AllianceBernstein Holding LP (AB) 2009 Q1 法說會逐字稿

Welcome to the AllianceBernstein first quarter 2009 earnings review. At this time, all participants are in a listen-only mode. After the formal remarks, there will be a question and answer session and I will give you instructions on how to ask questions at that time. As a reminder, this conference is being recorded and will be replayed for one week. I would now like to turn the conference over to the host for this call, the Director of Investor Relations for AllianceBernstein, Mr. Phillip Talamo, please go ahead sir.

Thank you. Good afternoon, everyone. Welcome to our first quarter 2009 earnings review. As a reminder, this conference call is being web cast and supported by slide presentation that can be found in the Investor Relation section of our Web site at www.AllianceBerstein.com/investorrelations.

Presenting our results today is our President and COO Jerry Lieberman and our CFO Bob Joseph. Following Bob's remarks are Chairman and CEO Peter Kraus will provide some additional commentary. I would like to take this opportunity to note that some of the information that we present today is forward-looking in nature and subject to certain SEC rules and regulations regarding disclosure. Our disclosure regarding forward-looking statements can be found on page two of our presentation as well as in the "risk factor" section of our 2008 10-K. In light of SEC Regulation FD, management is limited to responding to inquiries from investors and analysts in a nonpublic forum. Therefore we encourage you to ask all questions of a material nature on this call.

Now I'll turn the call to Gerry.

Thank you, Phil, and good afternoon to everyone on the call. I'm going to address the business highlights of the quarter and then our CFO Bob Joseph will take you through our financial results. Peter will then conclude with formal remarks prior to opening the call for your questions. When 2009 began it did so with tight credit, declines in economic growth, high market volatility and a severe contraction in global trade all feeding investors anxiety. It did so during the most severe economic slow down since the great depression. So despite a sharp reality in March when virtually all geographies in the equity markets were up global equity markets generally include further losses in the first quarter.

Turning to slide three and four you will note that in the US value stocks were particularly hard hit with the Russell 1000 value falling 16.8% versus Russell 1000 gross 4.1% decline. In the non-US markets the MSCI World and EAFE Indices both sustained double-digit losses of 11.9% and 13.9% respectively. Only the MSCA emerging market index ended the quarter in positive territory and it was up just 90 basis points. Not a great start to the new year following the equity market collapses in 2008. However, hopefully the reality of the past six weeks or so is more of an indicator of the future than this week's market performance. After all, trillion's of dollars of government stimulus packages worldwide were announced.

Greater details have been disclosed regarding Washington's programs to assess bank's capital adequacy and to encourage lending. Yes, there were actually some positive news on the economic front in the housing, consumer, and manufacturing sectors and even some tentative signs of more expedite flow of credit surface. In addition, our own AllianceBernstein research teams started to detect appreciably lower risk aversion metrics from their peak of last year. A natural segue to our next topic, relative performance.

Relative performance among our suite of investment service was solid for the first quarter of 2009 with many of our institutional services outperforming their bench marks and appreciably so. Relative outperformance was particularly strong in our growth equities and to a lesser yet still meaningful extent in our fixed income and value services many of which outperformed by several hundred basis points. Note that this first quarter trend in outperformance is continuation of trends that we began to see in the last six weeks of 2008. While we clearly need more time to continue positive relative performance to offset disappointingly poor relative results for calendar year 2008, we're encouraged that our fundamental bottoms-up stock selection added value for most of our clients in the quarter.

At this moment, the capital markets are far from stable. We expect unusually high volatility to continue as economic and market conditions remain extremely challenging. But we see preliminary hints that investors may be starting to take a more rational and differentiate approach even though they remain risk adverse as compared to calmer periods. Today our portfolios remain positioned to both weather a continued economic downturn and benefit from recovery and risk appetite. We believe that our research is identifying resilient companies even in a weak economy.

Turning to our Assets Under Management changes on display six and seven, let's review changes in AUM by channel and investment service for the quarter. On display six you can see we ended the first quarter of 2009 with approximately $411 billion in Assets Under Management. Down 51 billion or 11% from the end of 2008. Then outflows for the quarter decreased to about 20 billion versus 23 billion in the fourth quarter of 2008. Almost two thirds of the first quarter's outflows occurred in our institutional channel is retail net outflows slowed considerably versus fourth quarter of 2008. But the loss of $231 billion of AUM in market depreciation and $43 billion in net outflows in the last nine months of 2008 coupled with the first quarter's net asset declines from both market depreciation and net outflows has had its obvious effects on reducing our fee revenue generation.

Also as we mentioned last quarter, our AUM mix continues to be more skewed towards fixed income when compared to historical periods. Just one year ago fixed income was only 28% of AUM. But as you can see on display seven it can now comprises 42% of our total AUM, as our equity AUM dropped 55% while our fixed income AUM is down 15%. This change in asset mix has had an unfavorable impact on our overall fee realization rate as fixed income services generally have lower fees than equity services. In fact, our fee realization rate at the end of the first quarter of 2009 was 41.5 basis points versus 44 basis points and 43 basis points in the first quarter's of 2008 and 2007 respectively.

Moving on to our distribution channel detail. I'll start with institutional investments on display eight, where AUM declined by 12% in the quarter to $258 billion. While market depreciation was the primary driver of this decline, net outflows of $13 billion were significant and slightly higher than 4Q '08. Gross sales remain tepid as RFP activity has yet to revive, although we did see a slight uptick as markets improved in March. However, we continue to see relatively newer clients terminate mandates, clients that have not seen us through a full performance cycle and those earlier experiences with us were not positive. Our pipeline of one but unfunded institutional mandates fell to $4 billion from $8 billion at the end of last year. This reflects lower RFP activity and challenge '08 performance.

