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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by, and welcome to the AllianceBernstein Second Quarter 2021 Earnings Review. At this time, all participants are in a listen-only mode. After their remarks, there will be a question-and-answer session and I will give instructions to you on how to ask a question at that time. As a reminder, this conference is being recorded, and will be available for replay for one week.
I would now like to turn the conference over to the host of this call, Head of Investor Relations for AB, Mr. Mark Griffin. Please go ahead, sir.
Thank you, Angie. Good morning, everyone, and welcome to our second quarter 2021 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website, www.alliancebernstein.com.
With us today to discuss the company's results for the quarter are Seth Bernstein, our President and CEO; and Ali Dibadj, CFO and Head of Strategy. Kate Burke, COO will join us for questions after our prepared remarks.
Some of the information we'll present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So I'd like to point out the Safe Harbor language on Slide 2 of our presentation. You can also find our Safe Harbor language in the MD&A of our second quarter 2021 10-Q, which we filed earlier this morning. Under Regulation FD, management may only address questions of material nature from the investment community in a public forum. So please ask all such questions during this call.
Now, I'll turn it over to Seth.
Thank you, Mark. Good morning and thank you for joining us today.
In the second quarter, we continue to grow organically across all three channels for the third time in the last four quarters. Geographic diversification and differentiated client focused offering across active equities including ESG, multi-asset municipals and alternatives led the way. Our short and long-term investment performance improved across both equities and fixed income, while our record institutional pipeline maintained an annualized fee base above $50 million.
For the quarter, we posted active organic growth of 4% while expanding our adjusted operating margin to 31.7%. We delivered 49% growth in both adjusted earnings per unit and distributions per unitholder.
Let's get into the specifics. Starting with the firmwide overview on Slide 4. Gross sales were $45 billion or $36.3 billion net of sales associated with the Venerable transaction. Once again the quarter sales were second only to pre-financial crisis levels 14 years ago. AXA Venerable sales were up $4.5 billion or 14% from a year ago, and up 9% from the prior quarter.
Firmwide active net flows were $6.7 billion, up 4% annualized organic growth rate and were up 5% excluding access redemptions, and the Venerable transaction. Quarter end assets under management of $738 billion rose 23% year-over-year and 6% from the prior quarter, and the average AUM of $723 billion increased 25% year-over-year and 5% sequentially.
Slide 5 shows our quarterly flow trend by channel. Firmwide second quarter net inflows of $6.2 billion represented a 4% annualized organic growth rate. Net flows were positive in each channel for the third quarter of the last four.
Retail generated second strongest growth sales ever with net inflows of $5.2 billion as growth in active equity annuities more than offset moderating sequential outflows in taxable fixed income, once again highlighting the balance in our retail business.
Institutional sales of $8.9 billion excluding the Venerable transaction led to net inflows of $900 million, driven by our multi-asset retirement solutions and the active equity. And private wealth growth sales increased 4% year-over-year, while declining 33% sequentially. Net inflows of $100 million reflected continued client engagement and what has historically been the seasonally slower quarter of sequentially.
Now let's turn to investment performance beginning on Slide 6. Starting with fixed income, in the second quarter yields diverged amongst developed markets rising in Europe as growth expectations lifted with vaccine rollouts, while in the U.S. the 10 year yield fell by 27 basis points to 1.47%. U.S. bond returns were positive and in developed markets credit outperformed governments as investors look to near term transitory inflationary surges.
Our fixed income performance continued to strengthen, as 91% of our fixed income assets outperformed over the one year period, 69% of assets outperformed over a three year period, and 68% over the five year period.
Our offerings generally benefited from an underweight to duration and then overweight to credit. Strategies of global and multisector credit positioning included global high yield, which ranked 8% down in the quarter and American income which ranked 28.
Tax exempt continued to post outstanding, relative performance was six of our 10 retail municipal funds in the top decile from Morningstar peer group across all periods, and all 10 in the top quartile across all periods. Our tax aware vehicles including SMA continued to drive double-digit annualized organic growth rates.
Turning to equities. Equity markets continued to rise in parallel with earnings expectations with the S&P 500 up 8.6% and the MSCI World up 7.7% in the second quarter. Through June, the S&P 500 was up 15% year-to-date, while the S&P 500 earnings expectations had risen by 13% over that same period. Interestingly, factoring out dividends the return this year has almost exactly matched the rise in earnings expectations.
