AllianceBernstein Holding L.P. Units

Thank you for standing by, and welcome to the Alliance Bernstein Third Quarter 2021 Earnings Review. At this time, our 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 two weeks. 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, Misty. Good morning, everyone, and welcome to our third quarter 2021 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the investor relations site of our website, www.alliancebernstein.com. With us today to discuss the company's results for the quarter are Seth Bernstein, our President and CEO, Ajay Kahl, Senior Vice President and CEO of Asia Pacific, and Ali Dabaj, CFO and Head of Strategy. Kate Burke, COO, will join us for 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 third quarter 10-Q, 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, and thank you for joining us today. In the third quarter, we grew organically across all three channels for the fourth time in the last five quarters. Our geographically diversified and differentiated client-focused offerings continue to resonate globally with clients and intermediaries. Firm-wide active equities have now grown organically for eight quarters in a row. Municipals once again grew organically by more than 20%. Our investment performance strengthened across both equities and fixed income, while our broadening institutional pipeline grew its annual fee base to nearly $60 million. For the quarter, we posted annualized organic revenue growth of 5%, including 1% year-over-year fee rate improvement, and expanded our adjusted operating margin to 31.8%. Further, we delivered 29% growth in both adjusted earnings per unit and distributions to unit holders. Let's get into the specifics, starting with a firm-wide overview on slide four. Gross sales were $32.3 billion, or up $3 billion, or 10% from a year ago, and down 11% from the second quarter, net of last quarter's venerable transaction. Firm-wide active net inflows were $6.7 billion, a 4% annualized organic growth rate. Quarter-end assets under management of $742 billion rose 18% year-over-year and 1% from the prior quarter. An average AUM of $747 billion increased 20% year-over-year and 3% sequentially. Slide 5 shows our quarterly flow trend by channel. Firm-wide, third quarter total net inflows of $7.2 billion represented a 4% annualized organic growth rate. Net flows were positive in each channel for the fourth quarter of the last five. Retail generated its strongest gross sales ever, with net inflows of $6.6 billion driven by active equities and continued strength immunities, which once again offset moderating sequential outflows and taxable fixed income. Institutional sales of $2.6 billion led to net inflows of $200 million as fixed income and multi-asset grew. In private wealth, gross sales increased 15% over both prior periods with net inflows of $500 million as we grew our ultra-high net worth business, supported by our focus on helping these clients with pre-liquidity event planning. Investment performance is shown on slide six. Starting with fixed incomes. In the third quarter, yields bottomed and began to rise on tapering discussions and higher inflation trends. We continue to position our multi-sector fixed income portfolios for periods of solid growth and also higher inflation by being underweight duration and overweight credit. Our fixed income performance improved on already strong levels at 92% of our fixed income assets outperformed over the one-year period, and 70% of assets outperformed over the three- and five-year period. We continue to see outstanding relative performance in tax exempts. Six of our 10 retail municipal funds were in the top decile of their Morningstar peer group across all periods, and all 10 were in the top quartile across all periods. Our tax-aware vehicles, including SMA, grew by 20% organically. Turning to equities, Global equities rose through most of the third quarter but gave up most of their gains in the volatile September. In developed equity markets, style leadership shifted from value stocks toward growth through August, then back again toward the quarter end. In equities, our percentage of assets outperforming strengthened, improving to 76% for the one-year period and 78% for the three-year period and 70% for the five-year period. The improvement for the one-year period reflects outperformance by our U.S. large-cap growth and strategic equities portfolios, driven by our disciplined approach to diversifying portfolios at measured weights, considering the still high level of U.S. market concentration in high-growth mega-cap companies. Now I'd like to review our client channels, beginning with retail on slide seven. Third-quarter gross sales were a record $25.6 billion, up 46% year-over-year and up 7% sequentially. Net inflows of $6.6 billion were positive in each region, driven by 19% annualized organic growth and equities, our 18th straight quarter of active equity inflows. U.S. large-cap growth led the way among 10 different equity products that each exceeded 100 million of net flows. Once again, municipals grew by over 20% annualized, and taxable fixed income outflows continued to moderate, with American income redemptions improving by $500 million versus the prior quarter. As shown on the upper left chart, our broad, diverse product offerings across SO classes has driven consistent organic growth, with retail net inflows 11 of the last 13 quarters. On a net flow basis, our U.S. equity funds ranked 14th out of 451 managers. International equity funds ranked 29th out of 249 managers. And munis ranked 12th of 110 managers. Several notable individual funds are shown on the bottom right, including small cap