Faced with asset outflows and earnings pressures in its core business, a global investment management firm AllianceBernstein has embarked on a noteworthy business model transformation.
In recent years, performance of AllianceBernstein’s $500 bill
ion asset management business lagged competitors. This, in turn, has led to significant investor redemptions that continued even as performance improved last year. With fewer assets under management and continuing fierce competition for assets that put pressures on fees, the firm’s profits dropped by a little more than half. An adjustment to the business model was clearly in order.
According to CEO Peter Kraus’s Wall Street Journal interview, the firm’s updated strategic vision intends to leverage “first-class global research” in new businesses. AllianceBernstein has already begun raising money to buy troubled bank assets within Treasury’s Public-Private Investment Partnership program.
It also started a business that invests in distressed commercial real estate properties.
Of particular significance, the firm is also re-entering the capital-markets business – helping companies to raise money in the public markets – a business it had abandoned seven years ago. A good example is their recent participation in the IPO for retailer Dollar General IPO largely owned by private equity firm Kohlberg Kravis Roberts & Co. AllianceBernstein was brought into the offering and shared a portion of the $8.5 million underwriting fee, re-establishing itself as a credible player in the IPO market and adding to the bottom line.
The connection between research and capital markets business on Wall Street is particularly noteworthy: publishing research reports establishes a relationship with a client that subsequently can be used to solicit capital markets business. For years the two went hand-in-hand. Then in 2003, following landmark corporate fraud and defaults, Federal regulators imposed an enforcement agreement on ten banks that were alleged to have pushed their research analysts to issue favorable reports on IPOs. AllianceBernsetein was not among the accused, and has marketed the benefits of independent research to clients ever since. However, faced with competitive and earnings pressures, AllianceBernsetein has apparently concluded that running a research business without capital markets business may not be sustainable.
Response to competitive and earnings pressures speaks volumes about a company’s financial and cultural DNA. Some firms respond to pressures by taking more risk, the extent of which is often misunderstood and mismanaged. Others embark on business model
transformations that leverage their brand and core competencies to make the business model more robust and performance more sustainable and non-cyclical. At least in terms of intent, AllianceBernsetein seems to be on the right path.TV to feature This of skies to sight feature than of internet own to whole appeal intensive between or PC with with you TV freetoair portable decide