In equities, our percentage of assets outperforming strengthened in each time period shown improving the 44% for the one-year period, 66% for the three year period, and 71% for the five year period. Growth stocks regained favor in the second quarter after lagging in prior quarters with much of the outperformance of growth stocks growing later in the quarter as longer term interest rates retraced. Our large cap growth, global core and concentrated U.S. and global growth strategies outperformed aided by stock selection in sectors including healthcare and technology.
Our equity stock firm continues to benefit from broaden global distribution relationships in countries like Japan, as well as expanded services to existing clients, which we'll focus on in the next section on client channels.
Beginning with retail on Slide 7. Once again gross sales were the second strongest on record, up 22% year-over-year, and up 4% sequentially. Net inflows were $5.2 billion, driven by an 18% annualized organic growth in the active equities, our 17 straight quarter of active equity inflows. We continue to drive positive flows in U.S. retail and Japan.
Municipals grew by 23% annualized helping to offset taxable fixed income outflows, which moderated sequentially as American income redemptions improved by $1.6 billion versus the prior quarter.
As shown on the upper left chart, a balance and diverse product offering continues to drive consistent organic growth with the retail channel generating positive net inflows 10 of the last 12 quarters. We remain globally diversified with the U.S. 39% of sales, Japan, EMEA, LatAm 33% of sales, and Asia ex-Japan 28% of sales. We now have 62 products of more than $1 billion each balanced across asset classes as compared with 48 just a year ago.
On a net flows basis, our U.S. equity funds ranked 9th, at 453 managers. International equity funds ranked 21st out of 253 managers and Muni's ranked 14, of 111 managers. Several notable individual funds are shown on the bottom right.
Turning institutional on Slide 8. First quarter gross sales of $8.9 billion excluding the Venerable related sales were up 1% year-over-year and up 82% sequentially. Active equity sales of $2.8 billion more than tripled sequentially driven by European value U.S. mid-cap growth and U.S. concentrated growth. This was the 12th of the last 14 quarters in which active equity posted net inflows.
A $4 billion of CRS Customized Retirement Solutions and LIS, Lifetime Income Solutions funded in the quarter. LIS passed the $5 billion AUM milestone this quarter, ending above $6 billion, a solid achievement for this growing platform.
Also in the quarter, Equitable seeded the 50 million merger arbitrage vehicle a strategy for which we are seeing active interest given its strong three year track record. Fixed income sales slowed in the second quarter with outflows driven by the Venerable transaction and the last of the AXA related redemptions.
We've now incurred $13.1 billion in lower feed AXA redemption since we announced them in early 2012, and this redemption program is now essentially complete. Our institutional channel has grown organically inclusive of these redemptions, highlighting the strength of our globally diversified differentiated solutions, broad client relationships and talented teams.
Our ESG portfolios with purpose grew to $25 billion, up 17% sequentially driven by our U.S. and global sustainable thematic platform, for which RFPs were up three times in the first half of the year versus the prior year period. We launched the AB sustainable income portfolio and also concluded AB’s Climate Change And Investment Academy, a first of its kind collaboration with Columbia University, which enrolled over 1,000 clients around the world.
The Academy integrated scientific and academic analysis of how climate change can affect investment risks and opportunities from macroeconomic to issuer levels. Our institutional pipeline grew to a record $17.8 billion at quarter end up 17% sequentially driven principally by a large $8 billion CRS mandate. The annualized fee base exceeded $50 million or 18% compound annual growth since we began tracking in 2011 of alternatives over half the fee base.
Moving to private wealth management on Slide 9 gross sales of $3.6 billion increased 4% year-over-year and declined 33% sequentially. Combined with lower redemptions, we generated net inflows of over $100 million, reflecting a sequential seasonal slowdown. We built on our successful cash campaign earlier in the year with a new tax aware campaign, which is highly relevant in today's environment.
We raised $58 million in a qualified Opportunity Fund focused on tax efficient investing and $103 million in the second close of our private equity fund of funds. We also launched two new products sustainable and intermediate duration bond fund, an ESG offering and global disruptors a technology and innovation focused fund. Our proprietary separately managed equity loss, tax loss harvesting product now stands at over $1 billion of 41% sequentially.
Our muni impact in ESG portfolios continue to grow strongly as shown on the bottom right. I'll finish our business review with the sell side on Slide 10. Bernstein Research revenues decreased by 7% year-over-year and we're down 11% sequentially, reflecting more normalized institutional trading volumes as compared with more volatile prior periods. Growth in Asia remains healthy with trading commissions at 20% and NDA continues to ramp strongly.
