Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview (1)
Our total Assets Under Management (" AUM ") as of December 31, 2024 were $792.2 billion, up $67.0 billion, or 9.2%, during 2024. The increase was primarily driven by market appreciation of $68.5 billion, partially offset by net outflows of $2.2 billion (reflecting Institutional net outflows of $16.5 billion, offset by Retail net inflows of $13.4 billion and Private Wealth Management net inflows of $0.9 billion).
Institutional AUM increased $4.3 billion, or 1.3%, to $321.4 billion during 2024, primarily due to market appreciation of $20.7 billion, partially offset by net outflows of $16.5 billion. Gross sales increased $1.2 billion, from $11.8 billion in 2023 to $13.0 billion in 2024. Redemptions and terminations increased $2.3 billion, from $12.6 billion in 2023 to $14.9 billion in 2024.
Retail AUM increased $47.5 billion, or 16.6%, to $334.3 billion during 2024, primarily due to market appreciation of $34.2 billion and net inflows of $13.4 billion. Gross sales increased $28.8 billion, from $71.1 billion in 2023 to $99.9 billion in 2024. Redemptions and terminations increased $13.6 billion, from $58.1 billion in 2023 to $71.7 billion in 2024.
Private Wealth Management AUM increased $15.2 billion, or 12.6%, to $136.5 billion during 2024, primarily due to market appreciation of $13.6 billion and net inflows of $0.9 billion. Gross sales increased $2.2 billion, from $18.6 billion in 2023 to $20.8 billion in 2024. Redemptions and terminations increased $2.4 billion, from $17.5 billion in 2023 to $19.9 billion in 2024.
Bernstein Research Services (" BRS ") revenue decreased $289.9 million, or 75.1%, during 2024. The decrease was due to the deconsolidation of the BRS business and contribution of the business to the joint ventures, effective April 1, 2024. For further discussion, see Note 24 Divestitures to our consolidated financial statements in Item 8 .
Our 2024 net revenues of $4.5 billion increased $319.8 million, or 7.7%, compared to net revenues of $4.2 billion in the prior year. The increase was primarily due to higher investment advisory base fees of $340.6 million, higher distribution revenues of $140.4 million, higher performance-based fees of $126.1 million and higher other revenues of $41.6 million primarily due certain reimbursements for services provided to the joint ventures, partially offset by lower Bernstein Research Services revenue of $289.9 million due to the deconsolidation of the BRS business, investment losses as compared to gains in the prior year of $27.7 million and lower net dividend and interest income of $11.1 million.
Our operating expenses of $3.4 billion increased $13.4 million, or 0.4%, compared to operating expenses of $3.3 billion in the prior year. The increase was primarily due to higher promotion and servicing expense of $119.7 million, higher employee compensation and benefits expense of $32.6 million and higher general and administrative expenses of $17.6 million, partially offset by higher gain on contingent payment arrangements of $144.7 million and lower interest on borrowings of $10.9 million. The change in contingent payment arrangements was primarily due to the recognition of a gain of $128.5 million related to a fair value remeasurement of the contingent payment liability associated with our acquisition of AB CarVal in 2022.
Our operating income increased $306.4 million, or 37.5%, to $1.1 billion from $817.7 million in 2023 and our operating margin increased to 24.7% in 2024 from 19.1% in 2023.
Market Environment
U.S. Equities
Despite a volatile quarter for U.S. Equities, the S&P 500 ended 2% higher in the fourth quarter of 2024, rounding out a 25% total annual return. Shares were buoyed by expectations that the new federal administration’s policies will lift growth, lower taxes, and ease regulation over the next four years. The Federal Reserve (" Fed ") lowered interest rates in both November and December. However, in December the Fed scaled back expectations for rate cuts in 2025, on account of persistent inflation and a robust labor market, triggering a market sell-off particularly in Small Cap (market capitalization between $250 million and $2 billion) with the Russell 2000 giving up earlier gains to end flat in the fourth quarter of 2024. Large Cap growth companies (market capitalization above $10 billion) continued to outperform throughout the quarter and the year. The S&P 500 Growth index returned 36% in 2024 vs. 12% for the S&P 500 Value and 12% for the Russell 2000.
1 Percentage change figures are calculated using assets under management rounded to the nearest million, while financial statement amounts are rounded to the nearest hundred thousand.
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Global and Non-U.S. Equities
Eurozone equities declined in the fourth quarter of 2024, with the MSCI European Economic and Monetary Union Index returning negative 1.8% (gross returns, in local-currency terms) amid fears of a recession and political turmoil in France and Germany. The European Central Bank signaled more cuts to come in 2025, as the single currency area wrestles with lackluster growth. The UK MSCI Index was roughly flat in local currency terms and returned negative 7% in USD terms, reflecting rapid GBP depreciation amid a rise in long-term bond yields and growing concerns about the U.K. macro-economic outlook. In Japan, equity markets gained in the fourth quarter with the TOPIX returning 5.4%. The Bank of Japan decided not to raise interest rates at its December policy meeting. MSCI Asia ex-Japan ended negative 7% (USD terms) during the fourth quarter of 2024, reflecting investor concerns around the impact of proposed tariffs, particularly on China. Emerging Markets underperformed Developed Markets in the fourth quarter.
Global Bonds
Fixed income markets experienced considerable volatility in the fourth quarter of 2024, primarily driven by geopolitical tensions, central bank decisions, and fluctuating inflation rates. The Bloomberg Global Aggregate Bond index ended 5.0% lower (USD terms, unhedged) in the fourth quarter of 2024. Major government bonds sold off, driven by persistent inflation, political instability, and budgetary concerns. The 10-year Treasury yield experienced a notable rise, finishing the year at 4.6%, indicating market uncertainty regarding the Fed's future actions amidst rising expectations over potential inflationary policies implemented by the new federal administration. On the credit front, high yield bonds outperformed their investment-grade counterparts during the fourth quarter, driven by expectations of pro-business policies under the new federal administration.
Relationship with EQH and its Subsidiaries
EQH (our parent company) and its subsidiaries are our largest client. EQH is collaborating with AB in order to improve the risk- adjusted yield for the General Accounts of EQH's insurance subsidiaries by investing additional assets at AB, including the utilization of AB's higher-fee, longer-duration alternative offerings. In mid-2021, Equitable Financial Life Insurance Company, a subsidiary of EQH (" Equitable Financial "), agreed to provide an initial $10 billion in permanent capital to build out AB's private illiquid offerings, including private alternatives and private placements. Deployment of the initial $10 billion in permanent capital is now complete. In addition, during the second quarter of 2023, EQH committed to provide an additional $10 billion in permanent capital, deployment of which is approximately 20% complete. We expect this anticipated capital from EQH's insurance subsidiaries will continue to accelerate both organic and inorganic growth in our private alternatives business, allowing us to continue to deliver for our clients, employees, unitholders and other stakeholders. For example, included in the initial $10 billion commitment by EQH is $750 million in capital deployed through AB CarVal.
Permanent capital means investment capital of indefinite duration, for which commitments may be withdrawn under certain conditions. Such conditions primarily include potential regulatory restrictions, lacking sufficient liquidity to fund the capital commitments to AB and AB's inability to identify attractive investment opportunities which align with the investment strategy. Although EQH’s insurance subsidiaries have indicated their intention over time to provide this investment capital to AB, they have no binding commitment to do so. While the withdrawal of their commitment could potentially slow down our introduction of certain products, the impact to our overall operations would not be material.
Joint Venture with Societe Generale
Effective April 1, 2024, AB and Societe Generale (" SocGen ") completed their previously announced transaction to form a global joint venture with two joint venture holding companies, one outside of North America and one within North America (" NA JV ", and together the " JVs "). AB owns a majority interest in the NA JV while SocGen owns a majority interest in the joint venture outside of North America. AB has deconsolidated the BRS business and retained the Bernstein Private Wealth Management business within its existing U.S. broker dealer Sanford C. Bernstein & Co., LLC. For further discussion, see Note 24 Divestitures to our consolidated financial statements in Item 8.
Relocation Strategy
As previously announced, we have established our corporate headquarters in Nashville, TN, at 501 Commerce Street. Our Nashville headquarters houses Finance, IT, Operations, Legal, Compliance, Internal Audit, Human Capital, and Sales and Marketing and at year-end 2024, we had 1,063 employees in Nashville. We will continue to maintain a principal location in New York City, which houses our Portfolio Management and Trading, and New York-based Private Wealth Management businesses.
We believe relocating our corporate headquarters to Nashville affords us the opportunity to provide an improved quality of life alternative for our employees and enables us to attract and recruit new talented employees to a highly desirable location while improving the long-term cost structure of the firm.
As of December 31, 2024, we have successfully completed the relocation of our corporate headquarters to Nashville, TN.
During the transition period, which began in 2018 and was completed in the fourth quarter of 2024, we incurred $160 million of cumulative transition costs. These costs include employee relocation, severance, recruitment, and overlapping compensation and occupancy costs. Over this same period, we realized total cumulative expense savings of $218 million, resulting in an overall net savings of $58 million for the period.
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We incurred $20 million of transition costs for the twelve months ended December 31, 2024, compared to $43 million of expense savings, resulting in an overall net savings of $23 million for the period. In 2024, our net income per unit (" EPU ") increased $0.08 as a result of our relocation strategy, which compares to the $0.08 EPU increase that occurred in 2023. We also expect to achieve EPU accretion in each future year. Beginning in 2025, as the transition period has now been completed, we estimate ongoing annual expense savings of approximately $75 million, which will result from a combination of occupancy and compensation-related savings.
During October 2018, we signed a lease, which commenced in the fourth quarter of 2020, relating to 218,976 square feet of space at our new Nashville headquarters. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 15-year initial lease term is $134 million.
While we have completed the transition period associated with our headquarter relocation to Nashville and our transition costs, expense savings and favorable EPU impact were in line with our estimates, there are several remaining positions to be relocated. We believe that any additional transition costs and expense savings will be immaterial. The actual outcomes may differ due to deviations in one or more of our key assumptions. The remaining transition costs and expense savings, along with their underlying assumptions, are considered Forward-Looking Statements. These statements were subject to various factors discussed in the " Risk Factors " and " Cautions Regarding Forward-Looking Statements " sections of this 2024 10-K.
AB Holding
AB Holding’s principal source of income and cash flow is attributable to its investment in AB Units. The AB Holding financial statements, notes to the financial statements and management’s discussion and analysis of financial condition and results of operations (“ MD&A ”) should be read in conjunction with those of AB.
