AllianceBernstein Holding L.P. Units

Thank you for standing by and welcome to the Alliance Bernstein First Quarter 2022 Earnings Review. At this time, all participants are in 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 Raby. Mr. Mark Griffin, please go ahead.

Thank you, Rain. Good morning, everyone, and welcome to our first quarter 2022 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. With us today to discuss the company's results for the quarter are Seth Bernstein, our President and CEO, Bill Siemers, Interim CFO, Controller, and Chief Accounting Officer, and Kate Burke, COO and Head of Private Wealth. 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 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. First quarter results highlighted the resiliency of our globally diversified and differentiated services. Amid turbulent financial markets reflecting challenging inflationary pressures, rising interest rates, and geopolitical conflict, AB continued to grow and invest in our future. We gained share in both active equities, which grew organically for the ninth quarter in a row, and in municipals, which grew organically for the seventh consecutive quarter, both bucking industry-wide outflows. Upsetting these results was our taxable fixed income business, which saw higher outflows in the face of the worst quarterly fixed income returns in 40 years. In mid-March, we announced the acquisition of CarVal, which provides complementary private credit capabilities and specific strategies sought by our clients. Combined with CarVal, AB will now have an approximate $50 billion private markets platform. Importantly, we're executing on our growth strategy in partnership with Equitable, which has committed $750 million to CarVal strategies. We look forward to sharing more with you after the transaction closes, which is on track for the third quarter. We grew organically for the seventh quarter in a row, realizing a 1% year-over-year fee rate increase and posted an adjusted operating margin of 31.5 percent. We delivered 11 percent year-over-year growth in both adjusted earnings per unit and distributions to unit holders. Let's get into specifics, starting with a firm-wide overview on slide four. Gross sales were $40.9 billion, up $8 billion, or 23 percent from a year ago, reflecting the funding of a previously disclosed $9.6 billion custom target mandate. Firm-wide active net inflows of $12.2 billion, a 6 percent annualized organic growth rate. Quarter-end assets under management of $735 billion rose 5 percent year-over-year, while declining 6 percent from the prior quarter. An average AUM of $751 billion increased 9 percent year-over-year and declined 1 percent sequentially. Slide five shows our quarterly flow trend by channel. Firm-wide, first quarter net inflows of $11.4 billion represented a 6% annualized organic growth. Retail generated $20 billion of sales for the fifth quarter in a row. Net inflows in active equities and munis were more than offset by outflows in taxable fixed income. Industry-wide, fixed income suffered outflows for the first time in the last eight quarters, reflecting heightened investor risk aversion in the face of rapidly increasing interest rate expectations. Institutional sales of $14.3 billion contributed to net inflows of $10.2 billion, led by the $9.6 billion custom target date mandate. In private wealth, gross sales increased 12% over the prior year period, with net inflows of $2.2 billion, or 7% annualized, as growth accelerated with ultra-high net worth clients. Investment performance is shown on slide six. starting with fixed income. In the first quarter, yields moved significantly higher and generally flattened as the market priced in higher than anticipated interest rate increases. Although all fixed income sectors declined, sectors' results were mixed relative to government bonds. Overall, developed market investment grade and high-yield corporate bonds underperformed global treasuries. Our long-term fixed income performance remains strong, with 72% and 71% of assets outperforming over the three- and five-year periods, respectively. Sixty-four percent of our fixed income assets outperformed over the one-year period, as American income marginally underperformed its peer group, despite beating its benchmark. Our tax exam performance remains stellar, with all 10 of our strategies in the top quartile across all periods. Our muni bond inflation strategy was in the top 1% across all periods, and our tax-aware vehicles, including SMAs, grew by 15% organically. Turning to equities, seven straight quarters of gains for global stocks abruptly ended in the first quarter with the S&P 500 and the MSCI EFI falling by 4.6% and 5.8% respectively. A dramatic style shift occurred as rising inflation and interest rate expectations coupled with geopolitical instability led to a sell-off in higher multiple growth-related technology and consumer discretionary sectors. The MSCI World Growth Index declined by 9 percent, contrasted with the MSCI World Value Index declining just one-tenth of 1 percent. While our equity performance against Morningstar peers remained strong, performance against benchmarks was challenged. As a result, our overall percentage of assets outperforming declined, with 45% of AUM outperforming for one year, 38% for three years, and 58% for five-year periods, respectively. Versus Morningstar peers, 68%, 61%, and 81% of our equity assets outperformed over the one, three, and five-year