AllianceBernstein Holding L.P. Units

Thank you for standing by, and welcome to the Alliance Bernstein First Quarter 2020 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 the host for this call, Head of Investor Relations for AB, Mr. Mark Griffin. Please go ahead.

Thank you, Heather. Good morning, everyone, and welcome to our first quarter 2020 earnings review. This conference is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website, www.alignerstein.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 remark. 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 first quarter 2020-10Q, 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 questions during this call. Now, I'll turn it over to Jeff.

Thank you, Mark. Good morning, and thank you all for joining us today. First and foremost, on behalf of AB, I want to sincerely thank those in our communities whose focus and dedication remains unwavering as we collectively address the pandemic and its impact on the broader economy. AV's employees, the vast majority of whom are working remotely around the world, remain focused on serving our clients' distinct needs during a time of pronounced stress. As a firm, we proactively implemented our business continuity plan as the crisis unfolded and have transitioned smoothly. Our firm entered the year and remains in very sound financial condition, enabling our teams to focus their efforts on business entrusted to us by our clients. Buoyant financial markets in the first half of the quarter were reversed by a sharp global sell-off in March across virtually all asset classes, amplified by liquidity pressures and deleveraging as market participants reacted to the pandemic's deepening impact on the global economy. Against this backdrop, AB's financial results improved versus the year-ago period and declined sequentially. Despite the March sell-off, we experienced robust retail sales throughout the quarter and achieved organic growth in both our institutional channel and our active equities platform. Investment performance was, however, mixed. While relative performance for active equities strengthened, Fixed income performance was significantly challenged due to illiquidity and asset declines in several sectors, notably high yield, emerging markets, and structured credit. Bernstein Research benefited in this environment with strong growth as volatility led to global trading volumes doubling in March. Let's get into the specifics, starting with a firm-wide overview on slide three. Gross sales of $31.6 billion in the quarter were up $8.5 billion or 37% from a year ago and up $4.6 billion or 17% sequentially. Despite healthy inflows in January and February, the market volatility in March resulted in firm wide net outflows for the quarter of $5.6 billion. To put March into context, combined industry-wide U.S. and offshore taxable fixed income outflows were $365 billion in March, the highest ever and more than four times the next largest outflow month. Quarter-end assets under management of $542 billion declined slightly year over year and 13% from year-end. while average assets under management of $602 billion increased 12% year-over-year and decreased slightly sequentially. Slide 4 shows our quarterly flow trend by channel. Firm-wide net outflows were $5.6 billion, driven by retail fixed income as institutional flows remained positive and private wealth experienced modest net outflows. In retail, we had record gross sales of $24.2 billion. Active equities generated inflows, while active fixed income experienced $5 billion of net outflows, concentrated in the 13-day period in March when investors fled to safety of cash and U.S. Treasuries at the expense of other sectors. Flows, including those from Asian retail investors, for our key fixed income products stabilized in late March. and we've experienced net inflows within retail for April month to date. In the bottom left chart, you can see institutional gross sales of $3.9 billion grew from the prior year period, resulting in net inflows of $400 million. Continued active equity inflows of $1.5 billion grew by 13%. offsetting fixed income outflows, including a previously disclosed $1 billion AXA withdrawal. In private wealth, gross sales improved relative to sequential and prior year periods, while redemptions led to modest net outflows. Now let's turn to investment performance, beginning on slide five. First quarter fixed income performance was significantly challenged. Most of our fixed-income strategies maintain the strategic overweight to credit sectors, several of which, such as securitized markets and emerging markets debt, experience liquidity challenges exacerbated by deleveraging as market participants sold assets at the height of the crisis in March. High-yield spreads widen dramatically by more than 750 basis points to distressed levels of 1,100 basis points in mid to late March. impacting strategies with high yield allocations. Sector and security selection also detracted from performance. As a result, our one, three, and five-year relative