Results of Operations
Years Ended December 31 % Change
2024 2023 2022 2024-23 2023-22
(in thousands, except per unit amounts)
Net income attributable to AB Unitholders $ 1,173,247 $ 764,610 $ 831,813 53.4 % (8.1 %)
Weighted average equity ownership interest 39.4 % 39.2 % 36.7 %
Equity in net income attributable to AB Unitholders $ 461,949 $ 299,781 $ 305,504 54.1 (1.9)
Income taxes 38,575 35,597 31,339 8.4 13.6
Net income of AB Holding $ 423,374 $ 264,184 $ 274,165 60.3 (3.6)
Diluted net income per AB Holding Unit $ 3.71 $ 2.34 $ 2.69 58.5 (13.0)
Distributions per AB Holding Unit (1)
$ 3.26 $ 2.69 $ 2.95 21.2 (8.8)
(1) Distributions reflect the impact of AB’s non-GAAP adjustments.
AB Holding had net income of $423.4 million in 2024 compared to $264.2 million in 2023, reflecting higher net income attributable to AB Unitholders and higher weighted average equity ownership interest. AB Holding had net income of $264.2 million in 2023 compared to $274.2 million in 2022, reflecting lower net income attributable to AB Unitholders, partially offset by higher weighted average equity ownership interest.
AB Holding's partnership gross income is derived from its interest in AB. AB Holding’s income taxes, which reflect a 3.5% federal tax on its partnership gross income from the active conduct of a trade or business, are computed by multiplying certain AB qualifying revenues by AB Holding’s ownership interest in AB, multiplied by the 3.5% tax rate. Certain AB qualifying revenues are primarily U.S. investment advisory fees, research payments and brokerage commissions. AB Holding’s effective tax rate was 8.4% in 2024, 11.9% in 2023 and 10.3% in 2022. The decrease in AB Holdings effective tax rate is primarily driven by one- time items not subject to the gross revenue tax. See Note 6 to AB Holding’s financial statements in Item 8 for a further description.
As supplemental information, AB provides the performance measures “adjusted net revenues,” “adjusted operating income” and “adjusted operating margin,” which are additional metrics management uses in evaluating and comparing the period-to-period operating performance of AB. Management uses these additional metrics in evaluating performance because they present a clearer picture of AB's operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, acquisition-related expenses, interest expense and other adjustment items. Similarly, management believes that these management operating metrics help investors better understand the underlying trends in AB's results and, accordingly, provide a valuable perspective for investors. Such measures are not based on generally accepted accounting principles (“ non-GAAP measures ”).
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We provide the non-GAAP measures "adjusted net income" and "adjusted diluted net income per unit" because our quarterly distribution per unit is typically our adjusted diluted net income per unit (which is derived from adjusted net income).
These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both GAAP and non-GAAP measures in evaluating the company’s financial performance. The non-GAAP measures alone may pose limitations because they do not include all of AB’s revenues and expenses. Further, adjusted diluted net income per AB Holding Unit is not a liquidity measure and should not be used in place of cash flow measures. See “Management Operating Metrics” in this Item 7 .
The impact of these adjustments on AB Holding’s net income and diluted net income per AB Holding Unit are as follows:
Years Ended December 31
2024 2023 2022
(in thousands, except per unit amounts)
AB non-GAAP adjustments (2)
$ (141,755) $ 103,164 $ 75,745
AB Income tax (expense) benefit on non-GAAP adjustments 8,338 (2,786) (6,395)
AB non-GAAP adjustments, after taxes (133,417) 100,378 69,350
AB Holding’s weighted average equity ownership interest in AB 39.4 % 39.2 % 36.7 %
Impact on AB Holding’s net income of AB non-GAAP adjustments $ (52,531) $ 39,355 $ 25,468
Net income - diluted, GAAP basis $ 423,374 $ 264,184 $ 274,167
Impact on AB Holding’s net income of AB non-GAAP adjustments (52,531) 39,355 25,468
Adjusted net income - diluted $ 370,843 $ 303,539 $ 299,635
Diluted net income per AB Holding Unit, GAAP basis $ 3.71 $ 2.34 $ 2.69
Impact of AB non-GAAP adjustments (0.46) 0.35 0.25
Adjusted diluted net income per AB Holding Unit $ 3.25 $ 2.69 $ 2.94
(2) Includes all AB non-GAAP adjustments to pre-tax income.
The degree to which AB’s non-GAAP adjustments impact AB Holding’s net income fluctuates based on AB Holding's ownership percentage in AB.
Tax Legislation
For a discussion of tax legislation, see “Risk Factors - Structure-related Risks” in Item 1A .
Capital Resources and Liquidity
During the year ended December 31, 2024, net cash provided by operating activities was $340.5 million, compared to $294.0 million during the corresponding 2023 period. The increase primarily resulted from higher cash distributions received from AB of $47.7 million. During the year ended December 31, 2023, net cash provided by operating activities was $294.0 million, compared to $362.6 million during the corresponding 2022 period. The decrease primarily resulted from lower cash distributions received from AB of $64.6 million.
During the years ended December 31, 2024, 2023 and 2022, net cash used in investing activities was zero, zero and $1.8 million, respectively. In 2022, net cash used in investing activities reflected investments in AB with proceeds from exercises of compensatory options to buy AB Holding Units and capital contributions to AB.
During the year ended December 31, 2024, net cash used in financing activities was $340.5 million, compared to $294.0 million during the corresponding 2023 period. The increase was primarily due to higher cash distributions to Unitholders of $45.1 million and lower capital contributions from AB of $1.4 million. During the year ended December 31, 2023, net cash used in financing activities was $294.0 million, compared to $360.8 million during the corresponding 2022 period. The decrease was primarily due to lower cash distributions to Unitholders of $64.9 million and higher capital contributions from AB of $2.2 million.
Management believes that AB Holding will have the resources it needs to meet its financial obligations as a result of the cash flow AB Holding realizes from its investment in AB. AB Holding’s cash inflow is comprised entirely of distributions from AB. These distributions are subsequently distributed (net of taxes paid) in their entirety to AB Holding’s Unitholders. As a result, AB Holding has no liquidity risk as it only pays distributions to AB Holding’s Unitholders to the extent of distributions received from AB (net of taxes paid).
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Cash Distributions
AB Holding is required to distribute all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement, to its Unitholders (including the General Partner). Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the number of units outstanding at the end of the quarter. Management anticipates that Available Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines, with concurrence of the Board of Directors, that one or more adjustments made to adjusted net income should not be made with respect to the Available Cash Flow calculation. See Note 2 to AB Holding’s financial statements in Item 8 for a description of Available Cash Flow.
Commitments and Contingencies
For a discussion of commitments and contingencies, see Note 7 to AB Holding’s financial statements in Item 8 .
AB
Assets Under Management
Assets under management by distribution channel are as follows:
As of December 31 % Change
2024 2023 2022 2024-23 2023-22
(in billions)
Institutions $ 321.4 $ 317.1 $ 297.3 1.3 % 6.7 %
Retail 334.3 286.8 242.9 16.6 18.1
Private Wealth Management 136.5 121.3 106.2 12.6 14.1
Total $ 792.2 $ 725.2 $ 646.4 9.2 % 12.2 %
Assets under management by investment service are as follows:
As of December 31 % Change
2024 2023 2022 2024-23 2023-22
(in billions)
Equity
Actively Managed $ 263.4 $ 247.5 $ 217.9 6.4 % 13.6 %
Passively Managed (1)
68.3 62.1 53.8 10.1 15.3
Total Equity 331.7 309.6 271.7 7.2 13.9
Fixed Income
Actively Managed
Taxable (3)
209.3 208.6 190.3 0.3 9.6
Tax–exempt 76.2 61.1 52.5 24.7 16.3
Total 285.5 269.7 242.8 5.9 11.1
Passively Managed (1)
10.3 11.4 9.4 (9.5) 21.0
Total Fixed Income 295.8 281.1 252.2 5.2 11.5
Alternatives/Multi-Asset Solutions (2)(3)
Actively Managed 153.6 125.9 115.8 22.0 8.7
Passively Managed (1)
11.1 8.6 6.7 28.0 29.7
Total Alternatives/Multi-Asset Solutions 164.7 134.5 122.5 22.4 9.8
Total $ 792.2 $ 725.2 $ 646.4 9.2 % 12.2 %
(1) Includes index and enhanced index services.
(2) Includes certain multi-asset solutions and services not included in equity or fixed income services.
(3) Approximately $12.1 billion of private placements was transferred from Taxable Fixed Income into Alternatives/Multi-Asset during 2024 to better align with standard industry practice for asset class reporting purposes.
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Changes in assets under management during 2024 and 2023 are as follows:
Distribution Channel
Institutions Retail Private
Wealth
Management Total
(in billions)
Balance as of December 31, 2023 $ 317.1 $ 286.8 $ 121.3 $ 725.2
Long-term flows:
Sales/new accounts 13.0 99.9 20.8 133.7
Redemptions/terminations (14.9) (71.7) (19.9) (106.5)
Cash flow/unreinvested dividends (14.6) (14.8) — (29.4)
Net long-term (outflows) inflows (16.5) 13.4 0.9 (2.2)
Adjustments (1)
— — 0.7 0.7
Transfers 0.1 (0.1) — —
Market appreciation 20.7 34.2 13.6 68.5
Net change 4.3 47.5 15.2 67.0
Balance as of December 31, 2024 $ 321.4 $ 334.3 $ 136.5 $ 792.2
Balance as of December 31, 2022 $ 297.3 $ 242.9 $ 106.2 $ 646.4
Long-term flows:
Sales/new accounts 11.8 71.1 18.6 101.5
Redemptions/terminations (12.6) (58.1) (17.5) (88.2)
Cash flow/unreinvested dividends (11.0) (9.3) — (20.3)
Net long-term (outflows) inflows (11.8) 3.7 1.1 (7.0)
Transfers 0.1 (0.1) — —
Market appreciation 31.5 40.3 14.0 85.8
Net change 19.8 43.9 15.1 78.8
Balance as of December 31, 2023 $ 317.1 $ 286.8 $ 121.3 $ 725.2
(1) This adjustment is due to a change in fee policy related to certain fixed income assets effective October 1, 2024.