During the second quarter we are focused on opportunities to raise funds from our institutional clients to participate in one or more of the US Government Asset Back Security and Loan programs. On that score we are seeing institutional client interest in the TALF program. In addition, we expect to submit an RFP to treasurer to participate in PPIP, which of course is not released to treasury's announcement less than an hour ago appointing us as one of the three asset managers for the TARP Capital purchase program.

On display nine, you can see that our retail channel assets decreased by 11% for the quarter. Principally caused by market depreciation as net outflows slowed to 3.5 billion versus $9 billion in the prior quarter. The improvement in flows can be attributable increased sales and decelerating redemptions. Increased sales were primarily in Asia through our higher added value fixed income services and to a lesser degree in the United States.

Turn to display ten, you will see our private client channel AUM fell by 10% in the quarter. Net outflows flowed moderately to $3.3 billion and sales of newer accounts were flat versus fourth quarter of 2008. Net outflows include a roughly $700 million net impact from $900 million in hedge fund redemptions. Both of which I mentioned on last quarter's call. As a portion of these private clients assets remain with the firm in other investment services. Market depreciation was 5% beginning period AUM, a reflection of efficacy of our asset allocation approach. While we continue to meet with new client prospects we may see little movement in actively managed assets during these uncertain times.

Financial advisor head count fell 5% to 285 from 299 advisors. However, we are hiring a new class of advisors who will commence their training program in June of this year. Will recoup this reduction in advisors. Display 11 shows that during the first quarter of 2009 the total AUM associated with our suite of alternative investment services fell by 24% sequentially. Almost 90% of this decline was caused by net outflows including 900 million in private client hedge fund redemptions that I just mentioned. In addition, we wound up our initial all asset deep value fund resulting in the realization of $12 million performance fees, but a decrease of roughly 400 million AUM. We're in the process of launching a successor fund. While performance for our suite of alternative services as a whole was slightly negative for the quarter some services did have positive returns.

Turning to institutional research services on display 12, revenue fell 12% versus the prior year quarter with a single-digit decline in the US and a double-digit decline in Europe. Revenue comparisons were hurt by lower global volume and a lower base in Europe due to market depreciation and foreign exchange. However, we believe we continue to gain share and show strength among our [long] only clients as well as low touch electronic training platform, which grew versus the prior year quarter particularly among hedge funds.

We believe that we have an unprecedented opportunity to capture market share in the current environment and will therefore continue to invest in strategic upgrades and extension of our products and capabilities. For example, during the quarter six new sector analysts initiated coverage which should help fuel future share gains. Also during the quarter, we achieved best-ever results in European Institutional Investor survey and six new sector analysts initiating coverage.

Lastly, before I turn the call over to Bob Joseph, I will take a few minutes to discuss our expense reduction initiatives. Over the past 15 months our AUM decreased by $389 billion or 49% from the $800 billion figure at 12-31-07. The impact of this sudden and dramatic drop in AUM and the resulting decrease in our annual fee base of approximately $1.8 billion from 3.5 billion to 1.7 billion has led us to take on an expense and spending reduction initiatives unlike anything in the history of over 40 years. During these challenging times, we have worked hard to take into consideration the interest of all constituents, our clients, our unit holders, our staff, our vendors, and the consulting community as we ultimately cut both operating and capital spending.

We have eliminated or deferred approximately $150 million of planned capital expenditures since the beginning of 2008. Spending on all variable cost items including print, mail, travel and entertainment, recruitment, seminars, communications, temporary help and IT consulting have all been cut. We have also taken small but real measures to reduce our footprint in Asia and Europe.

Finally, we reduced both our actual incentive compensation in 2008 and our actual accrual for 2009 as well as reduce the number of staff. While taking measures to reduce our head count we have worked hard to retain our intellectual capital, especially when it comes to our investment professionals, which includes analysts, portfolio managers, chief investment officers, and directors of research and trainers. We have also taken into consideration the importance of client service, compliance governance, our fiduciary responsibilities and yes, protecting our infrastructure. With that said over the past six plus months nearly 1,000 staff members or 70% of our staff as of 9-30-08 have left our firm or received notice to do so.

The severance costs for our reduction in force total $40 million in the fourth quarter of 2008 and $21 million in the first quarter of 2009. In taking these severance measures we reduce our fixed compensation costs that is salaries and related fringes by approximately $70 million on an analyzed basis, mostly effective January 1, 2009, additional $27 million annually mostly effective April 1, 2009. These reductions have also reduced the demand on our long-term incentive compensation program, much of which will reduce expenses over the next four years, some of which will help fund our compensation needs in 2009.

Obviously, with nearly 1,000 fewer staff members some additional variable costs will naturally decrease. Such as market services, communications and the like. However, other costs, especially fixed occupancy, are harder to reduce in these times of excess capacity around the world.

In summary, while reducing our expenses AllianceBernstein remains focused on delivering investment performance and trust to our clients while recognizing our responsibilities to our unit holders and staff alike. We are confident that our lower expense base can support future growth and substantial future growth of clients under assets -- of client Assets Under Management providing strong positive operating and financial leverage.

And now I'll turn the call over to Bob.

