite a slight decline in net revenues, operating expenses decreased significantly. The Q&A section reveals confidence in long-term prospects, with no significant risks highlighted. The market cap suggests moderate price movement, leading to a positive prediction of 2% to 8%.
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