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Investment Service
Equity
Actively
Managed Equity
Passively
Managed (1)
Fixed
Income
Actively
Managed-
Taxable Fixed Income
Actively
Managed-Tax-
Exempt Fixed
Income
Passively
Managed (1)
Alternatives/
Multi-Asset
Solutions (2)
Total
(in billions)
Balance as of December 31, 2023 $ 247.5 $ 62.1 $ 208.6 $ 61.1 $ 11.4 $ 134.5 $ 725.2
Long-term flows:
Sales/new accounts 49.0 1.5 44.4 24.2 — 14.6 133.7
Redemptions/terminations (54.3) (0.6) (33.9) (11.1) (0.6) (6.0) (106.5)
Cash flow/unreinvested dividends (18.8) (7.5) 0.5 0.5 (0.4) (3.7) (29.4)
Net long-term (outflows) inflows (24.1) (6.6) 11.0 13.6 (1.0) 4.9 (2.2)
Adjustments (3)
— — 0.2 0.5 — — 0.7
Transfers (4)
— — (12.1) — — 12.1 —
Market appreciation (depreciation) 40.0 12.8 1.6 1.0 (0.1) 13.2 68.5
Net change 15.9 6.2 0.7 15.1 (1.1) 30.2 67.0
Balance as of December 31, 2024 $ 263.4 $ 68.3 $ 209.3 $ 76.2 $ 10.3 $ 164.7 $ 792.2
Balance as of December 31, 2022 $ 217.9 $ 53.8 $ 190.3 $ 52.5 $ 9.4 $ 122.5 $ 646.4
Long-term flows:
Sales/new accounts 37.3 1.3 36.4 16.5 1.7 8.3 101.5
Redemptions/terminations (43.8) (0.3) (27.3) (11.1) (0.3) (5.4) (88.2)
Cash flow/unreinvested dividends (9.0) (5.0) (2.5) 0.3 0.1 (4.2) (20.3)
Net long-term (outflows) inflows (15.5) (4.0) 6.6 5.7 1.5 (1.3) (7.0)
Market appreciation 45.1 12.3 11.7 2.9 0.5 13.3 85.8
Net change 29.6 8.3 18.3 8.6 2.0 12.0 78.8
Balance as of December 31, 2023 $ 247.5 $ 62.1 $ 208.6 $ 61.1 $ 11.4 $ 134.5 $ 725.2
(1) Includes index and enhanced index services.
(2) Includes certain multi-asset solutions and services not included in equity or fixed income services.
(3) This adjustment is due to a change in fee policy related to certain fixed income assets effective October 1, 2024.
(4) Approximately $12.1 billion of private placements was transferred from Taxable Fixed Income into Alternatives/Multi-Asset during 2024 to better align with standard industry practice for asset class reporting purposes.
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Net long-term (outflows) inflows for actively managed investment services as compared to passively managed investment services during 2024 and 2023 are as follows:
Years Ended December 31
2024 2023
(in billions)
Actively Managed
Equity $ (24.1) $ (15.5)
Fixed Income 24.6 12.3
Alternatives/Multi- Asset Solutions 3.8 (2.0)
Total 4.3 (5.2)
Passively Managed
Equity (6.6) (4.0)
Fixed Income (1.0) 1.5
Alternatives/Multi- Asset Solutions 1.1 0.7
Total (6.5) (1.8)
Total net long-term (outflows) $ (2.2) $ (7.0)
Average assets under management by distribution channel and investment service are as follows:
Years Ended December 31 % Change
2024 2023 2022 2024-23 2023-22
(in billions)
Distribution Channel:
Institutions $ 322.9 $ 304.6 $ 308.4 6.0 % (1.2 %)
Retail 315.3 262.0 267.8 20.4 (2.1)
Private Wealth Management 130.3 113.7 110.3 14.6 3.0
Total $ 768.5 $ 680.3 $ 686.5 13.0 % (0.9 %)
Investment Service:
Equity Actively Managed $ 261.3 $ 231.5 $ 239.7 12.9 (3.4)
Equity Passively Managed (1)
66.0 57.7 60.4 14.3 (4.5)
Fixed Income Actively Managed – Taxable 211.4 198.3 210.0 6.6 (5.6)
Fixed Income Actively Managed – Tax-exempt 67.5 56.0 54.1 20.7 3.4
Fixed Income Passively Managed (1)
11.0 9.7 11.5 13.4 (15.2)
Alternatives/Multi-Asset Solutions (2)
151.3 127.1 110.8 19.0 14.8
Total $ 768.5 $ 680.3 $ 686.5 13.0 % (0.9 %)
(1) Includes index and enhanced index services.
(2) Includes certain multi-asset solutions and services not included in equity or fixed income services.
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During 2024, our Institutional channel average AUM of $322.9 billion increased $18.3 billion, or 6.0%, compared to 2023, while ending AUM increased $4.3 billion, or 1.3%, to $321.4 billion from December 31, 2023. The $4.3 billion increase in AUM resulted primarily from market appreciation of $20.7 billion, partially offset by net outflows of $16.5 billion. Market depreciation of $7.6 billion in the fourth quarter of 2024 drove the ending AUM balance down as compared to our average AUM for 2024. During 2023, our Institutional channel average AUM of $304.6 billion decreased $3.8 billion, or 1.2%, compared to 2022, while ending AUM increased $19.8 billion, or 6.7%, to $317.1 billion from December 31, 2022. The $19.8 billion increase in AUM resulted primarily from market appreciation of $31.5 billion (with $22.7 billion of market appreciation occurring in the fourth quarter of 2023), partially offset by net outflows of $11.8 billion.
During 2024, our Retail channel average AUM of $315.3 billion increased $53.3 billion, or 20.4%, compared to 2023, primarily due to this AUM increasing $47.5 billion, or 16.6%, to $334.3 billion from December 31, 2023. The $47.5 billion increase in AUM resulted primarily from market appreciation of $34.2 billion and net inflows of $13.4 billion. During 2023, our Retail channel average AUM of $262.0 billion decreased $5.8 billion, or 2.1%, compared to 2022, while ending AUM increased $43.9 billion, or 18.1%, to $286.8 billion from December 31, 2022. The $43.9 billion increase in AUM resulted primarily from market appreciation of $40.3 billion and net outflows of $3.7 billion.
During 2024, our Private Wealth Management channel average AUM of $130.3 billion increased $16.6 billion, or 14.6%, compared to 2023, primarily due to this AUM increasing $15.2 billion, or 12.6%, to $136.5 billion from December 31, 2023. The $15.2 billion increase in AUM resulted from market appreciation of $13.6 billion, net inflows of $0.9 billion and an adjustment of $0.7 billion. During 2023, our Private Wealth Management channel average AUM of $113.7 billion increased $3.4 billion, or 3.0%, compared to 2022, primarily due to this AUM increasing $15.1 billion, or 14.1%, to $121.3 billion from December 31, 2022. The $15.1 billion increase in AUM resulted from market appreciation of $14.0 billion, and net inflows of $1.1 billion.
Absolute investment composite returns, gross of fees, and relative performance as of December 31, 2024 compared to benchmarks for certain representative Institutional equity and fixed income services are as follows:
1-Year 3-Year (1)
5-Year (1)
Income (fixed income)
Absolute return 4.26 % 0.22 % 1.50 %
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index) 3.01 2.63 1.83
High Income (fixed income)
Absolute return 9.27 3.78 3.96
Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged) (1.44) (0.05) 0.01
Global Plus - Hedged (fixed income)
Absolute return 2.83 (0.71) 0.63
Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged) (0.56) (0.16) 0.15
Intermediate Municipal Bonds (fixed income)
Absolute return 2.67 0.92 1.76
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg) 0.49 0.51 0.67
U.S. Core Plus (fixed income)
Absolute return 2.74 (1.84) 0.33
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index) 1.49 0.57 0.65
Emerging Market Debt (fixed income)
Absolute return 8.49 (0.08) 1.12
Relative return (vs. JPM EMBI Global/JPM EMBI) 2.76 0.73 0.78
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1-Year 3-Year (1)
5-Year (1)
Sustainable Global Thematic
Absolute return 7.07 (2.70) 9.93
Relative return (vs. MSCI ACWI Index) (10.42) (8.13) (0.13)
International Strategic Core Equity
Absolute return 9.82 3.32 5.50
Relative return (vs. MSCI EAFE Index) 6.00 1.68 0.78
U.S. Small & Mid Cap Value
Absolute return 10.81 3.51 9.70
Relative return (vs. Russell 2500 Value Index) (0.17) (0.30) 1.26
U.S. Large Cap Value
Absolute return 16.41 9.36 11.29
Relative return (vs. Russell 1000 Value Index) 2.04 3.73 2.61
U.S. Small Cap Growth
Absolute return 19.74 (4.20) 8.62
Relative return (vs. Russell 2000 Growth Index) 4.59 (4.41) 1.76
U.S. Large Cap Growth
Absolute return 25.90 7.02 16.50
Relative return (vs. Russell 1000 Growth Index) (7.46) (3.45) (2.46)
U.S. Small & Mid Cap Growth
Absolute return 18.39 (2.97) 9.51
Relative return (vs. Russell 2500 Growth Index) 4.49 (2.95) 1.43
Concentrated U.S. Growth
Absolute return 11.45 0.69 10.45
Relative return (vs. S&P 500 Index) (13.57) (8.25) (4.07)
Select U.S. Equity
Absolute return 27.05 9.90 15.20
Relative return (vs. S&P 500 Index) 2.03 0.96 0.68
Strategic Equities
Absolute return 23.47 8.06 13.89
Relative return (vs. Russell 3000 Index) (0.33) 0.05 0.02
Global Core Equity
Absolute return 11.06 2.63 7.50
Relative return (vs. MSCI ACWI Index) (6.43) (2.80) (2.56)
U.S. Strategic Core Equity
Absolute return 20.84 9.88 12.43
Relative return (vs. S&P 500 Index) (4.18) 0.94 (2.09)
Select U.S. Equity Long/Short
Absolute return 20.30 7.38 10.53
Relative return (vs. S&P 500 Index) (4.72) (1.56) (4.00)
Global Strategic Core Equity
Absolute return 17.69 8.18 10.39
Relative return (vs. S&P 500 Index) (0.98) 1.84 (0.78)
(1) Reflects annualized returns.
