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Alliance Bernstein Vs. S&P 500 Call Options
I understand how you are thinking about this but I would suggest taking a couple things in to consideration.
First, the charts of AB against the SP are very divergent beginning in summer of 2010. From a technicial standpoint, you would expect to see profitability lag the SP, yet what we are seeing is actual divergence, this tells you that profitability is not related to the SP price.
Another aspect to consider is AUM does increase with general upward market movement for existing assets, but this is independent of flows out of the firm. There have been studies believe it or not, which asset managers frequently refer to internally, that performance is actually a third of fourth reason clients move their assets away from the firm - the first is frequency of contact with advisors and client servicing issues. You'd be surprised how much private investors will stick with a strategy if the trust in the advisor is established or if they perceive difficulty in finding another advisor.
The last aspect I would challenge is that cost base is fixed. While it can be said that employee salaries are somewhat fixed and that bonuses are market performance based, this doesn't take into consideration attritition. When firms lose advisors, they often recruit "more expensive" talent from other firms in the hopes that flows will increase with an existing book of business that she/he can bring over. Also factor into account potential losses from strategies going sideways/down.
One other very important point - AB is a limited partership with a distribution required to investors. Changes to the distribution will be a major, arguably the most important, factor in valuation.
Feb 8, 2012. 01:45 PM
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