performance deteriorated with 32%, 38%, and 45% of assets outperforming, respectively. That said, we have confidence that our sector allocations will benefit from conditions gradually normalizing over time. Thus far in April, We are encouraged by better liquidity conditions, a stronger buyer appetite, and moderating high-yield spreads. Global high-yield allocation to securitized assets, financials, and emerging markets detracted in the quarter, resulting in bottom quartile performance. Our high-income fund trailed significantly due to its wider multi-sector approach compared to peers. as roughly half the portfolio is invested in non-U.S. high-yield assets, which underperformed. Despite a poor quarter, the fund still has a superb long-term track record in its category, and as shown before, it can bounce back. Our experienced fixed-income investment teams are hard at work revalidating investment decisions, and we are confident in our people, process, and approach. By contrast, our first quarter equity investment performance strengthened, with 75% of assets outperforming over three years, up from 62% at year end. In the most recent one year period, 72% of assets outperformed. Several of our equity strategies had strong relative performance in a down market. A quality bias aided our large cap growth fund, a lower beta helped our strategic equities portfolio, And a less cyclical exposure benefited strategic equities and concentrated international growth, the latter with no energy exposure and an underweight to financials. Slide six and seven provide more insight on retail fixed income and equity investment performance. The fixed income table on slide six reflects the performance challenges as mentioned. Among our key offshore strategies, American income has outperformed the median over the one, three, and five-year periods with first quarter performance supported by the fund's barbell allocation to U.S. Treasuries. Of our U.S. taxable funds, our income fund is positioned differently from peers with a higher tracking error, which was exhibited this quarter. Despite challenging near-term performance, the fund is in the sixth percentile over a 10-year period. And our municipal strategy showed mixed results, with high-income and intermediate diversified muni outperforming for the one-, three-, and five-year periods, while municipal bond inflation lagged. Moving to equities on slide seven, among offshore offerings, our global low-bile strategy continued to place in the top quartile in all time periods, while global core is top decile for the three- and five-year periods. And our growth strategies did well this quarter. Of our U.S. retail funds, large-cap growth continues to be a standout, in the top decile for one, three, and five-year periods. Discovery growth, global core equity, and select U.S. long short were in the top quartile over the three and five-year periods. Within our value offerings, relative value outperformed while our broader offerings lagged. Relative to the broader market, style headwinds persisted. as the first quarter was the third worst quarter for value since 1975. Additionally, every energy exposure detracted from performance. Let's move on to our client channels, beginning with retail on slide eight. Retail sales continue to pace with record first quarter sales of 24.2 billion, up 48% year over year and up 28% sequentially. January and February were our first and second highest gross sales month ever, and despite the crisis, March was our fourth highest gross sales month ever. As the top left chart shows, sales grew in all regions versus both the prior year period and sequential. That said, we were not immune to the fixed income redemptions experienced across the industry, with $11 billion of net outflows in March. Net flows, including those from Asian retail investors for our key fixed income products, stabilized in late March and have been positive April to date. Importantly, we continue to see consistent strength in active equities, with 12 straight quarters of organic active equity growth. Our scaled retail offerings remain diverse, with 43 products of more than $1 billion in assets, 17 of them equities, 15 fixed income, and 11 multi-asset. Notable U.S. retail net flow rankings include AB income, 16th out of 146, large cap growth, 16th out of 348, small cap growth, 12th out of 170, and global core equity, eighth out of 249. Offshore net flow rankings include low vol, fourth out of 667, and American growth, second out of 80. Now I'll discuss institutional on slide nine. Growth sales were 3.9 million with net inflows of 400 million. Excluding a billion of actual redemptions, net inflows would have been 1.4 billion. Sales continue to be led by our active equity platform, which at 2.2 billion was more than 50% of channel sales. Active equity growth sales have exceeded $1 billion for 10 of the past 11 quarters. Net inflows of $1.5 billion in active equities translated into a 13% organic growth rate, led by our global core, international small cap, and global concentrated growth