AllianceBernstein Holding L.P. Units

Thank you for standing by and welcome to the Alliance Bernstein fourth 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, Head of Investor Relations for AB, Mr. Mark Griffin. Please go ahead.

Thank you, Jody. Good morning, everyone, and welcome to our fourth 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 Wiesenseel, our CFO, and Jim Gingrich, our COO, We'll present our results and take questions after our prepared remarks. Some of the information we'll 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 2019 10-K, which we filed earlier this morning. Under Regulation FD, management may only address questions of 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.

Good morning. Thank you for joining us today. I'm pleased to report our 2019 results reflected broad-based strength across AB. Firm-wide active net inflows were $8.1 billion in the fourth quarter, bringing full-year active net inflows to $29.7 billion, which translates to a 6.5% active annualized organic growth rate, our best year in more than a decade. Flows were driven by a very strong year in fixed income and continuing success with active equities, which were well diversified across channels and regions. And in an environment of declining fee rates, AB's overall portfolio fee rate remained fairly stable thanks to a favorable mix change. Now let's get into the specifics, starting with a firm-wide overview on slide three. Annual gross sales of $103.7 billion in 2019 were up $10 billion, or 11% from 2018. The retail channel was robust, reflecting high demand for global fixed income products throughout 2019. Total firm-wide net inflows were $25.2 billion for the year, comprised of $29.7 billion in active net inflows and $4.5 billion in passive net outflows. Combined with strong markets and solid investment performance, our year-end assets under management of $623 billion increased 21% from the prior year. We also reported strong net inflows for January this morning, a continuation of trends we saw in 2019. Slide four shows our quarterly flow trend by channel. Firm-wide net inflows of 6.5 billion consisted of 8.1 billion in active net inflows, partially offset by 1.6 billion of passive net outflows. Net inflows were positive for the sixth consecutive quarter, driven by healthy retail and solid institutional results, while private well flows were essentially flat. In retail, gross sales of 18.9 billion were the second highest in our retail history, eclipsed only by the prior quarter, and retail net inflows of $5.2 billion exceeded $5 billion for the fourth consecutive quarter. In the bottom left chart, you can see institutional gross sales of $5.4 billion increased sequentially, resulting in net inflows of $1.4 billion, as active equity inflows of $2.6 billion grew at an annualized rate of 27%. In private wealth, growth sales and redemptions both improved relative to sequential and prior year periods. Slide five is an annual flows view. Firm-wide net inflows of $25.2 billion were the best we've produced since before the global financial crisis and were led by retail, which had net inflows of $23.8 billion. institutional head net inflows of $2.4 billion, and private wealth flows contracted by a billion following three years of growth. Now, let's turn to investment performance beginning on slide six. In fixed income, our global diversified approach continued to drive highly competitive risk-adjusted returns, with 81 percent of assets outperforming over three years and 92 percent of assets outperforming over five years. Our one-year performance improved to 86% of assets outperforming, led by our global high-yield fund, AB income, and global bond funds. The barbell approach in our multi-sector funds, which includes exposure to high yield, combined with outperformance of risk assets in the fourth quarter, contributed to these results. In equities, our long-term investment performance also remained strong, with 62% of assets outperforming over three years and 84% over five years. In the most recent one-year period, 43% of assets outperformed. Our large cap growth and quality bias, combined with its higher cash position, led to underperformance. In our strategic equities portfolio, a lower beta caused us to trail the market as it did as did underexposure to more cyclical sectors such as semiconductors. Slide seven and eight provide more insight on retail fixed income and equity investment performance. The fixed income table on slide seven reflects that our track records are compelling across the near, mid, and long-term horizons. Performance in our income portfolios have been particularly strong. Both American income and European income are well within the top quartile for each of the one, three, and five-year periods. The income fund is top decile for the one, three, and five-year periods, and our municipal strategies show consistent outperformance with municipal bond inflation and intermediate diversified muni strategies in the top decile for each of their comparable periods and the high-income portfolio in the top quartile for the one, three, and five-year periods. Moving to equities on slide eight. Among offshore offerings, our concentrated global, global core, and select U.S. long-short strategies continue to place in the top quartile in all time periods. And global low vol was in the top decile for the three and five-year time periods. Of our U.S. retail funds, our concentrated U.S. and international growth portfolios were both in the top decile over the one-year period while maintaining strong performance over the three and five year periods. And our large cap growth fund maintained top quartile performance over the three and five year periods. Within our value offerings, we continued to underperform, while emerging markets growth service experienced a rebound in one year performance. Let's move on to our client channels, beginning with retail on slide nine. We enjoyed tremendous success this year following years of investment in our retail platform. Our overall sales of $75.3 billion were up 39% year-over-year and surpassed our prior record by $19 billion, or 34%. As the top left chart shows, while exhibiting particular strength in Asia, sales grew in all regions versus the prior period, and net flows were positive in each region as well. Full year active net inflows were 27.2 billion, exceeding 5 billion in each quarter of 2019. These results were led by our fixed income platform, which saw active net inflows of 23.6 billion, or a 31% organic growth. We ranked third out of 412 peers in cross-border retail net fixed income flows. Turning to equities, Our active equity platform grew its net flows $3.4 billion, the third consecutive year of organic