AllianceBernstein Holding L.P. Units

Thank you for standing by, and welcome to the Alliance Bernstein Third Quarter 2019 Earnings Review. At this time, all participants are in a listen-only mode. After the remarks, there will be a question and answer session, and I will give you instructions on how to ask questions at that time. As a reminder, this conference is being recorded and will be available for replay for one week. I would now like to turn the conference over to your host for this call, Corporate Secretary for AB, Mr. David Lesser. Please go ahead, sir.

Thank you, Jessa. Good morning, everyone, and welcome to our third quarter 2019 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the investor relations section of our website, www.alliancebernstein.com. Seth Bernstein, our president and CEO, John Wisenseel, our CFO, and Jim Gingrich, our COO, will present our results and take questions after our prepared remarks. Some of the information we will present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So I'd like to point out the safe harbor language on slide one of our presentation. You can also find our safe harbor language in the MD&A of our third quarter 2019 10Q, which we filed earlier this morning. Under Regulation FD, management may only address questions of a material nature from the investment community in a public forum. So please ask all such questions during this call. Now I'll turn it over to Seth.

Thank you. Good morning, and thank you for joining us today. Our third quarter results reflect momentum in several key areas of our business. Firm-wide active flows were positive $9.3 billion in the third quarter, bringing year-to-date active net inflows to $21.6 billion, which translates to a 6.3% active annualized organic growth rate, continuing our best year-to-date in more than a decade. Flows were driven by a continued rebound in fixed income and ongoing success with retail active equities. And in an environment of declining fee rates, AB's overall portfolio fee rate continues to be stable. Now, let's get into the specifics, starting with a firm-wide overview on slide four. Third quarter gross sales of $26.3 billion increased 36% year-on-year and were down slightly sequentially. Total firm-wide net flows were positive $8.1 billion versus $1.3 billion in the prior year period and net inflows of $9.5 billion in the second quarter. Total assets under management of $592.4 billion at quarter end increased 8% year-on-year and 2% sequentially, making our highest AUM since the financial crisis. An average AUM was up 7% versus the prior year period and 4% sequentially. Slide five shows our quarterly flow trend by channel. Firmwide net inflows were driven by retail and institutional, while private wealth flows remained negative for the quarter. In retail, gross sales reached a record 21.1 billion, the highest in our retail history, and increased versus both prior periods. And net inflows of 7.4 billion compared to modest inflows in the year-ago period and were higher sequentially. In the bottom left chart, you can see institutional gross sales of $2.9 billion, while redemptions were flat. This resulted in institutional net inflows of $1.5 billion. In private wealth, gross sales of $2.3 billion were down versus the prior year period and from this year's second quarter due to softening sales trends caused by clients' cautious market sentiment, leading to net outflows of $800 million. Our annualized outflow rate remains below the 20-year average despite volatile markets. Now let's turn to investment performance, beginning on slide six. In fixed income, our percentage of outperforming assets for the one-year period remained flat sequentially, but has improved relative to recent results. And our percentage of assets outperforming for the three-year period increased to 82% from 63% last quarter. With a rebound in the percentage of assets outperforming, we continue to have high conviction that our global, diversified approach will produce the best risk-adjusted returns over time, which you can see in our five-year track record with 90% of assets outperforming. In equities, our investment performance was noteworthy, with 63% of assets outperforming for the one year, 79% for the three year, and 84% for the five year. Slides 7 and 8 provide more insight on retail fixed income and equity investment performance. The fixed income table on slide 7 reflects that our long-term track records remain compelling. Performance in our income portfolios has been particularly strong. American income is top decile for the one-year period and top quartile for the three- and five-year periods. European income is top decile for both the one- and five-year periods and top quartile for the three-year periods. Mortgage income beat its benchmark by 200 to 300 basis points for the one, three, and five-year periods. And A-B income remains top decile for the three- and five-year periods and top quartile for the one-year period. Moving on to equities on slide eight. Our concentrated global, global low vol, global core, and large cap growth strategies are significant outperformers. In fact, concentrated global, global low vol, and global core are each top decile across all time periods. Concentrated U.S. growth is top decile for the one year and top quartile for the three year, and large cap growth is top quartile for the one and three year and top decile for the five year. These are impressive rankings, even as we continue to see underperformance in our values emerging market strategies. Let's move on to our client channels, beginning with retail on slide nine. We're seeing remarkable results from the years we spent investing in our retail platform. Our overall sales of $21.1 billion were up 67% year-over-year and surpassed last quarter as the highest sales quarter in retail history by 12%. We also saw sales strengthen across regions during the quarter. including sequential increases across all regions except EMEA and year-on-year sales growth in Asia ex-Japan, U.S. retail, EMEA, and Latin America. The top