strategies. This is the eighth of the last nine quarters in which active equities have grown organically. Our institutional pipeline grew to $15.4 billion at quarter end, with $3 billion in pipeline additions in the first quarter. And for the third quarter in a row, our pipeline's annualized fee basis exceeded $40 million, well diversified across asset classes and geography. We also had two consultant upgrades in the quarter, with 70% of our pipeline ads consultant-linked. In our multi-asset strategies, we've successfully launched new merger arbitrage and event-driven funds and are targeting a systematic macro launch in the second quarter. We expect that AXA will redeem the remaining $13 billion in fixed income assets during the second quarter, for which fees are low and the revenue impact is not significant. Moving to private wealth management on slide 10. Growth sales of $3.5 billion increased 8% year-over-year and 30% sequentially. Net inflows were positive through February before turning negative for the quarter in March, reflecting the market-wide sell-off. Adding back a billion in assets converted to unmanaged cash during the quarter, which we view as capacity for future investment, flows were positive. 50 billion of relationship assets are covered by our dynamic asset allocation overlay strategy, which de-risked during the quarter, reducing volatility for clients. During the extraordinarily volatile period, advisors were focused intensely on client service and communications, providing reassurance through frequent engagement. Webinars have doubled and videos have tripled versus our prior cadence, while unique visitors to our blog increased by 80%. evidence of strong client engagement. We are routinely providing insightful market commentary to over 50,000 contacts, all of which occurred during a seamless transition to a work-from-home environment, a testament in particular to our IT and operations groups supporting those professionals. We continue to innovate in support of our increasingly complex clients. During the quarter, we raised $100 million through our proprietary SMA tax loss harvesting portfolio. Assets under management focused on ESG strategies increased 31% year-over-year, and alternatives committed and deployed grew to $11.4 billion, up $1.6 billion versus the prior year period. Advisor headcount is up 6% as targeted, while advisor turnover remains low. I'll finish our business overview with the sales side on slide 11. First-team research had a very strong quarter, as increased global market volatility led to higher trading volume and customer engagement. First-quarter revenues grew by 43% year-over-year and 17% sequentially. Excluding autonomous, revenues grew 31% year-over-year. Global trading volumes were robust, with March volumes doubling across all markets versus prior year periods. While April month-to-date trading volumes have subsided from the March peak, they remain well above the prior year. We also benefited from a mixed shift to higher-touch trades in the quarter. Engagement was a key differentiator as we conducted 63 webinars with over 4,000 clients in attendance, with client phone call volume double that of our prior year period. While we're encouraged by these results, we note that the long-term secular pressures facing this business remains. We strengthened our offering on the quarter by initiating coverage of three sectors, U.S. Internet, European retail, and U.S. oil services. At the one-year anniversary of the autonomous acquisition, we are well positioned as a leader in global financials research. We are capturing cost savings as expected, and our cross-selling efforts are on track with more than 100 potential new clients on trial through the end of April. I'll close by highlighting some of our first quarter accomplishments on slide 12. Active equity performance further strengthened across the board and diversified offering, with 75% of assets outperforming over three years. Our retail equity offerings included 10 top quartile funds across multiple style, capitalization, and geographic categories. As a result, we continue to drive net inflows and active equities across both retail and institutional channels. Our experienced fixed income teams are laser focused on improving performance, which we have conviction will rebound over time. Retail continued to drive record sales in the first quarter, while our institutional channel continued to enjoy a growing pipeline of higher fee business. Bernstein Research benefited from higher market volatility, driving strong global trading volumes and high customer engagement. Alternative offerings were bolstered by the first close of our 2020 JV Fund to Funds, as well as successful launches of our merger ARB and event-driven funds. In summary, AB remains well positioned to support our clients and to capitalize on the investment opportunities in front of us. We continue to invest in key long-term growth opportunities while remaining ever attentive to today's dynamic challenges. Now I'll turn it over to John to review our financials.