growth, first out of 157 funds. Turning to institutional on slide eight. Third quarter gross sales of $2.6 billion declined by $2.3 billion from a year ago and were well below the prior quarter, which included the venerable sale. While a slower funding quarter, the pipeline continues to build. Outflows moderated to a low 2.9% annualized redemption rate, resulting in net inflows of $200 million. Institutional has now posted net inflows for five consecutive quarters and nine of the last 10 quarters. Taxable fixed income and alternatives drove the net inflows. In the quarter, we priced our third CLO, a $500 million offering, and also secured our first third-party client for our equitable-backed European commercial real estate debt offering. Our ESG portfolios were purpose-grew to $27 billion, up 11% sequentially, driven by our U.S. and global sustainable thematic strategies, both of which not only received upgrades from a global consultancy in the quarter, but were also awarded Best Sustainable and ESG Research Team from Investment Week in the United Kingdom. We were also pleased to receive a Morningstar ESG commitment level of Advanced, validating the efforts of our teams in recent years. Our institutional pipeline grew to a record 20.6 billion at quarter end, up 16% sequentially, with additions including an 800 million emerging markets debt mandate and a 620 million China A shares value mandate from a prominent outsourced CIO firm. The annualized fee base reached 60 million and has grown at a 19% compound annual growth rate since we began tracking in 2011. with alternatives over half the fee base. As a reminder, this pipeline includes a $10 billion low fee customized retirement solutions mandate that we expect we'll fund in the first half of 2022. Last quarter, we informed you that the prior action redemption program announced in early 2020 had been completed. We, however, expect new redemptions by AXA of approximately $5 billion of low-fee retail AUM in the first half of 2022. AXA remains a critical partner in the development of our alternatives platform, and we continue to engage in active discussions of AXA as we build out our alternatives business. As of September 30, we managed $20.6 billion for AXA, or less than 3% of our AUM. Moving to private wealth management on slide nine. Gross sales of 4.1 billion increased 15% over both prior periods, with advisor productivity also improving in the mid-teens. Net inflows of 500 million were positive for the fourth of the last five quarters. We continue to see our mix shift toward our ultra-high net worth, 20 million and over clients, influenced by our pre-liquidity event planning efforts for which the pipeline remains strong. We raised $78 million in a qualified opportunity fund focused on tax-efficient investing. Year-to-date, our alternative products are showing strong interest, with assets raised having nearly doubled over the prior year. And our proprietary separately managed equity taxless harvesting product grew by 19% sequentially, while Muni Impact and ESG portfolios continue to grow strongly. I'll finish our business overview with the sell side on slide 10. Bernstein Research revenues increased by 15% year-over-year and 7% sequentially, with strong growth in both Europe and Asia. Asia trading commissions were up over 40%, and India continues to ramp strongly. We're pleased that research checks continue to grow at double-digit rates, reflecting our premium research franchise. And we held our 18th annual Pan-European Strategic Decisions Conference with over 1,000 investors attending over 400 virtual meetings. We launched coverage on three new sectors this quarter, two in Europe and one in China. I'll close our business overview with progress toward our strategy in the third quarter on slide 11. Our investment performance strengthened with 70% or more equity and fixed income assets outperforming in each of the one, three, and five-year time periods. Our geographic and product balance has now driven organic growth across all channels in four of the last five quarters, with retail positive 11 of the last 13 quarters and institutional positive nine of the last 10 quarters. Private wealth grew for the fourth of the last five quarters with active client engagement across our growing inflation and tax-aware suite. Our ESG portfolios with purpose now stand at $27 billion in AUM, up 11% sequentially. We priced our third CLO, and we're growing at double-digit annualized rates in municipals. We are committed to managing our business to deliver strong incremental operating market. Our third quarter adjusted operating margin of 31.8% was up 210 basis points year over year, with adjusted earnings and unit holder distributions up 29% versus the prior year period. You may have seen our announcement last Friday that Joan Land Tenant has been appointed independent chair of Equitable Holdings and Alliance Bernstein Boards of Directors, effective immediately. Joan has been a valued member of the Equitable Board since January of 2020, serving as a member of their audit and finance and risk committees. Joan succeeds Ramon de Oliveira, who served as chair of the Equitable and AAB Boards of Directors since March of 2019, when Equitable became an independent company. We are fortunate to have an outstanding leader in Joan to chair our board. As the first woman to do so in AAB's history, she brings significant risk and capital advisory expertise. She is also recognized thought leader in corporate social responsibility. Now, as part of our earnings spotlight series, which we'll have from time to time, I'm pleased to introduce you to Ajay Kaul, head of AB's Asia Pacific business, who will review our Asia platform. Ajay.