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Consolidated Results of Operations
Years Ended December 31 % Change
2024 2023 2022 2024-23 2023-22
(in thousands, except per unit amounts)
Net revenues $ 4,475,139 $ 4,155,323 $ 4,054,290 7.7 % 2.5 %
Expenses 3,351,066 3,337,653 3,239,194 0.4 3.0
Operating income 1,124,073 817,670 815,096 37.5 0.3
Non-operating income 134,555 — — n/m n/m
Pre-tax income 1,258,628 817,670 815,096 53.9 0.3
Income taxes 65,143 29,051 39,639 124.2 (26.7)
Net income 1,193,485 788,619 775,457 51.3 1.7
Net income (loss) of consolidated entities attributable to non-controlling interests 20,238 24,009 (56,356) (15.7) n/m
Net income attributable to AB Unitholders $ 1,173,247 $ 764,610 $ 831,813 53.4 (8.1)
Diluted net income per AB Unit $ 4.05 $ 2.65 $ 3.01 52.8 (12.0)
Distributions per AB Unit $ 3.60 $ 3.00 $ 3.26 20.0 (8.0)
Operating margin (1)
24.7 % 19.1 % 21.5 %
(1) Operating income excluding net income (loss) attributable to non-controlling interests as a percentage of net revenues.
Net income attributable to AB Unitholders for the year ended December 31, 2024 increased $408.6 million from the year ended December 31, 2023. The increase primarily is due to (in millions):
Higher base advisory fees $ 340.6
Higher distribution revenues 140.4
Higher gain on divestiture 134.6
Higher gain on contingent payment arrangements (1)
144.7
Higher performance-based fees 126.1
Higher other revenues 41.5
Lower interest expense 10.9
Lower Bernstein Services Research revenues (2)
(289.9)
Higher promotion and servicing expenses (119.7)
Higher income tax expense (36.1)
Higher employee compensation and benefits expense (32.6)
Higher investment losses (27.7)
Higher general and administrative expenses (17.6)
Lower net dividend and interest income (11.1)
Other 4.5
$ 408.6
(1) During 2024, we recognized a gain of $128.5 million in contingent payment arrangements in the consolidated statements of income related to a fair value remeasurement of the contingent payment liability associated with our acquisition of AB Carval in 2022.
(2) On April 1, 2024, AB and SocGen, a leading European bank, completed their transaction to form a jointly owned equity research provider and cash equity trading partner for institutional investors. AB has deconsolidated the BRS business and contributed the business to the JVs. For further discussion, see Note 24 Divestiture to our consolidated financial statements contained in Item 8 .
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Net income attributable to AB Unitholders for the year ended December 31, 2023 decreased $67.2 million from the year ended December 31, 2022. The decrease primarily was due to (in millions):
Higher employee compensation and benefits $ (102.5)
Higher net gains of consolidated entities attributable to non-controlling interest (80.4)
Higher interest on borrowings (36.5)
Lower Bernstein Research Services revenue (30.1)
Lower distribution revenues (20.9)
Higher amortization of intangible assets (20.3)
Higher contingent payment arrangements (16.3)
Higher investment gains 116.6
Lower general and administrative expenses 60.1
Higher net dividend and interest income 35.2
Lower promotion and servicing expenses 17.1
Lower income taxes 10.6
Other 0.2
$ (67.2)
Units Outstanding
Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (“ Exchange Act ”). A plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker we select has the authority to repurchase AB Holding Units on our behalf in accordance with the terms and limitations specified in the plan. Repurchases are subject to regulations promulgated by the SEC, as well as certain price, market volume and timing constraints specified in the plan. We did not adopt a plan during the fourth quarter of 2024. We may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes.
Cash Distributions
We are required to distribute all of our Available Cash Flow, as defined in the AB Partnership Agreement, to our Unitholders and the General Partner. Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines, with concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. See Note 2 to our consolidated financial statements contained in Item 8 for a description of Available Cash Flow.
Management Operating Metrics
We are providing the non-GAAP measures “adjusted net revenues,” “adjusted operating income” and “adjusted operating margin” because they are additional operating metrics management uses in evaluating and comparing period-to-period operating performance. Management uses these additional metrics in evaluating performance because they present a clearer picture of our operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, acquisition-related expenses, interest expense and other adjustment items. Similarly, we believe that these management operating metrics help investors better understand the underlying trends in our results and, accordingly, provide a valuable perspective for investors.
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These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both accounting principles generally accepted in the United States of America (" US GAAP ") and non-GAAP measures in evaluating our financial performance. The non-GAAP measures alone may pose limitations because they do not include all of our revenues and expenses.
Years Ended December 31
2024 2023 2022
(in thousands)
Net revenues, US GAAP basis $ 4,475,139 $ 4,155,323 $ 4,054,290
Adjustments:
Distribution-related adjustments:
Distribution revenues (726,670) (586,263) (607,195)
Investment advisory services fees (73,737) (60,919) (57,139)
Pass-through adjustments:
Investment advisory services fees (81,622) (62,538) (65,116)
Other revenues (68,939) (34,910) (38,959)
Impact of consolidated company-sponsored funds (17,974) (25,123) 57,436
Incentive compensation-related items (14,410) (13,621) (7,083)
Equity loss on JV 36,611 — —
Adjusted net revenues $ 3,528,398 $ 3,371,949 $ 3,336,234
Operating income, US GAAP basis $ 1,124,073 $ 817,670 $ 815,096
Adjustments:
Real estate (825) (825) (825)
Incentive compensation-related items 2,391 5,192 3,461
Retirement plan settlement loss 13,130 — —
EQH award compensation 1,088 727 606
Acquisition-related expenses (59,595) 98,070 72,503
Equity loss on JV 36,611 — —
Sub-total of non-GAAP adjustments before interest on borrowings (7,200) 103,164 75,745
Interest on borrowings 43,509 54,394 17,906
Subtotal of non-GAAP adjustments 36,309 157,558 93,651
Less: Net income (loss) of consolidated entities attributable to non-controlling interests 20,238 24,009 (56,356)
Adjusted operating income $ 1,140,144 $ 951,219 $ 965,103
Non-operating income, US GAAP basis $ 134,555 $ — $ —
Less: Interest on borrowings 43,509 54,394 17,906
Less: Gain on divestiture 134,555 — —
Adjusted non-operating (expense) $ (43,509) $ (54,394) $ (17,906)
Adjusted pre-tax income 1,096,635 896,825 947,197
Less: Adjusted income taxes 56,806 31,837 46,034
Adjusted net income $ 1,039,829 $ 864,988 $ 901,163
Diluted net income per AB Unit, GAAP basis $ 4.05 $ 2.65 $ 3.01
Impact of non-GAAP adjustments (0.46) 0.35 0.25
Adjusted diluted net income per AB Unit $ 3.59 $ 3.00 $ 3.26
Operating margin, GAAP basis 24.7 % 19.1 % 21.5 %
Impact of non-GAAP adjustments 7.6 9.1 7.4
Adjusted operating margin 32.3 % 28.2 % 28.9 %
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Adjusted operating income for the year ended December 31, 2024 increased $188.9 million, or 19.9%, from the year ended December 31, 2023, primarily due to higher investment advisory base fees of $332.6 million, higher performance-based fees of $101.3 million, lower general and administrative expenses of $37.9 million, lower promotion and servicing expenses of $32.5 million, higher investment gains of $10.7 million and higher other revenues of $8.1 million, partially offset by lower Bernstein Research Services revenue of $289.9 million due to the deconsolidation of the BRS business, higher employee compensation and benefits expense of $37.7 million and lower net dividends and interest income of $6.2 million.
Adjusted operating income for the year ended December 31, 2023 decreased $13.9 million, or 1.4%, from the year ended December 31, 2022, primarily due to higher employee compensation and benefits expense of $39.3 million, lower Bernstein Research Services revenue of $30.1 million, lower investment advisory base fees of $25.1 million and higher general and administrative expenses of $6.2 million, partially offset by higher net dividend and interest income of $51.6 million and higher performance-based fees of $35.5 million.
Adjusted Net Revenues
Net Revenue, as adjusted, is reduced to exclude all of the company's distribution revenues, which are recorded as a separate line item on the consolidated statement of income, as well as a portion of investment advisory services fees received that is used to pay distribution and servicing costs. For certain products, based on the distinct arrangements, certain distribution fees are collected by us and passed through to third-party client intermediaries, while for certain other products, we collect investment advisory services fees and a portion is passed through to third-party client intermediaries. In both arrangements, the third-party client intermediary owns the relationship with the client and is responsible for performing services and distributing the product to the client on our behalf. We believe offsetting distribution revenues and certain investment advisory services fees is useful for our investors and other users of our financial statements because such presentation appropriately reflects the nature of these costs as pass-through payments to third parties that perform functions on behalf of our sponsored mutual funds and/or shareholders of these funds. Distribution-related adjustments fluctuate each period based on the type of investment products sold, as well as the average AUM over the period. Also, we adjust distribution revenues for the amortization of deferred sales commissions as these costs, over time, will offset such revenues.
We adjust investment advisory and services fees and other revenues for pass through costs, primarily related to our transfer agent and shareholder servicing fees. Also, we adjust for certain performance-based fees passed through to our investment advisors. These fees do not affect operating income, as such, we exclude these fees from adjusted net revenues. We also adjust for certain pass through costs associated with the transition of services to the JVs entered into with SocGen. These amounts are expensed by us and passed to the JVs for reimbursement. These fees do not affect operating income, as such, we exclude these fees from adjusted net revenues.
We adjust for the revenue impact of consolidating company-sponsored investment funds by eliminating the consolidated company-sponsored investment funds' revenues and including AB's fees from such consolidated company-sponsored investment funds and AB's investment gains and losses on its investments in such consolidated company-sponsored investment funds that were eliminated in consolidation.
We also adjust net revenues to exclude our portion of the equity income or loss associated with our investment in the JVs. Effective April 1, 2024 following the close of the transaction with SocGen, we record all income or loss associated with the JVs as an equity method investment income (loss). As we no longer consider this activity part of our core business operations and our intent is to fully divest from both joint ventures, we consider these amounts temporary, and as such, we exclude these amounts from our adjusted net revenues.
Adjusted net revenues exclude investment gains and losses and dividends and interest on employee long-term incentive compensation-related investments. Also, we adjust for certain acquisition-related pass-through performance-based fees and performance related compensation.
Adjusted Operating Income
Adjusted operating income represents operating income on a US GAAP basis excluding (1) real estate charges (credits), (2) the impact on net revenues and compensation expense of the investment gains and losses (as well as the dividends and interest) associated with employee long-term incentive compensation-related investments, (3) retirement plan settlement loss, (4) the equity compensation paid by EQH to certain AB executives, (5) acquisition-related expenses, (6) equity (income) loss on JVs, (7) interest on borrowings and (8) the impact of consolidated company-sponsored investment funds.
Real estate charges (credits) incurred during the fourth quarter of 2019 through the fourth quarter of 2020, while excluded in the period in which the charges (credits) were recorded, are included ratably over the remaining applicable lease term.
