AllianceBernstein Holding L.P. Units

Thank you for standing by and welcome to the Alliance Bernstein Second 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 the 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, Natalia. Good morning, everyone, and welcome to our second quarter 2020 range 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 Wagenseel, our CFO, Kate Burke, our COO, And Ali Dabaj, head of finance and strategy, will 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 two of our presentation. You can also find our safe harbor language in the MD&A of our second quarter 2020 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.

Good morning, and thank you for joining us today. I'm pleased to report strong second quarter results with robust sales across both retail and institutional channels, another strong quarter for active equity flows, and organic growth of 3% net of expected action redemptions while also expanding our margins. The second quarter was a period of remarkable recovery in the financial markets following the March liquidity crisis and global sell-off. In this market, eight of our top ten retail taxable fixed income funds posted top quartile performance in the quarter as credit sectors recovered, as did ten of our retail municipal funds. Our equity platform retained good long-term performance. Bernstein Research continued its year-over-year growth, and we've had several large alternatives wins that grew our pipeline. So let's get into the specifics, starting with a firm-wide overview on slide four. Growth sales of $31.8 billion represented the second-strongest quarter in over a decade, up $4.5 billion, or 16% from a year ago, and up slightly sequentially. Firm-wide net inflows were $4.6 billion, excluding $7.9 billion of previously disclosed low-fee acts of redemption as retail flows rebounded following the industry-wide sell-off in March. Quarter-end assets under management of $600 billion increased 3% year-over-year and 11% from the prior quarter, reflecting the strong financial market rebound in the second quarter. while average AUM of $579 billion increased 2% year-over-year and decreased 4% sequentially. Slide 5 shows our quarterly flow trend by channel. Firm-wide net inflows of $4.6 billion, excluding the aforementioned acts of redemptions, were driven by continued strength in both retail and institutional. Retail had its third-best sales quarter ever, Active equities generated inflows for the 13th straight quarter, and active fixed income had $2 billion of net inflows. In the bottom left chart, you can see institutional gross sales of $8.8 billion, among the highest in recent years, excluding the actual redemption, as we had net inflows of $1.5 billion, driven by active equities inflows of $2.9 billion. In private wealth, gross sales increased 13% year-over-year and were down slightly sequentially, while redemptions in this period of market uncertainty led to modest net outflows. Now let's turn to investment performance, beginning on slide six. In fixed income, eight of our top ten retail taxable fixed income funds by AUM placed in the top quartile of the Morningstar peer group in the second quarter. and all 10 of our retail municipal portfolios by AUM were in the top quartile this quarter, with six in the top decile. Disciplined revalidation of our positions by our fixed income teams led to this improvement as several credit sectors posted strong recoveries, including global and U.S. high yield, which were up 12% and 10% respectively, emerging markets up 12%, and CRTs up 26%. Our one, three, and five-year relative performance improved sequentially with 41%, 45%, and 64% of assets outperforming, respectively. We still have a lot of work to do to recover additional performance, and we remain confident in our people, process, and approach, which have stood the test of time. In equities, 67% of our assets outperformed over three years and 70% over five years. In the most recent one-year period, 54% of assets outperformed. The remarkable equity market recovery in the second quarter was narrow at the top, led by large-cap technology, with the NASDAQ returning 31%, while the broader S&P 500 returned 20%. Several of our strategies, such as our strategic equities portfolios, maintained a lower beta and higher quality bias, which protected well during the March downturn, but lagged in a recovery led by high valuation, high growth technology, and some higher beta cyclicals. Slide seven and eight provide more insight on retail fixed income and equity investment performance. The fixed income slide table on slide seven reflects the performance improvement in the quarter. Among offshore funds, American income is in the top quartile for the three- and five-year periods, with second quartile performance aided by the fund's barbell allocation to recovering credit sectors. European income is in the top decile over the three- and five-year periods, and our global high-yield portfolio generated top quartile performance in the quarter, returning 12% as positions in emerging markets debt and CRTs rebounded. though the portfolio lags on a one, three, and five-year basis. Of our U.S. taxable funds, global bond fund performance is mixed. Despite a strong second quarter, one- and three-year rankings are dragged down by credit sector challenges in the first quarter and duration positioning in earlier periods. As mentioned, our municipal performance improved. High-income and intermediate diversified muni outperformed for the one, three, and five-year periods while municipal bond inflation lagged. Moving to equities on slide 8, among offshore offerings, sustainable global thematic placed in top quartile in all time periods, while concentrated global, global low vol, and global core are in a top quartile or the top decile in the three- and five-year periods. Of our U.S. retail funds, large cap growth and discovery growth are in the top quartile for the one-, three-, and five-year periods. Select US long short was in the top quartile over the three and five year periods. Within our value offerings, relative value was outperformed over three and five years while our broader offerings lagged. Moving on to our client channels beginning with retail on slide nine. Retail sales of 19.6 billion were the third highest in our history following a record first quarter. Second quarter redemptions normalized after the industry-wide sell-off in March, and we generated net inflows of $3.8 billion, the seventh in the last eight quarters of positive net flows. Net inflows were balanced across both fixed income and equities. Notably, it was our 13th straight quarter of active equity organic growth. AB ranked 11th out of 456 managers for U.S. equity fund flows in the second quarter, That's in the top 3%. Our scaled