AB -- till death do us part

I'm a long term owner of Alliance Bernstein -- pretty much married to that position so keep that in mind when you read the rest of these comments. They announced their assets for the month of September today and made a comment on the performance of their funds.

First, a reminder on why I own this or any other money manager -- if their assets are mostly equities, then their growth is equal to the market's return plus or minus fund flows in or out of the funds. If you pick a good manager to own, then over time their fund flows should be positive and that means faster growth than the market -- a simple path to outperformance.

Next, the good news is that AB's assets were up about 4% in September (revenues = assets X per asset fee). The not so good news was that Alliance lost $6 bill in index/structured products to competitors -- but keep in mind that the 4% growth includes that $6 bill loss so they were able to offset it with growth from elsewhere. Plus index products have some of the lowest fees so from a revenue standpoint its unlikely the company will notice the loss.

The bad news is that they said hedge fund performance was poor during the quarter -- Alliance relies on quant methods for a lot of their products so its possible the troubles quant funds had in August impacted them. Hedge fund performance fees have a big impact on Q4 earnings -- last year's Q4 represented almost 40% of the entire year's earnings and all of the extra income was due to hedge fund performance fees (that 20% of the profits thing). I expected this year to represent a similar percentage of the year's earnings. In Q2 they had said hedge fund performance was exceptionally good so its possible they are still good for the year. We will have to wait until the earnings call on the 25th to get the company's latest guidance on Q4 results.

Since Alliance is a MLP, my taxes are more complicated each year but they would be very complicated if I ever sold my shares. The lower performance fees is a near term negative but I still think AB can earn close to $6 next year -- their dividends equal their earnings so that means more than a 6% yield. its a bargain to me -- great growth, strong yield at a reasonable price.