Prior to 2009, a significant portion of employee compensation was in the form of long-term incentive compensation awards that were notionally invested in AB investment services and generally vested over a period of four years. AB economically hedged the exposure to market movements by purchasing and holding these investments on its balance sheet. All such
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investments had vested as of year-end 2012 and the investments have been delivered to the participants, except for those investments with respect to which the participant elected a long-term deferral. Fluctuation in the value of these investments, which also impacts compensation expense, is recorded within investment gains and losses on the income statement. Management believes it is useful to reflect the offset achieved from economically hedging the market exposure of these investments in the calculation of adjusted operating income and adjusted operating margin. The non-GAAP measures exclude gains and losses and dividends and interest on employee long-term incentive compensation-related investments included in revenues and compensation expense.
The losses associated with the termination of our defined benefit retirement plan are non-cash, short term in nature and not considered a part of our core operating results when comparing financial results from period to period.
The board of directors of EQH granted to Seth Bernstein, our CEO, equity awards in connection with EQH's IPO. Additionally, equity awards were granted to Mr. Bernstein and other AB executives for their membership on the EQH Management Committee. These individuals may receive additional equity or cash compensation from EQH in the future related to their service on the Management Committee. Any awards granted to these individuals by EQH are recorded as compensation expense in AB’s consolidated statement of income. The compensation expense associated with these awards has been excluded from our non-GAAP measures because they are non-cash and are based upon EQH's, and not AB's, financial performance.
Acquisition-related expenses have been excluded because they are not considered part of our core operating results when comparing financial results from period to period and to industry peers. Acquisition-related expenses include professional fees, the recording of changes in estimates or fair value remeasurements to, and accretion expense related to, our contingent payment arrangements associated with our acquisitions, certain compensation-related expenses and amortization of intangible assets for contracts acquired. During 2024, we recognized a gain of $128.5 million in contingent payment arrangements in the consolidated statement of income related to a fair value remeasurement of the contingent payment liability associated with our acquisition of AB Carval in 2022. The fair value remeasurement was due to updated assumptions of future performance associated with the liability. We also recorded an impairment of $2.5 million of the contingent consideration payable associated with a small acquisition made in 2020 due to the loss of investment management contracts. In addition, we recorded an intangible asset impairment charge of $4.4 million associated with various historical acquisitions. During 2023, we recorded an expense of $28.4 million due to a change in estimate related to the contingent consideration associated with the acquisition of Autonomous LLC in 2019. The change in estimate was based upon better than expected revenues during the 2023 performance evaluation period. We recorded $14.1 million as contingent payment arrangement expense and $14.3 million as compensation and benefits expense in the consolidated statement of income. The charges to compensation and benefits expense are due to certain service conditions and special awards included in the acquisition agreement. During 2022, acquisition related expenses included an intangible asset impairment charge of $5.6 million related to various historical acquisitions.
We also adjust operating income to exclude our portion of the equity income or loss associated with our investment in the JVs. Effective April 1, 2024 following the close of the transaction with SocGen, we record all income or loss associated with the JVs as an equity method investment (income) loss. As we no longer consider this activity part of our core business operations and our intent is to fully divest from both joint ventures, we consider these amounts temporary, and as such, we exclude these amounts from our adjusted operating income.
We adjust operating income to exclude interest on borrowings in order to align with our industry peer group.
Adjusted Net Income and Adjusted Diluted Net Income per AB Unit
As previously discussed, our quarterly distribution is typically our adjusted diluted net income per unit (which is derived from adjusted net income) for the quarter multiplied by the number of general and limited partnership interests outstanding at the end of the quarter. Adjusted net income is derived from adjusted operating income less interest expense, gain on divestiture and adjusted income taxes. The gain on divestiture is not considered part of our core operating results and, accordingly has been excluded from our adjusted net income. Adjusted income taxes, used in calculating adjusted net income, are calculated using the GAAP effective tax rate adjusted for non-GAAP income tax adjustments.
Adjusted Operating Margin
Adjusted operating margin allows us to monitor our financial performance and efficiency from period to period without the volatility noted above in our discussion of adjusted operating income and to compare our performance to industry peers on a basis that better reflects our performance in our core business. Adjusted operating margin is derived by dividing adjusted operating income by adjusted net revenues.
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Net Revenues
The components of net revenues are as follows:
Years Ended December 31 % Change
2024 2023 2022 2024-23 2023-22
(in thousands)
Investment advisory and services fees:
Institutions:
Base fees $ 619,215 $ 612,341 $ 581,987 1.1 % 5.2 %
Performance-based fees 81,011 53,702 77,299 50.9 (30.5)
700,226 666,043 659,286 5.1 1.0
Retail:
Base fees 1,504,354 1,275,914 1,321,645 17.9 (3.5)
Performance-based fees 17,825 197 1,564 n/m (87.4)
1,522,179 1,276,111 1,323,209 19.3 (3.6)
Private Wealth Management:
Base fees 1,047,606 942,302 922,159 11.2 2.2
Performance-based fees 172,128 91,012 66,384 89.1 37.1
1,219,734 1,033,314 988,543 18.0 4.5
Total:
Base fees 3,171,175 2,830,557 2,825,791 12.0 0.2
Performance-based fees 270,964 144,911 145,247 87.0 (0.2)
3,442,139 2,975,468 2,971,038 15.7 0.1
Bernstein Research Services (1)
96,222 386,142 416,273 (75.1) (7.2)
Distribution revenues 726,670 586,263 607,195 23.9 (3.4)
Dividend and interest income 165,313 199,443 123,091 (17.1) 62.0
Investment (losses) gains (13,486) 14,206 (102,413) n/m n/m
Other revenues 142,794 101,342 105,544 40.9 (4.0)
Total revenues 4,559,652 4,262,864 4,120,728 7.0 3.4
Less: broker-dealer related interest expense 84,513 107,541 66,438 (21.4) 61.9
Net revenues $ 4,475,139 $ 4,155,323 $ 4,054,290 7.7 % 2.5 %
(1) On April 1, 2024, AB and SocGen, a leading European bank, completed their transaction to form a jointly owned equity research provider and cash equity trading partner for institutional investors. AB has deconsolidated the BRS business and contributed the business to the JVs. For further discussion, see Note 24 Divestiture to our consolidated financial statements contained in Item 8 .
Investment Advisory and Services Fees
Investment advisory and services fees are the largest component of our revenues. These fees generally are calculated as a percentage of the value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and vary with the type of investment service, the size of account and the total amount of assets we manage for a particular client. Accordingly, fee income generally increases or decreases as AUM increase or decrease and is affected by market appreciation or depreciation, the addition of new client accounts or client contributions of additional assets to existing accounts, withdrawals of assets from and termination of client accounts, purchases and redemptions of mutual fund shares, shifts of assets between accounts or products with different fee structures, and acquisitions. Our average basis points realized (investment advisory and services fees divided by average AUM) generally approximate 30 to 105 basis points for actively managed equity services, 10 to 65 basis points for actively managed fixed income services and 1 to 50 basis points for passively managed services. Average basis points realized for other services could range from 3 basis points for certain Institutional third party managed services to 190 basis points for certain Private Wealth Management alternative services. These ranges include all-inclusive fee arrangements (covering investment management, trade execution and other services) for our Private Wealth Management clients.
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We calculate AUM using established market-based valuation methods and fair valuation (non-observable market) methods. Market-based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures; evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; mid prices from recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing vendors and brokers for other derivative products. Fair valuation methods include: discounted cash flow models or any other methodology that is validated and approved by our Valuation Committee and sub-committee (the " Valuation Committee" ) ( see paragraph immediately below for more information regarding our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-based valuation methods, such as in the case of private equity or illiquid securities.
The Valuation Committee, consists of senior officers and employees, which oversees a consistent framework of pricing and valuation of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which is overseen by the Valuation Committee and is responsible for managing the pricing process for all investments.
We sometimes charge our clients performance-based fees. In these situations, we charge a base advisory fee and are eligible to earn an additional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. Some performance-based fees include a high-watermark provision, which generally provides that if a client account underperforms relative to its performance target (whether absolute or relative to a specified benchmark), it must gain back such underperformance before we can collect future performance-based fees. Therefore, if we fail to achieve our performance target for a particular period, we will not earn a performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-based fees will be impaired. We are eligible to earn performance-based fees on 7.4%, 8.0% and 0.3% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, 4.5% of our AUM).
Our investment advisory and services fees increased by $466.7 million, or 15.7%, in 2024, due to a $340.6 million, or 12.0%, increase in base fees and a $126.1 million increase in performance-based fees. The increase in base fees is primarily due to a 13.0% increase in average AUM. Our investment advisory and services fees increased by $4.4 million, or 0.1%, in 2023, due to a $4.8 million, or 0.2%, increase in base fees, offset by a $0.3 million decrease in performance-based fees. The increase in base fees was primarily due to slight shift in product mix to alternatives, which generally earn higher fees, partially offset by a 0.9% decrease in average AUM.
Performance-based fees increased $126.1 million, or 87.0%, in 2024, primarily due to higher performance-based fees earned on Financial Services Opportunities fund, Global Opportunistic Credit fund, Global Multi-Strategy fund and US Select Equity Long/Short fund, partially offset by lower performance-based fees earned on International Small Cap fund. Performance-based fees decreased $0.3 million, or 0.2%, in 2023, primarily due to lower performance-based fees earned on U.S. Real Estate fund and Emerging Markets Opportunistic Credit fund, partially offset by higher performance-based fees earned on Private Credit fund, Global Opportunistic Credit fund, Global Multi-Strategy fund and Securitized Assets fund.
Institutional base fees increased $6.9 million, or 1.1%, in 2024, primarily due to a a 6.0% increase in average AUM, partially offset by a lower portfolio fee rate. Retail base fees increased $228.4 million, or 17.9%, in 2024, primarily due to a 20.4% increase in average AUM, partially offset by a lower portfolio fee rate. Private Wealth base fees increased $105.3 million, or 11.2%, in 2024, primarily due to a 14.6% increase in average AUM, partially offset by a lower portfolio fee rate. Institutional base fees increased $30.4 million, or 5.2%, in 2023, primarily due to a higher portfolio fee rate, partially offset by a 1.2% decrease in average AUM. Retail base fees decreased $45.7 million, or 3.5%, in 2023, primarily due to a 2.1% decrease in average AUM. Private Wealth base fees increased $20.1 million, or 2.2%, in 2023, primarily due to a 3.0% increase in average AUM.