retail offerings remain diverse, with 48 products of more than a billion dollars each in assets, 19 of them equities, 16 fixed income, and 13 multi-asset and alternatives. Notable U.S. retail net flows rankings include large cap growth, 19 out of 342, small cap growth, 4th out of 166, Global core equity, 8th out of 246. And AB high income, 12th out of 180. Offshore retail net flows rankings include global high yield, 2nd out of 127. American income, 1st out of 37. And American growth, 5th out of 82. Now I'll discuss the institutional on slide 10. Global sales of $8.8 billion more than doubled sequentially and were up 60% from prior year quarter. We generated $1.4 billion of net inflows, excluding the low-fee acts of redemption. Active equity continues to distinguish itself. At $4.6 billion, it was the highest equity sales quarter in 12 years. Net inflows of $2.9 billion in active equities translated into a 33% organic growth rate. led by global core, US concentrated growth, and international strategic value. This is the ninth of the last 10 quarters in which active equities have grown organically. Our institutional pipeline grew to a record $17.5 billion at quarter end, with $4.7 billion in pipeline additions in the second quarter. In addition, we had $5.9 billion of new mandates that were both won and funded during the quarter. Notable pipeline additions included $1.1 billion of CMBS, $950 million in global core equity, and $425 million at ARIA, our multi-pad, long-short fund. We had a very successful $500 million TALP fundraise, which was four times oversubscribed. with two-thirds of a globally diversified LP base new to AB, reflecting strong uptake by a diverse mix of institutions and consultants. In our growing liquid alt suite, we launched a third fund systematic macro, and our merger ARB strategy received a consultant buy rating. Our anchor path acquisition brings a systematic risk overlay to our multi-asset group, adding approximately $400 million in assets under management, which will be immediately relevant to the insurance sub-advisory channel as well as our global retail channel. We have also expanded our low-carbon offerings with a launch of global low-carbon equity strategy and plan to launch a low-carbon Asian equity product in the second half of 2020. Moving to private wealth management on slide 11. Growth sales of $3.4 billion increased by 13% year-over-year and are up 10% year-to-date versus the prior year. Client risk aversion following first quarter volatility led to continued net outflows in the second quarter. Volatility caused delays in decision-making, impacted liquidity events that are a precursor to fundings. We remain intensely focused on client service and communication and completed the shift to virtual engagement, hosting 171 virtual events in the second quarter. We saw continued strong client engagement for unique blog visitors, which were up 56%, and over 8,000 downloads on our Bernstein podcast network. We continue to innovate in support of our increasingly complex clients. The Muni impact portfolio has grown to $850 million in assets under management, while ESG strategies increased over 30% sequentially. Our proprietary SMA Texas harvesting portfolio continues to scale, with AUM increasing by $150 million this quarter. We closed with over $100 million in commitments to our 2020 Vintage Private Equity Funds Fund. I'll finish our business overview with the sell side on slide 12. Bernstein Research continued to benefit from higher global market volatility, leading to higher trading volume and customer engagement. Second quarter revenues grew by 8% year over year while moderating sequentially. Global trading volumes remained elevated versus the prior year, with the U.S. up 40%, Europe up 4%, and Asia up 42%. We are gaining share globally, particularly in Asia where investments in research capabilities and in India are reaping benefits. Our virtual strategic decisions conference was by any measure a huge success with over 115 CEOs and senior executives presenting and 2,500 institutional investors up more than 50% year over year from over 600 buy-side clients attending. we received very positive feedback from clients for our most ambitious virtual sell-side undertaking to date, supporting the conference's premier status globally. More than a year past the autonomous acquisition, we are successfully cross-selling subscriptions, having signed 65 new clients year-to-date. Highlights of some of our second quarter accomplishments are shown on slide 13. Sixty-seven percent of our equity assets are outperforming over three years, including 13 top quartile funds across multiple styles, capitalization, and geographic categories. Once again, we drove net inflows in active equities across both retail and institutional channels. Our experienced fixed income teams had a good second quarter and remain focused on improving performance, which we have conviction will continue to rebound over time. Retail sales remained very strong while our institutional pipeline hit a new record. Active equities and alternatives comprise over 80% of our fee base. Bernstein Research gained global market share, and both Bernstein and Private Wealth grew sales year over year while focusing on strong customer engagement. In alternatives, we closed on $100 million in PE fund-to-funds, launched our third alt strategy, raised $425 million at REF, completed a well-diversified oversubscribed, top-raised, and acquired anchor path. Speaking broadly, I would add that it's heartening to see on a year-to-year basis across the industry, active management outperforming indexes in over two-thirds of Morningstar's categories. While we have a number of accomplishments to be proud of, we also have areas we need to improve, and I wish to share with you AB's commitment to racial equality and justice. At AB, we want to live up to our promise to be a caring community that values everyone for their unique perspectives and contributions, for which we are all better off. Diversity is an imperative, particularly in a global investment organization, where outcomes are based on fully informed viewpoints and perspectives, as well as robust idea generation. Organizationally, we are committed to specific actions to further recruit, develop, and retain black talent. at all levels and ensure more black leaders are on path to senior decision-making roles. We also intend to leverage the strength of our asset management platform and standing in our communities by engaging in intentional activities in how AB operates as well as within the industry to drive collective change and progress. We will hold each other accountable, and I'm confident we have the right people and culture in place to be our best. Now I'll turn it over to John to review our financials.