We are successfully engaging clients as evidenced by our 37th Annual Strategic Decisions Conference Executives attendance from 173 of the world's largest and most influential companies with over 2,600 investors up 30% year-over-year. Once again research checks increased year-over-year and we ranked highly in the most recent Greenwich U.S. Portfolio Managers Surveys, as exemplified by being ranked number one in best high quality written research and first in the most intense sales coverage.
I’ll close our business overview with progress towards our strategy in the second quarter on Slide 11. Our investment performance improved in the quarter with two-thirds or more of equity and fixed income assets, now outperforming in both the three and five-year period. Near term performance and fixed income continued strong at 91% of assets outperforming while equity improved sequentially to 44%.
Our geographic and product balance is now driven organic growth across all channels in three of the last four quarters with retail positive 10 of the last 12 quarters and institutional positive eight out of the last nine quarters. Private Wealth grew for the third of the last four quarters with active client engagement across our growing inflation and tax were suite. Our ESG portfolios with purpose stand at $25 billion in assets under management up 17% sequentially.
And we're growing at double-digit annualized rates in alternatives multi-asset and municipals. We are committed to managing our business to deliver strong incremental operating margins. Our second quarter adjusted operating margin of 31.7% was up 380 basis points year-over-year with adjusted earnings and unitholder distributions of 49% versus the prior year period.
Now, I'll turn it over to Ali Dibadj to walk through the financials followed by an update in our strategic relationship with equitable. Ali?
Thanks Seth.
Let's start with the GAAP income statement on Slide 13. Second quarter GAAP net revenues of $1.1 billion increased 24% from the prior year period, operating income of $284 million increased 35% and operating margins of 26.0% increased by 430 basis points. GAAP EPU of $0.91 in the quarter increased by 54% year-over-year as always, I'll focus my remarks from here on are adjusted results, which remove the effect of certain items that are not considered part of our core operating business.
We base our distribution to unitholders on our adjusted results, which we provide in addition to and not as a substitute for our GAAP results. Our standard GAAP reporting and a reconciliation of the GAAP to adjust results in our presentation appendix, press release and 10-Q. Our adjusted financial highlights are shown on Slide 14, which I'll touch on as we talk through the P&L shown on Slide 15.
On Slide 15, beginning with revenues, net revenues of $881 million increased 26% for the second quarter versus the same prior year period. Base fees increased 26% in the second quarter, versus the prior year period, reflecting 25% higher average AUM, which grew across all three distribution channels, and a 1% higher fee rate. The second quarter fee rate of 38.7 basis points was marginally higher sequentially.
We continue to believe that although our fee rate may be volatile from time-to-time, given large mandates, such as the $8 billion CRS mandate added this quarter that may skew averages, the long-term trend should be grinding higher. Second quarter performance fees of $54 million increased by $45 million versus the prior year period due primarily, to our U.S. Select Equity Long/Short fund in our private middle market lending business.
Second quarter revenues for Bernstein Research Services decreased by 7% for the second quarter of 2020, reflecting higher client trading activity a year ago, driven by outside market volatility amid the onset of the COVID-19 pandemic. Moving to adjusted expenses, all-in our total second quarter operating expenses of $602 million increased 20% year-over-year. Total compensation and benefits expense increased 26% in the second quarter, due primarily to higher incentive compensation and secondarily to higher base compensation, both of which were driven by higher revenues.
As we guided you compensation was 48.5% of adjusted net revenues for the second quarter flat with the prior year period. With our current revenue trends continue, we may accrue compensation at a 48.0% ratio for the second half of the year, with the option to adjust a quarterly debt market conditions change. As stated previously, expectations for our full year comp ratio should consider that performance fees have become a bigger piece of our mix, which may drive the comp ratio up.
Moreover, as previously mentioned, we expect fringe benefits should ramp up for this year post COVID. Promotion and servicing costs increased 12% in the second quarter, due to higher transfer and marketing related expenses, as well as modestly higher G&A. Looking forward, we expect promotion and servicing spend levels to begin to return closer to more normalized levels in the second half of 2021 as travel and meetings resumed. So the pace at which these pickup remains uncertain.
All-in G&A expenses increased by 8% in the second quarter, versus the same prior year period or 6%, including Nashville relocation related occupancy expenses. For the second quarter, higher portfolio service costs due to fund launches and platform build outs, including our European commercial real estate debt platform, as well as higher professional fees, trading errors and foreign exchange translation drove the increase.
We continue to expect full year G&A expense, excluding the national relocation to be aligned with inflation. But note that we do expect that inflation will likely be higher going forward. Within other expenses, intangible amortization expenses declined by $5 million from a year ago, once again reflecting the absence of the historical quarterly amortization charge associated with the Bernstein acquisition.