Bernstein Research Services
E ffective April 1, 2024, AB deconsolidated the BRS business. For further discussion, see Note 24 Divestitures to our consolidated financial statements in Item 8.
Prior to the deconsolidation of the BRS business, we earned revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensated us principally by directing us to execute brokerage transactions on their behalf, for which we earned commissions, and to a lesser extent, by paying us directly for research through commission sharing agreements or cash payments.
Revenues from Bernstein Research Services decreased $289.9 million, or 75.1%, in 2024. The decrease was driven by the deconsolidation of the BRS business.
Revenues from Bernstein Research Services decreased $30.1 million, or 7.2%, in 2023. The decrease was primarily driven by significantly lower global customer trading activity due to the prevailing macro-economic environment.
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Distribution Revenues
Two of our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as full or partial reimbursement of the distribution expenses they incur. Period-over-period fluctuations of distribution revenues typically are in line with fluctuations of the corresponding average AUM of these mutual funds.
Distribution revenues increased $140.4 million, or 23.9%, in 2024, primarily due to a 20.0% increase in the corresponding average AUM of these mutual funds. Distribution revenues decreased $20.9 million, or 3.4%, in 2023, primarily due to a shift in product mix from mutual funds with higher distribution rates to mutual funds with lower distribution rates, as well as a 1.4% decrease in the corresponding average AUM of these mutual funds.
Dividend and Interest Income and Broker-Dealer Related Interest Expense
Dividend and interest income consists primarily of investment income and interest earned on customer margin balances and U.S. Treasury Bills as well as dividend and interest income in our consolidated company-sponsored investment funds. Broker- dealer related interest expense principally reflects interest accrued on cash balances in customers’ brokerage accounts.
Dividend and interest income decreased $34.1 million, or 17.1%, in 2024, primarily due to lower interest earned on U.S. Treasury Bills and customer margin balances. Broker-dealer related interest expense decreased $23.0 million, or 21.4%, in 2024, primarily due to lower interest paid on cash balances in customers' brokerage accounts.
Dividend and interest income increased $76.4 million, or 62.0%, in 2023, primarily due to higher interest earned on customer margin balances and higher interest earned on U.S. Treasury Bills. Broker-dealer related interest expense increased $41.1 million, or 61.9%, in 2023, primarily due to higher interest paid on cash balances in customers' brokerage accounts.
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Investment (Losses) Gains
Investment (losses) gains consist primarily of realized and unrealized investment gains or losses on: (i) employee long-term incentive compensation-related investments, (ii) U.S. Treasury Bills, (iii) market-making in exchange-traded options and equities, (iv) seed capital investments, (v) derivatives and (vi) investments in our consolidated company-sponsored investment funds. Investment gains (losses) also include equity in earnings of proprietary investments in limited partnership hedge funds that we sponsor and manage and equity gains (losses) related to our equity investments in JVs.
Investment (losses) gains are as follows:
Years Ended December 31
2024 2023 2022
(in thousands)
Long-term incentive compensation-related investments:
Realized gains $ 7,194 $ 6,573 $ 1,345
Unrealized (losses) (3,915) (1,707) (10,626)
Investments held by consolidated company-sponsored investment funds:
Realized (losses) (855) (32,125) (46,293)
Unrealized gains (losses) 15,898 48,350 (73,194)
Seed capital investments:
Realized gains (losses)
Seed capital and other 2,322 (34) 17,272
Derivatives (20,542) (7,588) 41,236
Unrealized gains (losses)
Seed capital and other 9,668 10,099 (31,261)
Derivatives 12,886 (8,717) (177)
Brokerage-related investments:
Realized gains (losses) 160 (203) (1,384)
Unrealized gains (losses) 309 (442) 669
Equity investment in JVs:
Equity (loss) (36,611) — —
$ (13,486) $ 14,206 $ (102,413)
Other Revenues
Other revenues consist of fees earned for transfer agency services provided to company-sponsored mutual funds, fees earned for administration and recordkeeping services provided to company-sponsored mutual funds and the General Accounts of EQH and its subsidiaries, and other miscellaneous revenues. Other revenues increased $41.5 million, or 40.9%, in 2024, primarily due to certain reimbursements for services provided to the JVs. Other revenues decreased $4.2 million, or 4.0%, in 2023, primarily due to lower shareholder servicing fees and lower brokerage income, partially offset by higher mutual fund reimbursements.
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Expenses
The components of expenses are as follows:
Years Ended December 31 % Change
2024 2023 2022 2024-23 2023-22
(in thousands)
Employee compensation and benefits $ 1,801,767 $ 1,769,153 $ 1,666,636 1.8 % 6.2 %
Promotion and servicing:
Distribution-related payments 742,429 610,368 629,572 21.6 (3.1)
Amortization of deferred sales commissions 57,983 36,817 34,762 57.5 5.9
Trade execution, marketing, T&E and other 182,146 215,643 215,556 (15.5) —
982,558 862,828 879,890 13.9 (1.9)
General and administrative 599,215 581,571 641,635 3.0 (9.4)
Contingent payment arrangements (121,896) 22,853 6,563 n/m n/m
Interest on borrowings 43,509 54,394 17,906 (20.0) n/m
Amortization of intangible assets 45,913 46,854 26,564 (2.0) 76.4
Total $ 3,351,066 $ 3,337,653 $ 3,239,194 0.4 % 3.0 %
Employee Compensation and Benefits
Employee compensation and benefits consist of base compensation (including salaries and severance), annual short-term incentive compensation awards (cash bonuses), annual long-term incentive compensation awards, commissions, fringe benefits and other employment costs (including recruitment, training, temporary help and meals).
Compensation expense as a percentage of net revenues was 40.3%, 42.6% and 41.1% for the years ended December 31, 2024, 2023 and 2022, respectively. Compensation expense generally is determined on a discretionary basis and is primarily a function of our firm’s current-year financial performance. The amounts of incentive compensation we award are designed to motivate, reward and retain top talent while aligning our executives' interests with the interests of our Unitholders. Senior management, together with the Compensation and Workplace Practices Committee of the Board of Directors of AllianceBernstein Corporation (“ Compensation Committee ”), continue to believe that the appropriate metric to consider in determining the amount of incentive compensation is the ratio of adjusted employee compensation and benefits expense to adjusted net revenues. Adjusted net revenues used in the adjusted compensation ratio are the same as the adjusted net revenues presented as a non-GAAP measure ( discussed earlier in this Item 7 ). Adjusted employee compensation and benefits expense is total employee compensation and benefits expense minus other employment costs such as recruitment, training, temporary help and meals (which were 1.0%, 1.1% and 1.1% of adjusted net revenues for 2024, 2023 and 2022, respectively), and excludes the impact of mark-to-market vesting expense, as well as dividends and interest expense, associated with employee long-term incentive compensation-related investments and the amortization expense associated with the awards issued by EQH to some of our firm's executives relating to their roles as members of the EQH Management Committee. Senior management, with the approval of the Compensation Committee, has established as an objective that adjusted employee compensation and benefits expense, excluding the impact of performance-based fees, generally should not exceed 50% of our adjusted net revenues in any year, except in unexpected or unusual circumstances. Our ratios of adjusted compensation expense as a percentage of adjusted net revenues were 47.9%, 49.0% and 48.4%, respectively, for the years ended December 31, 2024, 2023 and 2022.
In 2024, employee compensation and benefits expense increased $32.6 million, or 1.8%, primarily due to higher incentive compensation of $92.9 million and higher commissions of $27.9 million, partially offset by lower base compensation of $87.8 million primarily driven by the Bernstein Research Services deconsolidation. In 2023, employee compensation and benefits expense increased $102.5 million, or 6.2% primarily due to higher base compensation of $72.2 million, higher incentive compensation of $51.7 million and higher fringes of $7.8 million, partially offset by lower commissions of $29.0 million.
Promotion and Servicing
Promotion and servicing expenses include distribution-related payments to financial intermediaries for distribution of AB mutual funds and amortization of deferred sales commissions paid to financial intermediaries for the sale of back-end load shares of AB mutual funds. Also included in this expense category are costs related to trade execution and clearance, travel and entertainment, advertising and promotional materials.
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Promotion and servicing expenses increased $119.7 million, or 13.9%, in 2024. The increase was due to higher distribution-related payments of $132.1 million, higher amortization of deferred sales commissions of $21.2 million and higher transfer fees of $11.1 million, partially offset by lower trade execution and clearance expenses of $47.1 million primarily driven by the Bernstein Research Services deconsolidation. Promotion and servicing expenses decreased $17.1 million, or 1.9%, in 2023. The decrease was due to lower distribution-related payments of $19.2 million, lower trade execution and clearance expenses of $9.0 million and lower transfer fees of $3.0 million, offset by higher travel and entertainment expenses of $8.5 million, higher marketing and communication expenses of $3.5 million and higher amortization of deferred sales commissions of $2.1 million.
General and Administrative
General and administrative expenses include portfolio services fees, technology fees, professional fees and office-related expenses (occupancy, communications and similar expenses). General and administrative expenses as a percentage of net revenues were 13.4%, 14.0% and 15.8% for the years ended December 31, 2024, 2023 and 2022, respectively. General and administrative expenses increased $17.6 million, or 3.0%, in 2024. The increase was primarily due to higher office and related expenses of $13.3 million, losses related to the settlement of the retirement plan in 2024 of $13.1 million, higher portfolio services expenses of $7.3 million, higher other state income taxes of $6.3 million and higher charitable contributions of $5.3 million, partially offset by the recognition of a $20.8 million government incentive grant received in connection with our headquarters relocation to Nashville, Tennessee and lower errors of $3.3 million. General and administrative expenses decreased $60.1 million, or 9.4%, in 2023. The decrease was primarily due to lower portfolio services fees of $43.7 million, lower professional fees of $18.0 million, lower valuation adjustments related to the classification of Bernstein Research Services as held for sale of $6.0 million and a favorable foreign exchange translation impact of $5.7 million, partially offset by higher office-related expenses of $7.4 million.