Thanks Gerry. As we noted in today's press release we began 2009 with client Assets Under Management 42% lower than at the beginning of 2008. Net revenues in turn declined sharply from the first quarter of 2008 to the current quarter and this decline was only partially offset by expense reductions. As a result, net income for the operating partnership fell 85% and our operating margin declined to 6.5% from 26.5% a year ago.

Now let's look at some of the details. On slide 14 we show details of our consolidated revenues for Q1 2009 and same quarter in 2008. As you can see advisory fees declined by 372 million or nearly 46% due to the sharp decline in client Assets Under Management a little more on that detail on that later.

Distribution revenues based on average Mutual Fund Assets Under Management declined by approximately 47%. This decline is largely offset in the expense side of our P&L by declines in distribution plan payments and the amortization of deferred sales commissions. As a result, a lower fund sales in particular B shares the net result of distribution of revenue less distribution payments and DFC amortization is basically zero for the current quarter. And shown on the balance sheet which is in slide 36 in our appendix, our DFC asset has now declined by another $12 million to a balance of 102 million at the end of the first quarter of 2009.

Gerry commented on the 11% decrease in staff side revenues driven by lower price realization and partially offset by higher trading volume. However, should note trading volume has declined from the fourth quarter of 2008 into the first quarter of 2009 and trend in lower price realization has continued. Dividend interest income declined by 23 million due to sharply falling interest rates. This decline was somewhat offset by an 11 million decrease in relate interest expense also caused by lower interest rates.

Investment losses decreased by $23 million or 36%. Losses on our mutual fund investments related to the deferred compensation awards fell by $30 million from the first quarter of 2008 to $28 million to the current quarter. More on this subject a little later. This decrease was partially offset by $9 million negative swing in the value of T-Bill investments from a gain of $6 million in the prior year quarter to a loss of $3 million in the current quarter.

Slide 15 provides some additional details about our advisory fee revenues. Here you can see that both ending and average Assets Under Management declined 44% from the first quarter of 2008 to the first quarter of 2009. Base fee revenues declined by 376 million or 47% reflecting a decline in Assets Under Management as well as the mix shift that Gerry mentioned earlier with a higher portion of client AUM now represented by lower fee fixed income services.

We earned $12 million performance fee during the current quarter from the closure of the all-asset fee value fund as compared to $8 million in performance fees earned in the first quarter of 2008 from long-only accounts in that quarter. On the bottom of this slide you can see that advisory fees declined in each distribution channel largely in proportion to the net decrease in ending AUM in each channel from the prior year period. Before we move to expenses and provide some context to our discussion of compensation expense I'd like to point out to slide 16 that our head count is expected to decline to 4,713 by the end of the second quarter of 2009. This will result from approximately 75 terminations identified in the first quarter as announced in our March 31st press release partially offset by new hires including the new financial adviser training class that Gerry noted. At that level, head count will be down approximately 17% from our peak in the third quarter of 2008 and will be at the lowest level since the second quarter of 2006.

On slide 17 we show details of our operating expenses including the 26% decline year over year. As you can see here our expense initiatives many of which Gerry noted earlier are beginning to gain some traction. Employee comp and benefits declined by $120 million or 28% due to lower incentive compensation commission and salary expense offset partially by $21 million severance charge noted earlier. I will provide more granularity on this line item on the next couple slides.

Moving on to promotion and servicing expenses which declined by 39%, largely a function of the reductions in distribution payments and deferred sales commission amortization noted previously. There were also favorable variances in travel and entertainment, printing, transfer fees and distribution services the latter two driven by lower Retail Assets Under Management. The year over year decline in general expenses was more modest $8 million or approximately 5%. The decline was largely due to employee related legal expenses incurred in the first quarter of 2008. Other expense declines in this category included professional fees and technology consulting expenses. These favorable variances were partially offset by increased rent for our new Tokyo office, increases in volume related data processing costs and unfavorable foreign exchange variance resulting from a loss in the current quarter versus a small net gain in the prior year quarter. Other technology and occupancy infrastructure costs, as Gerry noted previously are required to support our global platforms remained flat. The sharp decline in interest expense is result of lower average outstanding borrowings and sharply lower interest rates.

Slide 18 provides some comparative details of our employee comp and benefits line item. Base compensation declined by $7 million or 5% as lower salaries from our 4Q 2008 head count reduction were partly offset by $13 million net increase in severance charges the result primarily of $21 million charge mentioned earlier. As consequence of our head count actions we expect our annual salary run rate to stabilize at approximately $410 million by the end of the second quarter of 2009. Moving on to incentive compensation, our cash incentive compensation mainly end of year cash bonuses decreased by $49 million or 48%. The 1Q 2008 accrual reflected 25% of our estimate made at that time of full year 2008 bonus levels taking into account what was then a relatively stable market environment. You may recall that our estimate was trimmed dramatically as we moved through 2008 set the accrual required in fourth quarter 2008 to true up this expense to our full year number was only $1 million. Our 1Q 2009 bonus accrual represents 25% of our current estimate for full year 2009 bonuses.

Deferred compensation declined by $11 million or 26%. The net decrease relates primarily to $10 million decrease in the amortization of current and prior period investment losses related to mark-to-market the related mutual fund investments. I'll describe how this works in greater detail on the next slide.