Second quarter operating income of $279 million increased 43% versus the prior year period, as revenue growth outpaced expense increases. Second quarter operating margin of 31.7% was up 380 basis points year-over-year reflecting the operating leverage of our business. The incremental second quarter margin was 46% as compared to the prior year period. We continue to manage the business to incremental margins of 45% to 50% not necessarily every year, but on average over time.
The second quarter effective tax for AllianceBernstein L.P. was 4.4%. We now expect an effective tax rate for 2021 of between 5% to 5.5% down from prior guidance of 5.5% to 6%, reflecting a greater mix of domestic sourced earnings. I'll finish off with an update on our planned corporate headquarters relocation to Nashville, which continues to go well. At quarter end, we had 864 Nashville based employees nearly 70% of the way to our target of 1,250.
For our major offices in the U.S. and India, we began returning to the office in July, which included moving into our new downtown Nashville headquarters building. The new building at fit in commerce, which received a Silver LEED rating, as well as the WELL Health-Safety seal is an integral part of our unique state-of-the-art mixed use complex, which includes the National Museum of African American Music.
We’re thrilled to welcome back employees into this wonderful headquarters building they will enjoy best-in-class amenities. Our new headquarters was also benefit from robust critical system architecture to ensure operations under adverse conditions. The second quarter, estimated expense savings related to our national corporate headquarters relocation totaled $10 million, compared to a transition cost of $8 million, resulting in a net $2 million increase in operating income, or approximately one set per unit.
Of the net $2 million approximately $70 million is compensation related savings offset by $5 million of increase occupancy costs. For 2021, we continued to expect accretion around $0.02 per unit increasing each year thereafter. We continue to expect ongoing annual expense savings beginning in 2025 once the transition is over to be towards the upper end of the range of $75 million to $80 million.
On last quarter's earnings call, we highlighted our private alternatives business and our path to become a global leader in private alternatives. This quarter, we thought it would be helpful to spend a few minutes to discuss in further detail our virtuous cycle with Equitable especially in the context of recent insurance and asset manager news flow.
Turning to Slide 18, as the timeline shows AB and Equitable have accelerated our strategic relationship in recent years towards growth. Starting from the left, as part of our long history together, Equitable and its predecessor access have played a critical role in the development of our private illiquid platform, beginning with the first seed investment in 2013.
Since that time, Equitable and AXA, have invested a combined $6 billion in committed capital and private alternatives, including the most recent commitment of $1.2 billion, which enable us to seed our new European commercial real estate debt platform. Matt Bass has got the evolution of this portfolio of offerings on last quarter's earnings call. The pace of our collaboration and vision to build businesses together has accelerated to Equitable 2018 IPO.
In fact, earlier this year, ABC suite joined the Management Committee of Equitable ensuring further definition, alignment and execution on strategic objectives between our two companies. We've also recently updated a length long standing Investment Management agreements with Equitable. Equitable has also agreed to provide permanent capital, which is investment capital with indefinite duration to AB and in doing so has helped initiate the virtuous cycle exist between our two companies.
This virtuous cycle occurs as Equitable seeds and invest is long dated assets and AB’s current and expanding private illiquid platforms which provide an improved risk adjusted yield for Equitable general account. AB benefits by delivering differentiated service to Equitable and its other clients by growing it's longer dated higher fees and higher multiple alternatives offerings. All of this enables Equitable to meet its own objectives by growing a high multiple business of which it's a majority owner.
It is important to note that Equitable and AXA initial capital commitments have allowed for a powerful multiplier effect driving a four times increase conceded AUM to at scale AUM from third-party committed capital for these businesses. Today, we're pleased to inform stakeholders that Equitable is committing to provide $10 billion in permanent capital over the next three years to build out AB’s private illiquid offerings even further, including private alternatives and private placements.
This is almost twice the amount of total seed capital we have already at a beat, which has grown to our current $20 billion in AUM private alternative business. Our private placement business is another $12 billion in AUM. We expect this anticipated capital from Equitable well perhaps not immediately, but overtime accelerate both organic and inorganic growth in our private alternatives business, allowing us to continue to deliver our clients to our clients, employees, unitholders and other stakeholders.
Slide 19 shows that AB currently manages $121 billion for Equitable, of which 64% is the general account, and 36% is a separate account another. As the percentage of Equitable poll general account, AB currently manages approximately 75% of the [CLO].
The $10 billion of permanent capital over the next three years, some of which will be incremental new flows to AB some which will be reallocation significantly enhances AB's growth prospects again, considering the past seen investments has realized four times growth in committed capital from other clients.