Contingent Payment Arrangements
Contingent payment arrangements reflect changes in estimates of contingent payment liabilities associated with acquisitions in current and previous periods, as well as accretion expense of these liabilities. During 2024, we recognized a gain of $128.5 million in contingent payment arrangements in the consolidated statement of income related to a fair value remeasurement of the contingent payment liability associated with our acquisition of AB CarVal ( the " CarVal Acquisition ") in 2022. The fair value remeasurement was due to updated assumptions of future performance associated with the liability. In December 2024, the company agreed to finalize its contingent consideration liability with AB CarVal for a value of $134.0 million. This liability will be paid predominantly in AB Units issued within 10 days of December 31, 2027. Given the liability is no longer contingent, the liability of approximately $118.8 million is now recorded in accounts payable and accrued expenses on the consolidated statements of financial condition. We will accrete the present value of the liability of $118.8 million up to $134.0 million through December 31, 2027 and recognize this expense as general and administrative expenses on the consolidated statements of income on a prospective basis. As of December 31, 2023, the contingent consideration payable associated with the Carval Acquisition was $238.5 million.
During 2023, we recorded a change in estimate related to the contingent consideration liability associated with the acquisition of Autonomous LLC in 2019 of $14.1 million. The change in estimate was based upon better than expected revenues during the 2023 performance evaluation period. There were no changes in our estimates during the year ended December 31, 2022. These expenses resulting from changes to expected payments and the accretion of these obligations to their expected payment amounts are reflected within contingent payment arrangements in our consolidated statements of income.
For the years ended December 31, 2024, 2023 and 2022, we recognized $9.0 million, $8.8 million and $6.6 million, respectively, in accretion expense related to our contingent considerations payable.
Interest on Borrowings
Interest expense decreased $10.9 million in 2024, primarily due to lower weighted average borrowings, partially offset by a slightly higher weighted average interest rate. Average daily borrowings for the EQH facilities and commercial paper were $762.4 million at a weighted average interest rate of 5.3% during 2024 compared to $1.0 billion and 5.1% during 2023.
Interest expense increased $36.5 million in 2023, reflecting higher interest rates on borrowings and higher weighted average borrowings. Average daily borrowings for the EQH facilities and commercial paper were $1.0 billion at a weighted average interest rate of 5.1% during 2023 compared to $845.5 million and 1.7% during 2022.
Amortization of Intangible Assets
Amortization of intangible assets reflects our amortization of costs assigned to acquired investment management contracts with a finite life. These assets are recognized at fair value and generally are amortized on a straight-line basis over their estimated useful life. Amortization of intangible assets decreased by $0.9 million in 2024. During 2024, we wrote off approximately $4.4 million of intangible assets associated with various historical acquisitions.
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Amortization of intangible assets increased $20.3 million in 2023. The increase was primarily due to the acquired intangible assets associated with the CarVal acquisition. On July 1, 2022, AB acquired CarVal Investors L.P. ("CarVal"), which resulted in recording of $303.0 million of finite-lived intangible assets primarily relating to investment management contracts and investor relationships with useful lives ranging from 5 to 10 years.
Income Taxes
AB, a private limited partnership, is not subject to federal or state corporate income taxes. However, AB is subject to a 4.0% New York City unincorporated business tax ( “UBT” ). Our domestic corporate subsidiaries are subject to federal, state and local income taxes, and generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are filed. Foreign corporate subsidiaries generally are subject to taxes in the jurisdictions where they are located.
Income tax expense increased $36.1 million, or 124.2%, in 2024 compared to 2023. This resulted in a higher effective tax rate in 2024 of 5.2% compared to 3.6% in 2023. Income tax expense decreased $10.6 million, or 26.7%, in 2023 compared to 2022. This resulted in a lower effective tax rate in 2023 of 3.6% compared to 4.9% in 2022.
The respective increase in 2024 and decrease in 2023 were primarily driven by a one time tax benefit of $22.4 million resulting from the release of a valuation allowance on a capital loss tax asset due to a 2023 tax planning action. The fluctuation for both comparative periods presented was primarily driven by this one time tax benefit in 2023.
Net Income (Loss) of Consolidated Entities Attributable to Non-Controlling Interests
Net income (loss) of consolidated entities attributable to non-controlling interests primarily consists of limited partner interests owned by other investors in our consolidated company-sponsored investment funds. In 2024, we had $20.2 million of net income of consolidated entities attributable to non-controlling interests, primarily due to gains on investments held by our consolidated company-sponsored investment funds. In 2023, we had $24.0 million of net income of consolidated entities attributable to non-controlling interests, primarily due to gains on investments held by our consolidated company-sponsored investment funds. In 2022 we had $56.4 million of net loss of consolidated entities attributable to non-controlling interests, primarily due to losses on investments held by our consolidated company-sponsored investment funds.
Capital Resources and Liquidity
Cash flows from operating activities primarily include the receipt of investment advisory and services fees and other revenues offset by the payment of operating expenses incurred in the normal course of business. Our cash flows from operating activities have historically been positive and sufficient to support our operations. We do not anticipate this to change in the foreseeable future. Cash flows from investing activities generally consist of small capital expenditures and, when applicable, divestitures, capital activity related to our equity method investments and business acquisitions. Cash flows from financing activities primarily consist of issuance and repayment of debt and the repurchase of AB Holding units to fund our long-term deferred compensation plans. We are required to distribute all of our Available Cash Flow to our Unitholders and the General Partner.
During 2024, net cash provided by operating activities was $1.4 billion, compared to $0.9 billion during 2023. The change was primarily due to higher earnings of $312.5 million (after non-cash reconciling items), the net activity of our consolidated company-sponsored investment funds of $128.1 million, an increase in accounts payable and accrued expenses of $94.0 million and an increase in broker-dealer related payables (net of receivable and segregated U.S. Treasury Bills activity) of $87.9 million, partially offset by an increase in fees receivable of $140.8 million. During 2023, net cash provided by operating activities was $0.9 billion, compared to $1.1 billion during 2022. The change primarily was due to an increase in fees receivable of $161.1 million, lower earnings of $159.9 million (after non-cash reconciling items), a decrease in broker-dealer related payables (net of receivable and segregated U.S. Treasury Bills activity) of $133.3 million and an increase in deferred sales commissions of $59.8 million, partially offset by net activity of our consolidated company-sponsored investment funds of $166.0 million and an increase in accrued compensation of $127.4 million.
During 2024, net cash used in investing activities was $115.7 million, compared to $33.6 million during 2023. The change was primarily due to higher purchases of furniture, equipment and leasehold improvements of $88.7 million and cash used related to the divestiture of the BRS business of $40.2 million. The cash used in the divestiture included $304.0 million in cash proceeds received from SocGen offset by $338.2 million in cash contributed from the transferring balance sheet and $6.0 million in direct costs to sell. In addition, there was an increase in debt repayment from equity method investments of $86.2 million offset by capital contributions to equity method investments of $39.4 million. During 2023, net cash used in investing activities was $33.6 million, compared to $22.0 million during 2022. The change is due to the acquisition of CarVal, net cash acquired of $40.3 million in 2022, partially offset by lower purchases of furniture, equipment and leasehold improvements of $28.7 million.
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During 2024, net cash used in financing activities was $1.6 billion, compared to $1.0 billion during 2023. The change is primarily due to higher repayments of debt of $608.6 million and higher cash distributions to Unitholders of $115.2 million, partially offset by proceeds from the issuance of private units to EQH of $150.0 million. During 2023, net cash used in financing activities was $1.0 billion, compared to $1.1 billion during 2022. The change reflects lower cash distributions to Unitholders of $230.6 million, a decrease in the net purchases of AB Holding Units to fund long-term incentive compensation plans of $66.5 million and the repayment of CarVal debt of $42.7 million, partially offset by higher net purchases of non-controlling interests of consolidated company-sponsored investment funds of $187.1 million and lower net borrowings of debt of $70.7 million.
As of December 31, 2024, AB had $832.0 million of cash and cash equivalents (excluding cash and cash equivalents of consolidated company-sponsored investment funds), all of which is available for liquidity but consist primarily of cash on deposit for our broker-dealers related to various customer clearing activities and cash held by foreign subsidiaries of $460.1 million.
See Note 12 to our consolidated financial statements in Item 8 for disclosures relating to our debt and credit facilities. We use our debt and credit facilities to seed certain new investment products which may expose us to market risk, credit risk and material gains and losses. To reduce our exposure, we enter into various futures, forwards, options and swaps primarily to economically hedge certain of our seed money investments. While in most cases broad market risks are hedged and are effective in reducing our exposure, our hedges are imperfect and we may remain exposed to some market risk and credit- related losses in the event of non-performance by counterparties on these derivative instruments.
Our financial condition and access to public and private debt markets should provide adequate liquidity for our general business needs. Management believes that cash flow from operations and the issuance of debt and AB Units or AB Holding Units will provide us with the resources we need to meet our financial obligations. See “Risk Factors” in Item 1A and “Cautions Regarding Forward-Looking Statements” in this Item 7 for a discussion of credit markets and our ability to renew our credit facilities at expiration.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Guarantees
Under various circumstances, AB guarantees the obligations of its consolidated subsidiaries.
AB maintains a guarantee in connection with an $800 million committed, unsecured senior revolving credit facility (the " Credit Facility "). If SCB LLC is unable to meet its obligations, AB will pay the obligations when due or on demand. SCB LLC currently has three uncommitted lines of credit with three financial institutions. Two of these lines of credit permit us to borrow up to an aggregate of approximately $150.0 million, with AB named as an additional borrower, while the other line has no stated limit. AB has guaranteed the obligations of SCB LLC under these lines of credit. AB maintains guarantees totaling $150.0 million for SCB LLC’s three uncommitted lines of credit.
AB maintains a guarantee with a commercial bank, under which we guarantee the obligations in the ordinary course of business for SCB LLC, one of our U.S. based broker-dealer. In the event this entity is unable to meet its obligations, AB will pay the obligation when due or on demand.
We also have two smaller guarantees with a commercial bank totaling approximately $1.8 million, under which we guarantee certain obligations in the ordinary course of business of one of our foreign subsidiaries.
Effective April 1, 2024 AB and SocGen completed their previously announced transaction to form the JVs. At the time of closing, Bernstein Institutional Services LLC (“BIS”), the U.S. broker-dealer subsidiary of the NA JV, entered into a credit facility agreement with SocGen, as lender, providing for up to $60.0 million of working capital. As a condition of the credit facility and until SocGen’s ownership exceeds 50% of NA JV, AB will provide a limited guarantee under which AB will guarantee up to its percentage ownership, currently 66.7%, of any unpaid obligations of BIS. As of December 31, 2024 there were no unpaid obligations under this facility requiring a guarantee by AB.