Commissions declined by 40 million or 37% year-over-year due primarily to lower new business activity and related revenues principally in our three [buy-side] distribution channels. In other compensation expenses decreased by 13 million or 28% due to lower payroll taxes resulting from lower salaries, lower cash bonus accrual and cost reductions in areas such as recruiting, temporary help and related expenses. This quarter, on slide 19, we're providing a five quarter trend analysis of the net P&L impact of our deferred compensation programs. As a reminder, participants in these programs receive annual awards that generally invest over four years. The awards are initially invested by the firm in various AllianceBernstein services, AB units or options on AB units. In accordance with such participants each participants selection. If the value of the initial investment goes up the firm's obligation to the employee upon vesting increases, if it goes down the firm's obligation decreases. However this doesn't apply to units or unit options since equity based awards are not mark-to market under US-GAAP.

In the revenue section of this slide you can see the investment losses resulting from mark-to-market the nonequity investments purchased by the firm at the time the deferred comp awards are made. This is done to hedge the effect of valuation changes on the firm's future obligations to employees. The first line of the expense section shows the amortization over the vesting period of the original value of these nonequity awards. The increase in 4Q of 2008 relates to the accelerated vesting of our former CEO awards due to his retirement.

Deferred compensation awards made in 2008 were higher than the 2004 awards which were full amortized in 2008 last year. However, the resulting higher expected amortization rate from those 1Q 2009 resulting from those higher awards was largely offset by forfeitures from our 4Q 2008 and first quarter 2009 head count reductions. Second line in this section shows the amortization of that portion of the cumulative mark-to-market adjustments attributable to the amount of the original award value being amortized. Basically, it's the pro rata portion of the cumulative mark-to-market on the investments that relates to the award values being amortized in the current period due to vesting.

In this case, the line shows a credit because the cumulative mark-to-market impact on the investments is a loss. You can see that the mark-to-market amortization increases or decreases generally in the same direction as the corresponding investment losses but not with the same magnitude. This is because we are marking the market a 100% of the nonequity investments but only adjusting the expense for the amounts currently vesting. Not for the entire obligation. Because we hedge initially purchasing securities the net expense recognized by the firm over the vesting period for each award will equal the original amount of that award. However, there can be material volatility from period to period if market values fluctuate significantly. The line total amortization of AB units shows the amputation of awards invested in units or unit options, again, these investments are not mark-to-market. Hopefully this pro advise some additional insight into how accounting works for our deferred compensation programs and resulting impact on our income statement.

Turning to slide 20, here we show condensed income statements of the operating partnership for the first quarter of 2009 and 2008 and the related operating margin. Note that the effective income tax rate for the first quarter of 2008 is approximately 11% in line with the rate for the full year. The rate for the first quarter of 2009 is approximately 21% because the tax provision for that period includes an adjustment for foreign taxes, backing out that adjustment reduces the effective tax rate to a more normal approximately 12%.

Slide 12 shows the calculation of net income for the first quarter of 2009 and 2008 of AllianceBernstein holding the public partnership. Holding share of the operating partnership earnings is based on its weighted average ownership interest. That share is then reduced by the 3.5% Federal tax holding pays on its proportionate share of the operating partnership's gross income. Keep in mind that because the tax is based on gross income and not on pretax earnings holdings effective tax rate increases when the operating partnership margins decline conversely it decreases when the margin increases.

That completes my review of the firm's operating results for the first quarter of 2009 so now I'll turn the call over to Peter.

Thanks Bob. I wanted to spend a little bit of time getting into some details about the private client business. As many of you know it is a crown jewel of the Company, it is a highly attractive business with very sticky assets and a very strong operating margin over the investment cycle. Generally speaking, the high net worth market has grown over time and we expect that to continue into the future. Our historical growth rate in AUM has generally been faster than the underlying market. If we measure it over the last five years before the reduction in values due to market depreciation so the years ending '07 the growth rate is 15% per year. From '05 actually through today so at the end of this quarter, balances are actually flat.

Since the beginning of '08 just focusing on that time period the AUM is down $47 billion, 82% of that decline is market depreciation. So most of the reduction, the lion share of the reduction in the business is due to the market, the net outflows of 18% are relatively small.

Going forward, our strategy remains very consistent. We believe we hire the best people and train them extensively. We apply the same intensity in training to our advisors that we do in the research of our investment selections and securities amongst our portfolios. Secondly, we locate them in proximity to clients. Since 2003 we have opened seven new offices in the United States. Third, we support them with the firm a best research ideas and portfolio thinking and investments and asset allocation and providing tax advice and estate planning to our clients. Secondly, we have had substantial growth in our advisors over time. We have one third more advisors since 2004. We also within that population have had a consistent proportion of experienced highly productive advisors which reflects both the longevity amongst our advisors and a growth in the overall experience population.

In addition to that, we have continued as Gerry said to invest in future growth and we have as a result of that over time increasingly larger numbers of new advisors who will be able to grow their businesses quickly in the future years. Third our value proposition. Discipline consistent investment process and investment services well researched and thoughtful approach to asset allocation and careful and sophisticated family planning advice and separately managed tax sensitive portfolios remains the stable and commitment of the business.

So growth in the future will be fueled both by appreciation and new accounts. Interestingly enough since 2003 through March of 2009 the appreciation in the portfolios has actually been modestly negative of some $12 billion. So the growth has been driven largely by or entirely by net new accounts opened over that time period. In looking at markets going forward we do expect positive markets and a continuation of the significant growth that we have had in the business driven by one third more advisors and market appreciation rebounding from current market lows. So in short, we continue to see the private client business as a stable of growth for the Company and an opportunity for us to differentiate ourselves in the future.