Slide 20, which we showed last quarter, highlights our organic and inorganic growth strategy and alternatives. $10 billion of permanent capital from Equitable will allow us to grow our core through scaling existing funds, follow-on funds, and new funds targeting new clients segment, as well as existing and extending into adjacencies.
On the organic, inorganic side, Equitable permanent capital commitment will enhance our ability to attract and retain highly qualified teams, in turn allowing AB to fill gaps while focusing on scalable and higher growth markets.
Slide 21 highlights the large valuation differential between traditional and private alternative managers, just as a reminder to all of us. Equitable permanent capital will help us accelerate growth into higher multiple business, combined with a multiplier effect shown through Equitable prior commitments. We anticipate that growth in private illiquid should be creative to our valuation, not overnight but over time.
Finally, Slide 22, we further highlights the benefits of both AB and Equitable of the virtuous cycle. Equitable was able to enhance its general account income through appropriate risk adjusted returns and diversification and insurance capacity in priority asset classes. AB remains focused on delivering superior investment performance and expanding our differentiated services to our clients, especially private alternatives.
In conclusion, we feel privileged to have a like-minded partner, owner in Equitable. We've learned from what some of our traditional and private alternative competitors are doing in industry, and believe our relationship with Equitable is a long-term competitive advantage for AllianceBernstein.
Now, I'll turn it back to Seth.
Thank you, Ali.
Turning the Slide 23. In the first quarter, we continue to make progress on the dimensions we've previously outlined, namely, we drove a 4% active annualized growth rate, spanning across each channel led by active equities, multi-assets and municipals. We expanded our suite of higher fee alternatives with Equitable funding our Euro CRED platform and receiving a new merger arbitrage vehicle.
As Ali just highlighted, Equitable's $10 billion commitment to private illiquid over the next three years will significantly accelerate our opportunity set in alliance of their strong mutual interest in growing our yield enhancing alternative strategy.
We drove healthy incremental margins in the quarter in line with our long-term goal. As a partnership, we have a durably low tax rate. And we will pay a distribution of $0.91 per unit for the second quarter for a robust trailing 12 month yield to 7% in a low rate environment.
With that, we're pleased to take your questions.
[Operator Instructions] Your first question comes from the line of Bill Katz with Citigroup.
Okay. Thank you. And good morning, everybody. I appreciate the added disclosure. Super helpful this morning. Maybe we could start with that on the insurance side. Could you talk a little bit about just a little more detail on the underlying economics on the $10 billion, it sound like some that may be new, some may be replacement. But maybe you could help us with where you are today in terms of insurance related revenues coming off of Equitable, and then how you sort of see the $10 billion coming through the P&L. Thank you.
Sure. So thanks for the question. We think this is a meaningful step for AllianceBernstein and Equitable. This type of thing should not be unfamiliar to people like yourself, who covered some of the private alternative firms as well. And you've seen the news flow, it is $10 billion. And you're right, that it is some incremental, some reallocation, but all to our illiquid suite. So private placements and private alternatives, which as you know are generally not always but generally higher fees areas to manage, but the benefit that we get on top of that is we have a track record of taking that AUM and multiplying it by about four. We hope that track record continues.
And in doing that and thinking about that we certainly have a glide path that we've developed together with Equitable. We also dimensionalize much further about exactly what we're going to do with the $10 billion, how we're going to grow it, it's a little bit of a freedom to build new businesses together for Equitable and for AB, serving their needs, improve their yields and our desire on behalf of unitholders, and employees and other stakeholders to grow our private alternatives business.
But it could be organic or inorganic growth prospects, as we mentioned in the prepared remarks, we managed about $121 billion for Equitable, and we have about 75% of background, that's 75 insurance clients that we serve as well, and we think that what we're building conservative more insurance clients given more growth for us exactly a subset in insurance as well.
Okay, that's helpful. And then just my follow-up question, thanks for taking both questions this morning. Just to unpack maybe the expense discussion a little bit. If I look at your G&A, it was up pretty measurably, and there is a whole bunch of things that sort of fall into that. So sort of wondering like what's the exit pacing on that?
And then in line with your commentary around sort of the normalization whatever that might mean for the second half of the year. How should we be thinking about just sort of the pace of growth in the promo line, and is 2019 still the right baseline to be sort of modeling back to or are there other offsets along the way that can maybe temper some of that normalization? Thank you.
