AllianceBernstein Chief Investment Officer Presents At Morgan Stanley Financials Conference (Transcript)

AllianceBernstein (AB)

Presentation at Morgan Stanley Financials Conference

June 13, 2012 12:00 p.m. ET


Douglas Peebles - Head and Chief Investment Officer, Fixed Income


Unidentified Speaker

It’s my pleasure to introduce Doug Peebles, head of AllianceBernstein’s fixed income unit. Doug became chief investment officer of AllianceBernstein’s fixed income in 2008, and oversees all of the fixed income portfolio management and research teams globally. Fixed income has been an area of strong growth and solid performance for AllianceBernstein, representing over half its assets under management as of the latest quarter, with $224 billion.

With that, I’ll turn it over to Doug.

Douglas Peebles

Thank you. Good afternoon everybody. So as Kevin said, I run the fixed income group at AllianceBernstein. I’ve been with the firm now for literally 25 years and 12 days. So I’m in my 26th year at the firm. I have always been involved in fixed income. Most of the time, over my formative years if you will, were in the global fixed income area. So I’m unabashedly pro-global as it relates to investing, in all types of investing, fixed income in particular.

So if you will, when the industry thinks about fixed income, largely because this is what we put forth as our key tenets, or our key elements, is first and foremost a global firm. We actually think and act globally in all that we do.

The second one is an integrated research approach, which is not particularly strange for a large asset manager. And AllianceBernstein in particular, the combination of quantitative and fundamental, but in the world of fixed income, that’s a little bit strange. Most of the big fixed income asset managers are predominantly fundamentally based.

And the last element is a dynamic investment approach. So I have a firm belief that market premiums are not static. They vary over time, and therefore managing assets, the risk premium in portfolio, should vary over time to take advantage of that.

In terms of what do our clients think about fixed income, more and more importantly, people are thinking about fixed income in three different ways: what types of objectives do they need to meet with their fixed income portfolios.

This is actually quite different than the equity world. The equity world is total return against an index, for any type of client that we have, globally. That’s basically what it is. For fixed income, some people use fixed income differently.

We can summarize it into three core buckets: stability, which is just that. You need to make your college tuition payments, you need to make whatever payment it is. You need that money in its stable format. That’s generally money market, something like that.

The second bucket is core. Core fixed income is the offset to risky market volatility. So this is the area that needs to go up in price when your stocks or your risky assets are going down in price. And then the third area is just what is stated there, high income. So people not getting enough return on their assets that they have in a bank account, and they need to go out and buy high income.

By and large, people run into trouble in fixed income when they confuse these buckets. When they say, well, I’m not getting enough yield on my core bond portfolio, so let me replace that with high income. The problem with that is that high income is actually more highly correlated to the equity market. So all you’re doing is adding more risk to your overall asset allocation. That’s generally not beneficial, because you’re not getting the diversification elements that you want in your core fixed income portfolio.

So that’s an important backdrop to think about, okay, what sort of products do we have, and what are the solutions that our clients are asking us for? So if you look at our product and our clients, on the right hand side, you can see the distribution of the assets that we have under management, which are $227 billion. About two-thirds institutional. We split the other third between our high net worth business, which we label private client, and the retail mutual fund business, both onshore and [unintelligible] bonds here, and offshore as well.

On the left hand side, you can see the assets by the way we manage those assets, what sort of index are we looking to be. What sort of assets are we invested in. The three biggest categories here, global, number one, credit, number two, and munis, number three. If you go into the consultant community, they would basically say, look, Alliance is known for, and really good at, global investing and credit investing. I would completely agree with that. I would add one other element, where we’re somewhat underrepresented right now, is munis.

So if you look, and you can see that the 14% in munis ties in very closely to the 15% in private clients. So that’s our U.S. high net worth clients, who obviously are using munis for their fixed income allocation. Where we’re light in the muni space is in retail. The mutual fund area. We’ve been in that space for a long time. We’ve just launched a new product or two, and I think that over the course of the next couple of years, you’re going to see us make a significant push into the municipal market for retail.

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