Next, I just wanted to spend a minute on the comment that Gerry made and the press announcement that the USD Department of Treasury announced today with regards to selecting AllianceBernstein as one of their advisors in the emergency -- under the Emergency Economic Stabilization Act. We are very excited about this opportunity to serve the Treasury and ultimately insure that taxpayers assets are managed in a prudent and transparent manner. We think this will provide deep insight into the financial institutions and changes to those financial institutions in the country. While we're also able to provide to Treasury important information on valuing the assets, annualizing ongoing financial condition and capital structure of financial institutions, advising executing transactions in accordance to the Treasury investment policy and providing recommendations on corporate actions, proxy voting and other events that could impact the Treasury ownership stake in these entities. We look forward to expanding that relationship over time with Treasury and in creating value under those set of guidelines.

Lastly, I think it goes without, it shouldn't go without mention that the first quarter has been a significant period of performance for us relative to '08. We had, as you-all know very negative performance relative to the benchmark through the end of 2008. In the first quarter so far this year we have had a significant turn around in that and across the board although not in every service but positive relative performance. That is a good thing and we believe that that will continue to support growth through the end of 2009 into 2010.

So with that I'll turn it over to questions and Phil.

We're ready for our first question.

Thank you. (Operator Instructions). Your first question is from the line of William Katz with the Buckingham Research Group.

Okay, thank you, good afternoon everybody. I guess first question is for Peter if I might sort of picking up on the government news so congratulations on that. Just sort of wondering if you might be able to help us sort of size the opportunity whether it be from an AUM perspective or from an economic perspective my first question.

Well, first of all, we won't be counting in our AUM the obviously the Assets Under Management in the CPP program, so notwithstanding the fact that we wouldn't like to obviously that wouldn't make sense. But as you know the assets in the Treasury program are probably in excess of 300 billion. The economics may in fact be disclosed by the government, I think that limit my comments to whatever they publicly disclose, but we expect this to be a attractive proposition for us from a profitability point of view and as I say a major assignment.

Okay. Second question is your focus just now on the private client business and is this sort of signaling now that you're looking to have a more strident growth strategy here. I guess if I look at the business over the last couple years it seems to me the bulk of the incremental organic growth has been more in some of the alternative products which have sort of reversed themselves in the last couple years. So curious is this a new growth strategy to sort of try and bolster the business over the next several years.

No, Bill, first of all the growth in the private client business was rateable across all the investment services. So it certainly wasn't focused on one service versus another. No, I thought it was important for you-all to understand what we think the growth opportunity is in private client. Obviously, the private client assets have declined substantially as I mentioned over will will 80% due to market depreciation but we actually have a stronger group of advisors, we have actually done some reasonably aggressive calling of the population, we have as I say a third more than we had in 2004, and over time that has produced significant growth for us in excess of what the market growth has been and we believe that that will continue in 2009 and 2010 and one interesting additional element that I was trying to get across is that really in the last five years ending this quarter really haven't had any appreciation in assets. In fact it's been a net negative. So if you believe in the next few years that there actually is market appreciation then that will add to the growth rate of the business then what it's normal organic capacity has been.

Thank you very much.

Your next question is from the line of Craig Siegenthaler with Credit Suisse.

Thanks and good evening. First question, you highlighted your desire to raise and manage assets through (inaudible) CPP. What are your prospects for managing assets as part of the legacy loan or legacy securities program, which is part of the PPIP.

Well, our prospects for doing that are no different than anyone else who is applying to be one of the five selected advisors. We believe we meet the requirements of that. Obviously, the Treasury has made a vote of confidence in our capacities I don't think that's determine as to whether we would win or not one of the five selected positions. But, you know, we think we can add value to Treasury in both thinking about how to structure PPIP and indeed in one of the elements that Treasury has identified is important is access to the retail channel. We obviously have and may be somewhat unique amongst companies making the application an opportunity to access those kinds of clients.

Would that be through closed end fund.

We're not going to talk specifically about the structure at the present time, but closed end funds, REITS and the like are all on the table and being discussed. I frankly think that at the end of the day the appropriate structure will be one that will discuss with treasury should we be selected during that selection process.

Thanks and just a quick question on compensation. With the dramatic decline in revenues and AUM, the 17% decline in head count really doesn't scratched part of the surface there, I'm wondering is there currently more opportunity to reduce comp or even head count at this point.

I think that we have been pretty strident about paying market base compensation for our top performers. We are going to do that. That's important to the franchise and important to the business going forward. We have said that should economic conditions worsen we would continue to look carefully at what the head count ought to be. On the other hand, should economic conditions improve and should the business grow we wouldn't be required to add any people and there's significant positive operating leverage on the way up. And so we think this is the right place for us and for unit holders right now to take advantage of developing opportunities in the market, developing new investment services, distribution opportunities and potential appreciation in the markets.

Great, thank you very much.

Your next question is from the line of Keith Walsh with Citigroup.

Good evening everybody. Two questions for Peter first just on looking at value and growth equities, you know, the outflows over $20 billion this quarter, much faster run rate than the 65 billion we have seen over the last 12 months. With the performance challenges that you guys have had how do you slow this acceleration of outflows basically question one, then I've got a follow up.