Sure, let's segregate that question into two buckets. One about G&A and one about T&E in particular, given that incremental servicing. From a G&A perspective, as you can tell, G&A has grown 8% on a year-over-year basis. That includes a relocation expense from Nashville, if we were to take that out, the Nashville relocation you'd be talking about something like 6-ish percent type growth in G&A, and that was driven by a few things, right. Some of them are very much along the plans that we had in terms of growth, higher portfolio costs for launching new products, for example, our European commercial real estate debt platform, which also is in partnership with Equitable. There are some high professional fees in there, some trading errors, FX, those types of things are in that number. And we expect that to continue as the year goes on.
Now, what I'd say is, we also continue our guidance previously to stick which is that excluding the Nashville relocation costs, we would expect that G&A would grow with inflation. Now as we've said in our prepared remarks, we think inflation is probably a little bit higher now than it was before. But that guidance really doesn't change it. And by the way, just by way of interest, we are seeing in the G&A line some real inflation coming from market data costs from professional services fees. So our eyes wide open about managing that, but that will continue. So that's kind of the G&A part.
Now, you mentioned promo and servicing and obviously the big driver of that for us is watching T&E, watching for meetings, and look there to be fair go we're - it's hard to say right, it's hard to say what is going to come out over the next little while here. We're all watching delta and being very careful. But I will say that in some of those T&E expenses, for example, so the firm meetings, we've year-on-year doubled, and sometimes triple the cost of those i.e. things are ramping back up.
Think about what we're doing in Asia as an example. Those are ramping back up. So those costs have doubled or tripled so far. But still they're significantly to your run rate question. They're significantly lower than what we saw in 2019. Call it we're below 20% kind of numbers of our 2019 run rate.
So there's a lot more room to run here from an upside perspective. And what we'll watch that I don't have a great answer for you. What I do know is for all of our stakes, I'd certainly like to see some savings relatives to 2019 numbers, but for all of our stakes I sure hope that we get to e-clients, e-quality, e-partners and yes even to you Bill live over the course of the next few months here. So we’re just watching carefully
Your next question comes from the line of John Dunn with Evercore ISI.
Just thinking about framing the puts and takes and flows in the private world channel. You mentioned fund launches, tax harvesting and seasonality. But can you maybe talk about some of the other drivers in or out?
Sure, I can take that one. Thanks for the question. So not only did we continue to see strength in our cast campaign from earlier in the year where we were having clients move out of cash and back into the more active market. We also launched a new tax aware campaign, which we think is highly relevant in today's environment. And so there you're seeing the wealth advice continue to drive a lot of our client’s engagement with us.
We will see additional product launches in the back half of the year in alternative, ESG and the SMA platform to continue to invest in that space and to provide what we think are good additions to our core offering and for particular complex and high value clients, which continue to grow nicely and are substantial portion of our net inflows year-to-date.
And then U.S. growth equities continues to do really well. Can you kind of give us a regional breakdown of where that demand is coming from?
Sure. The demand has been principally in the United States and in Japan, and Japan has been particularly prominent for us this year. But it's been a pretty strong performer for us globally.
Your next question comes from the line of Alex Blostein with Goldman Sachs.
This is [indiscernible] filling in for Alex. My question is on retail. We have seen some strengths lately here across the industry. So what's driving the inflows at AllianceBernstein? And how sustainable are these flows? And then on the fixed income side, I mean, flows have been pretty strong, if you kind of exclude the AXA redemption. So under the current like given the outlook for the interest rates going forward, what's your outlook for the fixed income flows to keep sustaining these levels of inflows ? Thank you.
Thank you for the question. Look, we have - and I think we said in our opening comments, we've had remarkably sustained net inflows particularly in equities over a pretty extended period of time. And it comes from the fact that we have a pretty diverse group of services that have been selling we've mentioned large cap growth, but we've also had continuing strong interest in our portfolios with purpose, our sustainable strategies, which really have begun to see strong demand, both in U.S. and in Europe. And those are taking an increasing share.
We've even seen interest in value, which is picked up pretty nicely from a performance perspective in the shorter term. And we've seen with the maturation of our private ops business, it's still early days as Ali was alluding to. But we're continuing to see strong takeoff in new efforts to raise money for our U.S. commercial real estate debt business for our middle market lending business and so forth.
So it's been pretty diversified in those areas. But I would also add that we've seen more activity in our multi-asset group, now that can be quite lumpy as we indicated in our comments, specifically, our target date - I'm sorry, our customized retirement solutions tend to be very large, although the fees are lower there and in LIS so that diversity has played to our strength.