In addition, in connection with the close of the transaction, AB will indemnify SG Canada for certain obligations and liabilities in relation to SCB Canada until such time as SocGen exceeds 50% ownership of NA JV (the “ Canadian Regulatory Guarantee ”). Under the terms of the Canadian Regulatory Guarantee, SG Canada must guarantee the customer liabilities of SCB Canada to the full extent of its regulatory capital which fluctuates based upon business activity. AB has agreed to indemnify SG Canada for 66.7% of any amounts paid by SG Canada under the Canadian Regulatory Guarantee. As of December 31, 2024, there were no unpaid obligations requiring a guarantee by AB.
We have not been required to perform under any of the above agreements and currently have no outstanding liability in connection with these agreements.
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Aggregate Contractual Obligations
We have various compensation and benefit obligations, including accrued salaries and fringes, commissions, payroll taxes, incentive payments and deferred compensation arrangements. The majority of our compensation and benefits obligations are paid out in less than one year, while the deferred compensation obligations are payable over various periods, with the majority payable over periods of up to three years. Accrued compensation and benefits as of December 31, 2024 totaled $372.6 million. This amount excludes our accrued pension obligation. Offsetting our accrued compensation obligations are long-term incentive compensation-related investments and money market investments we funded totaling $43.5 million, which are included in our consolidated statement of financial condition. Any amounts reflected on the consolidated statement of financial condition as payables (to broker-dealers, brokerage clients and company-sponsored mutual funds) and accounts payable and accrued expenses are excluded from the aforementioned accrued compensation and benefits obligation amount.
We expect to make contributions to our qualified profit sharing plan of approximately $19.0 million in each of the next four years. Effective May 22, 2024, the Compensation Committee of the AB Board of Directors approved the termination of the retirement plan. Net assets available under the Plan will be distributed to the selected insurer and participants through the first quarter of 2025. We expect to make a contribution of approximately $5.3 million in 2025 to fully fund the retirement plan, purchase the group annuity contract and settle the remaining termination costs associated with the retirement plan.
The 2017 Tax Act (enacted in the U.S. on December 22, 2017) imposed a federal transition tax on mandatory deemed repatriation of certain deferred foreign earnings. Management elected to pay the transition tax in installments over an eight- year period from 2018 to 2025. The federal transition tax obligation as of December 31, 2024 totaled $4.7 million and is recorded to income tax payable on our consolidated statement of financial condition. See Note 21 to our consolidated financial statements in Item 8 for further discussion of our taxes.
During the fourth quarter of 2024, we entered into a non-exclusive partnership with Reinsurance Group of America, Incorporated (“ RGA ”) under which we committed to invest $100.0 million in a reinsurance sidecar vehicle sponsored by RGA and focused on the U.S. asset-intensive reinsurance market. AB intends to manage private alternative assets for RGA’s general account as part of a separate transaction. As of December 31, 2024, we have funded $0.1 million of this commitment. The remaining commitment of up to $100.0 million can be called upon short notice at any future point.
See Note 13 to our consolidated financial statements in Item 8 for discussion of our leases.
See Note 12 to our consolidated financial statements in Item 8 for a discussion of our debt.
Contingencies
See Note 14 to our consolidated financial statements in Item 8 for a discussion of our commitments and contingencies.
Critical Accounting Estimates
The preparation of the consolidated financial statements and notes to consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
Management believes that the critical accounting policies and estimates discussed below involve significant management judgment due to the sensitivity of the methods and assumptions used.
Goodwill
Our acquisitions are accounted for under the acquisition method of accounting, where the cost of the acquisition is allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, results in the recognition of goodwill.
As of December 31, 2024, we had goodwill of $3.6 billion on the consolidated statement of financial condition, which included $666.1 million as a result of the CarVal Investors L.P. (" CarVal ") acquisition in 2022, $2.6 billion as a result of the Sanford C. Bernstein Inc. (“ Bernstein ”) acquisition in 2000 and $291.9 million in regard to various smaller acquisitions. As a result of the BRS deconsolidation, approximately $159.8 million of goodwill has been contributed to the JVs.
We have determined that AB has only one reporting segment and reporting unit. We test our goodwill annually, as of September 30, for impairment or if certain events or changes in circumstances occur and trigger an interim impairment test. The carrying value of goodwill is also reviewed if facts and circumstances occur that suggest possible impairment, such as, but not limited to significant transactions including acquisitions or divestitures and significant declines in AUM, revenues, earnings or the price of an AB Holding Unit. Any of these changes in circumstances could suggest the possibility that goodwill is
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impaired, but none of these events or circumstances by itself would indicate that it is more likely than not that goodwill is impaired. Instead, they are merely recognized as triggering events for the consideration of impairment and must be viewed in combination with any mitigating or positive factors. A holistic evaluation of all events since the most recent quantitative impairment test must be done to determine whether it is more likely than not that the reporting unit is impaired.
For our annual impairment test, we utilize the market approach where the fair value of the reporting unit is based on its unadjusted market valuation (AB Units outstanding multiplied by AB Holding's Unit price) and earnings multiples. A goodwill impairment would be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The goodwill impairment test does not include a determination by management of whether a decline in fair value is temporary and it is important that management's determination of fair value reflect the impact of changing market conditions, including the severity and anticipated duration of any such changes. The price of a publicly traded AB Holding Unit serves as a reasonable starting point for valuing an AB Unit because each represents the same fractional interest in our underlying business. Our market approach analysis also includes comparable industry earnings multiples applied to our earnings forecast and assumes a control premium (when applicable).
Contingent Payment Arrangements
We periodically enter into contingent payment arrangements in connection with our business combinations. In these arrangements, we agree to pay additional consideration to the sellers to the extent that certain performance targets are achieved. We estimate the fair value of these potential future obligations at the time a business combination is consummated and record a liability on a discounted basis on our consolidated statement of financial condition. We then accrete the obligation to its expected payment amount over the measurement period. If our expected payment amount subsequently changes, the obligation is modified in the current period resulting in a gain or loss. Both gains and losses resulting from changes to expected payments and the accretion of these obligations to their expected payment amounts are reflected within contingent payment arrangements in our consolidated statements of income.
For contingent liabilities, we typically use a valuation method that is a form of the income approach, whereby a forecast of future cash flows attributable to the asset are discounted to present value using a risk-adjusted discount rate. We develop a forecast of future cash flows attributable to the performance objectives that are then discounted to present value using a risk- adjusted discount rate. Some of the more significant estimates and assumptions inherent in the income approach include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows.
Investments in Unconsolidated Joint Ventures
Effective April 1, 2024 we deconsolidated our Bernstein Research Services business (" BRS ") and contributed the BRS business to two unconsolidated joint ventures (the " JVs "). We recognize our initial investment in our JVs at fair value. The determination of fair values of assets and liabilities of the JVs requires us to make certain estimates, consider assumptions and use valuation techniques when a market value is not readily determinable. The valuation methodology used for our initial investment in the JVs is known as a dividend discount model whereby a forecast of net income attributable to each of the JVs was discounted using an estimated cost of capital to determine the present value of expected future dividends. The joint venture dividend discount model includes significant assumptions such as expected future distributable earnings, discount rate and a long term growth rate. We recorded an initial investment in the JVs at fair value as of April 1, 2024 of $283.9 million. We have recorded our subsequent investment in each of the JVs under the equity method of accounting under ASC 323 Investments – Equity Method and Joint Ventures, as we retained the ability to exercise significant influence over the operating and financial policies of the JVs but did not retain a controlling interest. Our investments in companies over which we have the ability to exercise significant influence are accounted for under the equity method and are recorded at cost plus our share of earnings and losses. As of December 31, 2024 our investment in the JVs was $286.7 million
Our investments in our JVs are reviewed for indicators of impairment when events or circumstances change indicating that a decline in the fair values below the carrying amounts has occurred and such decline is other-than-temporary. An extended series of net operating losses of an investee, inability to operate without significant future capital infusions, or other factors may indicate that a loss in the value of our investment in the unconsolidated JVs may have occurred. If a loss exists, we further review to determine if the loss is other than temporary, in which case we will record an impairment charge in the amount of the excess carrying value over the estimated fair value. As we do not have a controlling financial interest in the JVs, the fair value of the JVs would be determined at the joint venture level using a dividend discount model which is subjective and considers assumptions regarding future performance, as discussed above, that could differ materially from actual results in future periods. As of December 31, 2024 there was no triggering event identified requiring an impairment analysis of our investment in our unconsolidated JVs.
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Loss Contingencies
Management continuously reviews with legal counsel the status of regulatory matters and pending or threatened litigation. We evaluate the likelihood that a loss contingency exists and record a loss contingency if it is both probable and reasonably estimable as of the date of the financial statements. See Note 14 to our consolidated financial statements in Item 8 .
Accounting Pronouncements
See Note 2 to our consolidated financial statements in Item 8.
Cautions Regarding Forward-Looking Statements
Certain statements provided by management in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately managed accounts, general economic conditions, industry trends, future acquisitions, integration of acquired companies, competitive conditions and government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. We caution readers to carefully consider such factors. Further, these forward-looking statements speak only as of the date on which such statements are made; we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ, see “Risk Factors” in Item 1A . Any or all of the forward-looking statements that we make in this Form 10-K, other documents we file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in “Risk Factors” and those listed below could also adversely impact our revenues, financial condition, results of operations and business prospects.
The forward-looking statements referred to in the preceding paragraph, most of which directly affect AB but also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB, include statements regarding:
• Our belief that the cash flow AB Holding realizes from its investment in AB will provide AB Holding with the resources it needs to meet its financial obligations: AB Holding’s cash flow is dependent on the quarterly cash distributions it receives from AB. Accordingly, AB Holding’s ability to meet its financial obligations is dependent on AB’s cash flow from its operations, which is subject to the performance of the capital markets and other factors beyond our control.
• Our financial condition and ability to access the public and private capital markets providing adequate liquidity for our general business needs: Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to access public and private capital markets on reasonable terms may be limited by adverse market conditions, our firm’s credit ratings, our profitability and changes in government regulations, including tax rates and interest rates.
• The outcome of litigation: Litigation is inherently unpredictable, and excessive damage awards do occur. Though we have stated that we do not expect any pending legal proceedings to have a material adverse effect on our results of operations, financial condition or liquidity, any settlement or judgment with respect to a legal proceeding could be significant, and could have such an effect.
• The possibility that we will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases.
• Our determination that adjusted employee compensation expense, excluding the impact of performance-based fees, generally should not exceed 50% of our adjusted net revenues on an annual basis: Aggregate employee compensation reflects employee performance and competitive compensation levels. Fluctuations in our revenues and/or changes in competitive compensation levels could result in adjusted employee compensation expense exceeding 50% of our adjusted net revenues.
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Table of Contents
Part II