Well, first of all, I think you know from looking at the quarterly information that the outflows in 2008 were loaded very heavily at the end. And so I think that you have to look at the quarterly outflows in light of the fourth quarter outflows and I think they are somewhat better. We don't disclose the monthly numbers separately, but I think that we can characterize the flows as getting better, meaning not accelerating in negative outflows. We also said I think in our latest monthly statement that the retail channel basically was slightly positive or break even. So and I made the comment on our investment performance this quarter as being substantially better than what we had experienced through 2008. Anecdotally, we have done many, many meetings with clients and when I say we it's not just me it's all the investment professionals, but certainly I have because I'm new to the Company and new to the investors and I would say that investors are certainly pleased that the performance has changed and I think are quite respectful of our capacity to produce returns over time and so I believe that that should our performance continue that will be extremely helpful in keeping flows from accelerating and probably reducing those flows over time.

Okay. Just for my follow up on your commentary there on the institutional side specifically, looking at fourth quarter you've seen an acceleration from 10 to 13 billion there on the outflows, that as an institutional shop primarily, why isn't that more of a concern and why wouldn't that continue to accelerate at this point.

Well, look, I think first of all it's not a concern. Number one. Number two is, again, I think that we have seen that slow down in the first quarter and what, you know this, you're a student of the business, that people make decisions not necessarily in the quarter, but at the end of quarters, and people made decisions and communicated those decisions to us and ultimately transactions occurred in the first quarter and largely in the first two months of the quarter. So that's not surprising. I think that as I say the positive performance that we have had in the first quarter which is not immaterial. I mean there's substantial outperformance against the benchmark and the relative performance is probably okay, not great, but okay, and we don't know because we haven't seen the numbers, I think that that bodies well for us during the course of this year.

Now, if we don't perform well in '09 yes it will be worse. If we continue to perform well in '09 we have a long history of producing outsized returns to investors that are substantially in excess of the poor performance they may have experienced in a period of time and that happened in 1990, '91 and that happened again in 2000 and then the subsequent time period. And I think institutional investors particularly the consultant community is very thoughtful about that.

Okay, thanks a lot Peter.

Just a small point to that I tried to get across in my comments, this is Gerry Lieberman, a significant portion of the outflows that we saw in both the last quarter of '08 and the first quarter of '09 were from newer clients, those that have not been through cycles with us. And understandably so some of those clients were faster to get out based on what they experienced in a shorter timeframe than what some of our more older clients have gone through in prior periods. So perhaps the clients have been more seasoned have more confidence in us performing as Peter was pointing outgoing forward than the newer clients. Unfortunately we burn through some of these. The newer clients aren't going to leave twice, they have left. Hopefully that will well going forward in regards to our flows in the institutional channels.

Thanks a lot.

Your next question is from the line of Mark Irizarry with Goldman Sachs.

Oh, great, thanks. Peter, if we can just stay on the comment that Gerry was just making, if you look at the run rate of your net flows as a percentage period assets it looks like retail outflows desell rated but then you had accelerating rate of outflows institutional and private client I'm just curious if you can sort of reconcile what Gerry's saying about sort of the duration of the capital that you have with clients. It would seem to me that the two more sticky channels would probably stick around retail would be a little more, a little more flighty and the trend would be opposite. Can you just reconcile that?

Yes. I think that there are two things going on in the minds of the client. We saw institutional channels substantial liquidations amongst insurance around the world of their equity portfolios. And in that instance when clients were deciding who were they going to continue to invest with, those that were newer to us and had smaller experiences with us in some cases actually terminated our relationships. And I think that that's the phenomena that Gerry was referring to. What I was speaking to it's a little hard to read, end of '08 and first two months of '09 trend wise because people are making decisions over that time period, therefore I think it's, I think it's more difficult to read into those three months whether it's growing or slowing down. I think when you get into March we have seen things slow a little bit and when the performance is actually more, there's more, there's more transparency to the performance mean it's got a little bit of longevity to it, it's not three weeks, six weeks, eight weeks, we're talking about two, three months, I think that people are feeling more comfortable. I think on the private client channel some of that again is deep reduction in value, a need on the part of private clients to continue to spend money just because of their life-style normal life-styles, and so I don't think that we're seeing any meaningful acceleration in private client assets leaving. On the other hand I'd say that we haven't seen a substantial reduction in that activity in the latter part of the first quarter either.

Okay, great. Then just in terms of some of your longer-term relationships on the institutional side where are we in the process of the asset allocation or rebalancing that institutions are going to go through. We're hearing a lot about some type of investors still being frozen because of their private equity commitments where do you think we are in that process.

I think as I mentioned to all of you when we were together, I think that we're still very much in a difficult spot with regards to institutions. I believe institutions still have substantial commitments in private equity, that if they had the fund would increase the allocations to private equity to levels that could be uncomfortable with. That they still have allocations to hedge funds which may be exceeding what they would, what they would be comfortable with. And their fixed income allocations while stable are also not easy to liquidate if they're in corporate credit markets or even asset backed markets, because of somewhat better liquidity but not significantly improved liquidity in those markets.

So companies are also cutting back on their contributions, governments are cutting back on their contributions, cash flow out of plans remains reasonably constant in fact it may have picked up a bit as retirement have accelerated and/or layoffs have accelerated for people that have invested benefits and therefore plans are still raising cash from their equity portfolios and not engaged in substantial rebalancing at this point. I have seen I would say less than 5%, but it was almost zero a few months ago. The less than 5% of the plans now beginning to leg into increasing their equity exposure, mostly private meaning corporate plans around the world who are taking some of the new cash flow that's being contributed to the plans and allocating that in a greater quantity to equities.