In fixed income look, we think rates have a likelihood of going higher from here. But remember, we've seen quite a rally in rates that have taken us back down again, over the last month. And we don't necessarily think that's sustainable. In fact, we do think rates will rise while most of the inflationary impacts we've seen are transitional in our in our view. There are some expectations, building in and certainly as people in our industry recognize it, it's harder to hire people, there's real shortage of talent out there. So there are pressures.
The consequence of that is we think rates will be rising, that is beneficial for fixed income over time yield really does matter to our clients. And so, where I look in fixed income, I am actually pleasantly surprised just how tempered the outflows have been. In fact, they've been moderating further from Asia in our income products. But look, Asian demand has historically been fickle. There are there are obviously other alternatives, whether it's Chinese equities, which may not at the moment be performing very well but have been performing previously that have siphoned demand away from higher yielding services like AIP and GHY.
So look, again - I think it's a story of a diversified pool of business. I think our SME, or mini SME business here in the U.S., has really seen strong demand growth, because I think we are provided differentiated service to our clients. And I think tax concerns continue to drive interest in more tax efficient vehicles. So I think it's a more mixed story, for sure, then equities and alternatives and multi-asset, but I think it is, it’s certainly at manageable levels for us, given the mix of business we have.
Your next question comes from the line of Dan Fannon with Jefferies.
This is actually Ritwik Roy filling in for Dan, thanks for taking my question. I guess think its morning. So appreciate the previous detail given on the G&A run rate. And just as a quick follow-up on that. How should we think about the contribution from some of the Moore's sort of seemingly idiosyncratic items that were detailed in the presentation? Kind of like, for example, the trading errors and is that incorporated in the guidance you guys mentioned earlier?
And then, as a follow-up kind of more broadly, as you guys think about the eventual normalization of expenses, and knowing that you guys mentioned the timing around that as well uncertain? How much would you guys say your understanding relative to pre-pandemic levels and to what degree would you say these savings will be sticky and if you can provide any numbers around this? Yes, thank you.
Thanks, Rick. So two parts of that question, right one is, on some of the kind of one-off things in our G&A. You mentioned trading errors in particular, we tackle that head on look, no one wants trading errors in - ever as part of the business, right? Sometimes these things happen, sometimes they are bigger than others everybody has them, right. So you don't model for it, you don't plan for it.
But what we've seen in our rearview mirror in terms of errors and all the other is product impacts to our G&A is in our guidance. So as we look for the full year, we expect it to be in line with inflation, if you take away the Nashville relocation costs, and we stick to that and believe in that, again, we'll manage these idiosyncratic events as we go along. But that is our guidance, and we believe even what we've delivered so far, we've just very well to get to that point by the end of year.
So hopefully that covers that - and it's not just you know, there's foreign exchange in there. There's new product launches in there, et cetera but we still believe that that is the right guidance. On a broader savings, I guess the way we've articulated before is that if you think of last year, we would have “under spend” by about $50 million, a little bit north of $50 million. It's an imprecise science it is what it is.
But we think about $50 million is what we “saved” last year versus the 2019 numbers. Do we think we'll see all of that come back this year? I mean look, it's halfway through the year, and I gave you a sense of the numbers before, probably not. Our hope is that we can find savings relative to the 2019 number. We haven't articulated exactly how much, but certainly something that that we think clients will want to see us differently.
And colleagues might travel interoffice differently. And so, we'll find some savings there. But it's tough to say exactly what level it will be at. There will be some savings however in travel and all the other costs relative to that $50 million that we saved in 2020 versus 2019.
Your next question comes from a line of Robert Lee with KBW.
Thanks for taking my questions. I mean, first one they be on no private on wealth management kind of curious if you could update us and some of the growth initiatives there and I guess particularly interested just given the war for talent out there, particularly, you know, experienced financial advisors, I mean if you're seeing any kind of pressure on retention or and I know you don't go unless go out and recruit new advisors, maybe train them yourself. But you're seeing any issues with kind of growing the advisor forces as you would like?
So thanks for the question. So in terms of our growth initiatives, we are on plan with our advisor headcount, it's up 3%, year-to-date. And we're on track to hit our 5% growth target for new advisors in 2021. So we continue to have success in finding and attracting great new talent to our advisor force. And then as you said, we do grow our advisors, we put them through, like you know, I think the best-in-class training program here.
So that when they are out with clients they are able to really represent the best of Bernstein's investment and wealth strategy advice. We certainly do know that there is compensation pressure out there in the industry, as we continue to pay competitively and are pleased with and our existing for us. And in terms of the turnover we've seen today, that's pretty much in on average with previous years.