left chart shows the pickup in Asia ex-Japan industry-wide retail bond fund sales for the 12-month period. Our third quarter sales of $11.3 billion in the region were the highest in history. What's more, the average fee rate on our gross sales in the corner is 22% higher than our overall channel average. Net inflows of $7.4 billion were the highest in 19 years, positive for our fifth straight quarter and represent our third consecutive quarter exceeding $5 billion. And our sources of flows are diverse. Fourteen funds attracted net flows of $100 million or more in the quarter, with seven of them fixed income, six equity, and one multi-asset. And we hit a number of milestones during the quarter as well. AB retail assets under management of $223 billion at quarter end is again at an all-time high. Fifty retail offerings have more than a billion dollars in assets under management at quarter end. And AB ranks sixth out of 458 asset managers in U.S. retail active equity net inflows for the quarter and seventh year to date. Now I'll discuss institutional on slide 10. We saw substantial pipeline growth, and net inflows turned positive for the year at $1 billion, with gross sales reaching $2.9 billion and limited client outflows. Our institutional pipeline grew from $7.1 billion at the end of the second quarter to $11.6 billion. That's up 63% sequentially and 47% year-on-year. Our pipeline's annualized fee base also reached a new high of more than $40 million, with strong equity and alternative additions. and it was our eighth straight quarter in which we exceeded $30 million as illustrated in the top left chart. New additions in the third quarter of $6.4 billion included more than $3 billion in active equities are the highest in two years at the average fee of more than twice the channel average. This is notable considering the industry-wide fee rate contraction. The consultant support is also contributing to the success we're having. New ratings reported in the second quarter have resulted in three third-quarter pipeline ads, and we continue to see a steady stream of RFP activity. And beyond equities, it's important to note that we're seeing success in other areas, including multi-asset and alternatives, lifetime income strategies, custom alternative solutions, middle market direct lending. This bodes well for our future revenues. Moving to private wealth management on slide 11. Client engagement remains high in the face of softening sales trends. Third quarter gross sales of $2.3 billion are down 23% sequentially and year-on-year, and the flows were negative with outflows of $800 million. But despite volatile markets, our annualized output rate remains below the 20-year average. We're seeing inclined engagement as they maintain their long-term strategic allocations due to advice that includes volatility tools and alternative strategies. Our advice model and investment platform continue to resonate with a broader and more affluent and high-complexity client base. We've added more than $1.6 billion in net inflows to our suite of alternative and focused equity services year-to-date, bringing total deployed and committed assets to $10.8 billion at quarter ends. That's the bottom left chart. We closed our first Opportunity Zone transaction, $50 million in commitments, with an additional offering plan for the fourth quarter. Growing our advisor base remains a top priority for us as well. We've reached our year-end targeted advisor headcount of 5% year-to-date. I'll finish our business overview with the sell side on slide 12. Bernstein Research continues to feel the effects of a difficult environment as customer activity remained depressed in most geographies. Revenues of $102 million were near flat year-on-year and down 4% sequentially. However, excluding our April 1 acquisition of Autonomous Research, revenues declined 10% year-on-year. While disappointing, we continue to believe that differentiated offering will ultimately drive client activity. The integration of Autonomous is going well, and our cross-selling efforts are ramping up with more than 100 potential new clients. We had another strong showing in the institutional investor AART survey, with 18 top-ranked sectors compared to 17 last year. Bernstein Research ranked number one for best European dark pool liquidity algos in the annual Greenwich Associates survey. And we were a finalist in all five electronic trading categories in another respected survey. We continue to globalize our research and trading capabilities. A new global emerging markets financial research product was launched, and a research set and sales operation was built out this past July in India. While year-to-date trends continue to be below our expectations, We're thoughtfully managing our operations and navigating through a tough environment. I'll close by highlighting some of our third quarter accomplishments on slide 13. We continued delivering differentiated returns for clients with our diverse products, and we further scaled and commercialized our offerings with continued success with our retail active equity franchise and a pickup in fixed incomes. We recently established a loan and CLL management business, which will leverage the resources and infrastructure of our existing high yield credit business and our middle market direct lending platform. And we remain focused on expense management and executing our relocation to Nashville, which is on plan to achieve our ongoing annual expense savings target once the transition is completed in 2024. I'll also add that we've made great strides with our responsible investing platform and our broader corporate responsibility efforts. In this past quarter, we announced a collaboration with Columbia University's Earth Institute, home to the Lamont-Doherty Earth Observatory, to create a first-of-its-kind intensive curriculum focused on climate risk and investment performance. I'm very proud of what we've achieved during the quarter, despite the presence of some challenges. Now I'll turn it over to John to review our financials.