SWOT on "SWOT Analysis of Alliance Bernstein"

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Alliance Bernstein: SWOT Competitive Analysis

AllianceBernstein Holding LP is one of the world's leading asset management companies, having built a significant franchise in both institutional and retail markets in the face of relentless competition from direct mass-market fund complexes (Vanguard, Fidelity, T. Rowe Price), institutional managers (Legg Mason, BlackRock), broker-sold and captive families (American, Franklin, Morgan Stanley), and niche vendors (Calvert, Winslow). However, despite its reputation, the company remains a relatively small player in the profoundly fragmented retail mutual fund industry, and only has a 4% share of the overall market.

Strengths

Alliance Bernstein's greatest strength is its reputation -- only somewhat blemished by its oversights during the credit crash -- for being one of the smartest firms on Wall Street, possibly second only to Goldman Sachs itself. The firm maintains a deep research effort and literally every one of its analysts are Institutional Investor-ranked. This allows the firm to offer a differentiated, value-added offering and so protect itself from the relentless margin pressures facing mass-market competitors like Fidelity, Vanguard, and Charles Schwab.

Thanks in large part to its high reputation, the firm has also built a significant share of the institutional fund market. While this has waned in recent years, it still gives Alliance Bernstein access to an exclusive and relatively lucrative client base as well as opportunities to cross-sell its trading and proprietary research services to other buyside firms.

Current management has expressed a strong interest in expanding the firm's private client operation. This would bring Alliance Bernstein into direct competition with the money center banks, which are likewise competing more aggressively in the high-end private banking arena in the wake of the recent dislocations on Wall Street. However, the firm retains a mystique that few surviving Wall Street brands have preserved and so may be better positioned to win high-net-worth clients from wirehouse and independent brokers alike.

As an affiliate of the gigantic insurance firm AXA, Alliance Bernstein also has (at least theoretically) access to deep corporate pockets if cash is needed to fund expansion. This makes it somewhat unique among top-tier asset management firms and puts it on more equal footing in some ways with its larger peers. Hypothetically, it also gives the firm access to synergies in terms of product line and expertise (retirement annuities, for example), which it has yet to exploit.

Weaknesses

Compared to larger competitors like BlackRock, momentum is negative, or at best flat. Alliance Bernstein lost significant AUM and market share during the recession. The firm's managed assets sank 31% between the end of 2006 and the end of 2009 as investors recoiled from truly dismal performance; highly publicized bad bets on Lehman Brothers and the GSEs damaged the firm's reputation as some of the smartest investors on Wall Street.

In particular, the crucial institutional client base (60% of total AUM) has continued to deteriorate from month to month. This is especially damaging for Alliance Bernstein for several reasons. First, institutional clientele are normally easier to retain and thus harder to woo away from other firms. Second, negative flows often become self-perpetuating as word of mouth turns against a firm. Third, the institutional market is relatively small (reportedly about $1.3 trillion in aggregate managed assets compared to $10 trillion for retail) and given BlackRock's entrenched leadership and far-reaching distribution, growth and additional scale will be difficult to achieve.

The firm has so far abstained from participating in the $1 trillion ETF market that has done so well for BlackRock (iShares), Invesco (PowerShares), State Street Global Advisors (SPDR), and other asset managers. While conventional mutual funds still dwarf ETFs in terms of overall flows, the very existence of exchange-traded funds in the investment marketplace has intensified downward price pressure on fees throughout the industry. If this continues, fund complexes without the scale to support their margins will need to find non-price ways to differentiate themselves in order to compete. (Some boutique managers have done well with socially responsible portfolios, for example, but Alliance Bernstein has likewise failed to play in this space.)

Opportunities

Alliance Bernstein is in a fundamentally solid business that will only expand as the global economy starts generating wealth again and global investors regain confidence in the financial markets. In the near-term, the firm is poised to expand its AUM… READ MORE

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