Okay, thanks, that's helpful, I'll get back in the queue.

Your next question is from the line of Roger Smith with Fox-Pitt Kelton.

Great, thanks very much. I want to stay on this institutional channel at this point is there anything that you're really doing differently in order to go out and work with your clients. It sounds like what we have seen so far from some of the other companies that reported this quarter is that the actual RFP activity type of activity that's going on out there is quite high in fact we have seen some flows coming in. So that sounds a little bit different than what going on with you. I just don't know, do you think you're dealing with different type of client out there or some insight there.

Well, I think, you're going to have to get more granular on RFP activity because is it fixed income activity, is it cash enhances activity, is it equity activity, is it core activity, is it passive activity, what is actually, what's actually driving the RFP's we don't run a passive business, we don't have a cash business. We have seen a fair bit of activity on the fixed income side and we have seen a lot of activity on the TALF, PPIP, AAF side of the equation and there I would say that our activity levels are as high as we could stand them. We haven't seen much in the way of RFP's in traditional actively managed equities.

Okay. Fair enough. And if we -- we have heard you speak on your position on acquisitions in the past but now it seems like a lot of properties might be up for sale. Is there any change in the way you guys think about acquisitions or can you give us anything on the number of properties that are out there?

I'll expand on this the answer is no.

Okay. Fair enough.

I think there are more properties for sale, I think they are properties that are generally embedded in larger organizations, which organizations are seeking to restructure themselves, prioritize capital usage, I would say what I have said in the past an acquisition could be useful to us if it's in a space where we're not. If it's extraordinarily financially attractive and doesn't cause too much in the way of management diversion or creates a market position that it is highly unlikely we could achieve on our own and would be attractive if we went there.

Thanks a lot.

Your next question is from the line of Cynthia Mayer with Banc of America, Merrill Lynch.

Hi, good afternoon. If I listened to your comments on G&A it sounds as though you aren't really seeing many more opportunities for cost cuts there, but I just wanted to check on that. Are you seeing any opportunities for further noncomp cost cuts.

Let me just I'm going to give you the highlights and turn it over to Bob and Gerry on this. But I think as they both said, one of the big impediments that we need to work on over time is rent. And it's not surprising given that our global footprint has not materially changed that we have a slower receding expense level as a result of that. We have done as Gerry mentioned some good work in Asia on creating more efficiencies and we continue to be opportunistic about taking advantage of market changes that can allow us to reduce that. But for the time being that's a sizable expense and it's ability to be reduced is I think limited. With that let me turn it over to Bob and Gerry because on the other expenses that would not be the case.

Yes, as I tried to get across on almost every other expense line in our G&A they are going down except for there are some technology processing expenses embedded in our G&A which are volume driven, actually some outsource services. To the extent we're doing more transactions that G&A line goes up. But, bringing professional fees down, bringing our consulting fees down, bringing market data services fees down, things like that, it's all in there, it's all embedded, it's millions and millions of dollars, but when you're talking about 500 million 5 or 600 million of G&A, when you bring in the related costs.

I guess you quantify some of the comp savings for instance talking about the base salary by the end of 2Q, I'm wondering if there's any way to sort of quantify the noncomp run rate as things, as you say there are a lot of things that come out of the cost gradually, but as you reach that point say at the end of this quarter is there anything comparable in terms of color you can give to the base salary guidance you gave.

Well, yes it's Bob. I think just to repeat what Gerry said briefly we're looking at every expense category where we have got variable controllable expenses. And I do think and both Gerry and I covered this in our comments that we are making progress there. I do expect to see some improvement and we're already starting to see some of our efforts gain traction right you no of. I think it's fair to say the whole firm is actually focused on exercises not just the CFO going out there and saying we have got to reduce a few dollars here and there. So and it's focused in two areas. First we're trying to reduce demand in areas [P&E] so if you don't need to travel, if you don't need that market, that terminal or terminal let's see if we can cancel that contract. On the other hand it's getting our strategic sourcing or purchasing people engaged if all of our business units to make sure when we are negotiating with various vendors we're getting the best possible service at the lowest possible unit price. Those efforts continue on.

I think the way to think about this from your point of view might be that we expect during the balance of '09 to continue to create expense savings in that line driven by the head count reductions that have taken place to date, potentially more reductions as people leave because that just happens over time and we're unlikely to replace people at any kind of significant rate other than the trainees or the new advisors that we hired which we believe is an important thing to do. And our own just creation of efficiencies even without people leaving just focused on these various different levels. There may, there probably will be over the next 12 months opportunities to create efficiencies on rent, but we're going to react to that as markets give us those opportunities as opposed to, you know, create something because we were doing that we would be changing our footprint and for now we don't think that's something we want to do.

Great thanks. My second question is just on the institutional research services. How much of the decline there is due to the pricing you mentioned and how much due to the market depreciation? The reason I'm asking is just wondering with the market bouncing back how much of that would come back.

I think that we capital give you how much because it's very hard to quantify in terms of mix. But with market values coming back given that the European business is traded on basis point basis excuse the repetition, we will see some improvement in transactional activity and in revenues. We think that we think that the self side business continues to have a research platform that is accorded top rankings around the world. We continue to be investing in that research platform, we continue to be one of the few global firms that has a large self side research business for which people pay us dollars. We think that's unique asset and we think that that is going to both grow over time meaning '09 on the basis of its scarcity value, number one, but also there are new opportunities that we're looking at in hiring people in that business that could provide incremental revenues during '09.