And so, we continue to watch that and invest back into doing business and into our people to continue to keep what we think as a great competitive advantage, both in our advisor force, as well as with our investment teams. And well strategy and advice teams that are - that have been with us for a long period of time.
Okay thanks. And maybe as a follow-up, you didn't touch on in the prepared remarks these you know the tax arms being the product and I mean, clearly you've seen competitors, make acquisitions invest in kind of direct indexing, in a similar space you can talk about. Do you have any current plans to take that capability and roll it out through third-party advisors - or the current intention kind of keep that proprietary in half?
I'll start with I can start with the first part of the answer. And then Ali you can join me, I think when it comes to how we think about M&A. We're very pleased with our current closed architecture approach. We leverage AB products primarily, though you do see us partner occasionally with an outside firm in an alternative space that we have not yet gone into. But we do primarily and do primarily plan to continue to grow via AB vehicles.
We have launched, for example, and we're in the midst of launching several purpose driven offerings in 2021 around sustainable SMA, that's also in conjunction with our retail team, sustainable product portfolio in partnership as well. And then ESG improvers, and then we continue to look as we said in broadening out the alternatives platform. I’ll turn it over to Ali to talk about where we think about that in terms of M&A in that construct.
Robert thanks for the question. Just to build on what Kate said you know, for us it all about the client right. It’s all about what the client needs are in delivering for the client, it’s exactly as Kate mentioned once we understand what we - the clients wants and what we, we think we should be delivering to the client. It then becomes the question of buy, build or partner, right.
And we have success in all three, right. We have success in terms of building things. You mentioned, for example, the past product that we have, the tax harvesting product that we have crossed over a $1 billion in very, very quick, said, we want to continue that growth there.
And as we look at even in that sleeve, other custom indexing that is out there, we should certainly look at partnering with other folks, if there is a need that's not fulfilled there. But we've built something that's actually quite robust and quite successful.
Then there's a - there's a buy option, which we look at quite carefully as everyone on the phone, I think knows, and we believe there's a lot more activity out there. And we've had a pretty good track record I'd say, an accelerating track record as well of acquiring or acqui-hiring, investment processes, tools that can support exactly as you said at the outset what our clients want.
And also I'd say, as Kate mentioned, there's a partnership track. It's not just buy or build, we really thought long and hard about partnering. We are an integrated architecture and our private wealth business in particular, because we believe that holistic view delivers better for the clients.
But there are areas where we won't be offering to everyone, and we certainly want only investment team, so we can partner to bring those trips. So we're looking at all three dimensions, and it's all under the same umbrella of being maniacally client centric and clients.
Our final question comes from the line of Bill Katz with Citigroup.
Just a follow-up, two part follow-up, so thanks taking this question. Can you just sort of flesh out a little bit what you're doing on the LIS portfolio, it sounds instinct to me. And then just a conceptual question, just given a lot of the headline risks that we're seeing in the Asia-Pac, particularly in the China Mainland area, which I think is more of a sort of a direct equity issue. But does that have any spillover effect to commingled accounts, either in terms of absolute level or maybe the mix of what might be coming in the door? Thank you.
Bill, the LIS is a structure we created some years back in partnership with one of our key institutional clients to build an annuity option in the fine contribution plans for 403(b) and 401(k) plans.
We have - what we think is an interesting option where we can give the plan sponsor access to a number of different insurers for those participants who want an annuity option in their portfolios, you, I think, know better the most. There is a fundamental public policy issue facing America today, which is many people who are facing - moving forward for retirement are under saved for their post-retirement period. And the security of having an annuity structure psychologically is very important to a subset of that population.
The Secure Act last year, I think has reshuffled the deck and has made this a much more important initiative for plan sponsors then it was before, it can become the default option now. And so we are seeing real interest there. But these are very long process decisions that take considerable amount of time through VRP stage, and ultimately through award and execution. So it's a slow moving train, but we're optimistic there will be opportunities that fall out of that for AB's.
Switching over to China, look the executive orders have come out of Washington do impact how we manage commingled vehicles in the United States with Chinese equities in them, and like other money managers we've been responsive to adjusting our portfolios accordingly. It doesn't, as I understand the impact us how we manage those portfolios outside the United States.
And so for example, in our Chinese portfolio, Mainland portfolios we manage for onshore clients or an A Shares we can in fact - it hasn't really impacted us in the way that we've managed the portfolios.
There are no further questions at this time. Mr. Griffin, I'll turn the call back to you.
Thank you, Angie. Thanks, everyone, for participating in our conference call this morning. Feel free to contact Investor Relations with any further questions. And have a great day. Good-bye.
This concludes today's conference call. You may now disconnect.