growth. We've demonstrated consistency with active equity net inflows in 11 of the past 12 quarters. We continue to show significant diversity in flows as 33 funds attracted net inflows of $100 million or more in the year, 17 of them equities, 14 fixed income, and two multi-assets. At year end, AB retail assets under management were $239 billion, an all-time high up 32% versus the prior year. And 55 retail offerings and more than $1 billion in assets under management. Our U.S. retail active equity net inflows for the year were excellent. AB ranked sixth out of 455 asset managers. Our international equity and taxable fixed income platforms both ranked in the top decile of flows, and our municipal bond and liquid alt strategies placed in the mid-teen percentiles for net flows versus peers. These are distinguished results. We also continue to see success in our multi-asset strategies, particularly those oriented towards income, as exemplified by our all-market LUX funds. which was approved for 15 platforms in 2019 and just surpassed over $1 billion in AUM with over $700 million in gross sales during the year. Now I'll discuss institutional on slide 10. Gross sales for the year were $17.1 billion, with net inflows of $2.4 billion, comprised of $3.8 billion in active net inflows, partially offset by $1.4 billion of passive outflows. Sales continue to be led by our active equity platform, which is $9.2 billion. We're up 25% versus the prior year, our best year since 2008. It's worth noting that growth sales have exceeded $1 billion for none of the past 10 quarters. Net inflows of $2.9 billion in active equity is translated into a 9% organic growth rate, led by our global core and global concentrated growth strategies. Over the past two years, our institutional equities business has grown at an average organic growth rate of 11%, very strong results given the landscape. Our institutional pipeline grew to $15.1 billion at year end, with $9.2 billion in pipeline additions in the fourth quarter. That's up 30% sequentially and 56% year on year. This is the second quarter in a row that our pipeline's annual fee base has exceeded $40 and shows diversification across asset classes and geography. New additions in the fourth quarter, $9.2 billion included a $5 billion low fee passive strategy. Excluding that, the average fee rate remains more than twice the channel average. One additional note, as stated in our earnings release and 10-K, we were sorry recently to receive notification from AXA of its intent to terminate approximately $14 billion of fixed income investment mandates during the first half of 2020. However, the fees we earn from managing these assets are low and the revenue impact is not significant. Moving to private wealth management on slide 11. Full-year sales of $11.3 billion reflected some softness due to the broader geopolitical environment. In some cases, inflows from clients expecting to sell their businesses did not materialize when small business transactions were put on hold due to growing economic uncertainty. And some clients with cash to invest turned cautious, awaiting resolution of the China trade situation and clarification of Fed interest rate policy. Redemptions in 2019 were below our long-term average, resulting in full-year net outflows of $1 billion. An important element of our strategy is to continue to grow the high-end portion of our business. In 2019, client accounts of assets greater than $20 million grew by 1.1%. And alternatives committed and deployed now comprise $11.2 billion, having grown by $1.9 billion, or 20%, versus the prior year. These products are supportive of continued growth in our targeted, affluent, and more highly complex client base. We grew our advisor base by 6%, which is at the high end of our target due to lower-than-expected advisor turnover. And we also saw strong growth in ESG strategies, which grew to $2.7 billion, up 80% from the prior year. A few comments regarding our firm's ESG strategy. As a fiduciary, responsible investor, and research firm, we believe that being a responsible company and investing responsibly go hand in hand. a theme noted in our corporate responsibility report published this past quarter. We've invested in several tools to extend and integrate our ESG capabilities into our investing platforms, including a proprietary digital platform called eSight to help teams formalize their ESG evaluations and share insights from company engagement. Our fixed income PRISM research platform includes proprietary ESG scores that directly impacts analyst ratings for each issuer. And our sell-side research teams integrate ESG factors into their stock and company analyses. 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 remain depressed in most geographies. Fourth quarter and full year revenues declined by 4% and 7%, respectively, as compared with the prior year periods. In 2019, we continued to focus on our efforts on a few select growth opportunities while taking appropriate steps to manage the business to ensure that it continues to contribute to AB's profitability. Accomplishments in 2019 included We remained on plan with our integration of autonomous, achieving our cost savings targets while our cross-selling efforts are on track with more than 100 potential new clients on trial. The launch of both Indian trading and build out of an Indian research and sales team in Mumbai, focused Asian research investments including seven sector launches, and increased pre-IPO research. Importantly, we had another strong showing in the institutional investor AART survey with 18 top-ranked sectors. I'll close by highlighting some of our 2019 accomplishments on slide 13. We continue delivering strong, differentiated investment returns for clients across fixed income equities, multi-asset, and alternatives. which combined with our global distribution capabilities drove 6.5% active organic growth for the full year. Retail had record results with active organic growth of 20% for the full year, achieved through diversified dead-end flows across a diverse number of products. Institutional saw strength in active equity flows and growing pipeline of higher fee business. New alternative offerings in 2019 included a fund-to-funds JV as well as our third commercial real estate fund. We built a CLO management business leveraging our existing high yield and middle market direct lending platforms. All of this was done while simultaneously relocating key functions to Nashville, where we now expect to employ 1,250 people, resulting in meaningful expense savings. In summary, we had a strong year across our global platform and were well positioned for continued growth in 2020. Now I'll turn it over to John to review the financials.