Great, thanks a lot.

Your next question is from the line of Robert Lee with KBW.

Thanks, good afternoon. Just when you thought there couldn't be another question on institutional service business I have another one for you.

I think it's good, you will get them all out.

That's it. I mean I know over the last I don't know maybe since the merger back in '01, I mean a lot of the incremental growth in the institutional business has come from outside the US and I guess given your comments that a lot of the redemptions outflows there are related to newer clients I mean is it fair to say away that it's really proportionally also been from clients outside the US?

No, we did say obviously, some of the redemptions have come from newer clients but I think it's not going to, it's not going to be particularly descriptive to focus only on that. I think that internationally much of the business there is consultant driven and the consultants are is a community that I think thinks deeply about processes, about performance, about not making quick decisions on performance and about the longevity of returns with managers. I also think that we occupy in the ranking of clients important positions. Of global for example global value investing. There are obviously competitors in global investing in core global investing but there are not that many relative to, US growth or US value. So I actually think that our position overseas is a good one because we have identifiable brand, we have had substantially good performance in the products overtime, we have strong relationships with the consultants who understand the process, understand the people and understand what the product can, what the service can provide in terms of returns over time and our professional about thinking that through and professionally advising their clients on how to -- how to work with managers. So I think that absent a turn down in performance, that we can feel comfortable that we have met with most if not all of our major clients and consultants and have had good dialogue with them about what we can create for them returns in the future. So I think that the institutional marketplace is going to be driven by returns over time and by our either meeting or not our historical performance characteristics and I think that people are encouraged at least by the first quarter returns.

This outflow of institutional assets it's been with us two plus quarters. I mean it's and we don't expect anything like what we have seen these two past quarters.

Is that your concern

Yes, thank you. And one follow up I guess a little bit more of a strategic question. You highlighted the private client business and we have talked about institutional business ad but given retail flows did show some improvement, if I think back, I guess for a bunch of years it seemed that the retail part of the business was, I'll use the word kind of a weak stepsister it wasn't as much strategic emphasis on that business maybe. Can you, -- obviously hard environment to think anything in retail, but maybe update us a little bit on your thoughts there now.

Yes. Well first of all, I think retail for us is a very interesting opportunity and it may turn out to be a significant growth opportunity. And here's why. Number one is we obviously came from in the early 2000s a very large retail business. We don't have to go over the issues that that happened over that time period, what they are. But that resulted in a much smaller footprint in the retail space. And it also resulted in I would say some lack of clarity on what our value proposition was to the retail community. In the last seven to eight months we have a new person in charge of retail, Bob Keith. He has a global responsibility for retail. We have done a fair bit of work on refocussing the wholesalers in the United States and repurposing people in Japan and in Europe to focus on in Japan the city banks in Europe the retail aggregators we have also spent a fair bit of time refining our message on why an FA should feel comfortable and in fact good about advising his or her client that an AllianceBernstein mutual fund is a good place to go. And we think that's beginning to have some traction in the marketplace. And I think when you add together the underpenetration, the relative fuzzy focus now sharpened and much more laser like, the repurposing of people sales people in both Japan and in Europe against large sub advisory slashing retail market places and frankly a broad product offering because its value, growth, fixed income I think that we're likely to have some surprising growth on that -- on that side.

Great, thank you.

You have a follow up question from the line of William Katz with the Buckingham Research Group.

Okay, thank you. A little more technical in nature, on the G&A line how much of the sequential increase reflects the impact of FX.

It's about a $7 million swing bill, it's $5 million loss this quarter and roughly $2 million gain in the prior year quarter.

That was a good question Bill because that went from a gain to a loss. So it was a sizable swing.

Yes, I thought Bob mentioned earlier. So there's to your point and Cynthia's point that's an easy number to take out as far as looking at a run rate for the rest of the year, we obviously don't budget for that. The number that you're looking at in G&A in the first quarter is not indicative of our spend rate just for that reason alone.

It's 2 million?

7 quarter to quarter. 2 million gain last year, 5 million loss this year.

This quarter.

Okay. All right. Within that question, within that line item excuse me how much is the rent relative to total?

It's about, it's about half, Bill. It's a little bit more than half our office and related expenses, it's a little bit more than half.

All right, thank you very much.

If you have a follow up question from the line of Cynthia Mayer with Banc of America Merrill Lynch.

Hi, thanks. I was just wondering if you could talk about turnover. Obviously you have reduced staff apart from that what kinds of level of turnover are you seeing maybe within FA and private client and just overall in do you feel comfortable in terms of retaining people.

Voluntary turnover has been light to almost insignificant in numbers. So that's a good thing. We have seen a little bit of voluntary turnover in private clients due to one or two firms acting in an aggressive way with regards to potential retention bonuses that they are willing to offer FA's and our advisors. My experience in that Cynthia is it's not sustainable and seemingly that is still accurate since we haven't seen much activity for the last six weeks. So I think we feel pretty good about the voluntary attrition and I think we feel pretty good about the health happiness and moral of the existing people in the Company given that we have been both tough on head count reduction but fair and focused on [merit] in doing it.

Thank you.

And there are no further questions at this time.

Great. Thanks, everyone, for participating in the call. If you have any further questions, feel free to call Investor Relations and enjoy the rest of your evening.

Thank you, all, for participate in today's AllianceBernstein first quarter 2009 earnings review. You may now disconnect.