periods. We were not alone in this shifting environment. Just 14% of U.S. large cap growth managers and 32% of small mid-cap growth managers beat their benchmarks in the first quarter. Our growth portfolios are generally tilted toward quality and away from cyclically oriented financials, energy, and commodity producers, all sectors that did well in the quarter. Pockets of underperformance were due principally to multiple contraction rather than earnings contractions. as we continue to see strong fundamental performance across most of our holdings with a few notable exceptions like meta. That said, many of our equity strategies fared quite well during the quarter. Among them, strategic core, strategic equity, emerging markets value. Notably, 75% of our value products outperformed their benchmarks in the quarter. We continue to see interest in our value strategies as evidenced by net inflows of over $200 million into each of our China value, emerging markets value, and international value strategies. Now I'll review our client channels, beginning with retail on slide seven. Sales exceeded $20 billion for the fifth quarter in a row, down $2 billion year over year, and down $7 billion from the record fourth quarter. Active equity sales of $15 billion grew by 11% year-over-year as the U.S. retail channel posted a record $9 billion sales quarter. The overall redemption rate improved sequentially in year-over-year to 27%. Net outflows were $1 billion, driven by our global high-income suite as a turbulent macro outlook for inflation and interest rates led to investor risk aversion. Historically, weak fixed income returns drove industry-wide outflows. While the near-term outlook for fixed-income flows remains uncertain, attractive yields should begin to draw investors back into these products over time. At quarter-end growth of fees, our global high-yield portfolio had a yield to worst of 7.5% versus 6.5% for the broader market, a dynamic which has historically been a good indicator of future long-term returns. Active equity continued its stellar growth, posting 13% annualized organic growth, now positive for the last 20 quarters. AB was in the top 2% of managers for U.S. retail active net inflows, ninth out of 464 managers, led by our U.S. large cap and small cap growth strategies. Municipals grew at a 10% annualized organic rate, in the top decile of U.S. retail flows led by our Muni Bond Inflation Fund, which ranks second out of 67 managers in the category. Turning to institutional on slide eight, first quarter gross sales of $14.3 billion increased substantially from prior periods due to the $9.6 billion target date mandate. Redemptions moderated to $4.1 billion, or a 4.8% annualized rate. Record net inflows of $10.2 billion were positive for the seventh consecutive quarter and 11th of the last 12. A few words on the growth of our defined contribution business, where we managed more than $70 billion in custom target date AUM for nearly two dozen of the largest and most sophisticated DC plans in the U.S. We're proud to be an early innovator in delivering an in-plan guaranteed income solution with our lifetime income strategy, celebrating its 10th anniversary, managing $10.4 billion in assets, including $4.2 billion in secured income benefits. This equates to $165 million and growing of guaranteed income for more than 120,000 participants. The lifetime income strategy provides participants with a personalized portfolio similar to a target date fund during their working years and a guaranteed income stream in their retirement years, while continuing to deliver both liquidity and growth potential. Our proprietary technology platform provides us with connectivity to 10 record keepers with plans for expansion and allows us to deliver differentiated insurer benefits marketplace featuring five insurers, including our partner Equitable. We are developing additional, more scalable solutions to deliver lifetime income to a broader set of clients. We believe our long-term focus and our investment in the VC business positions us well to grow our leadership position in lifetime income solutions as they gain traction post the SECURE Act, which provided plan sponsors with a path to incorporate annuities into their plans. Moving to our pipeline, which stood at $9.8 billion at quarter ends, following the large custom target date funding in January. Our pipeline now has the second highest fee rate since we began tracking in 2011, driven by alternatives representing two-thirds of the fee base. Additions in the quarter included a $340 million global core equity mandate and $315 million of commercial real estate debt. Moving to private wealth on slide nine. First quarter gross sales of 12% grew by 12% year-over-year and 15% sequentially, driven by a strong advisor productivity of 15% and 19% respectively over the same period. Net inflows accelerated to $2.2 billion, a 7% annualized organic growth rate, positive for six of the last seven quarters. As Kate Burke will discuss in a few minutes, 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. Private alternative commitments accelerated in the quarter versus the prior year, including private credit, commercial real estate, private debt, and financial services. Our proprietary direct indexing strategy, previously referred to as our passive equity tax loss harvesting portfolio, grew to $1.7 billion, and the ESG portfolios continue to resonate strongly with our clients. I'll finish our business overview with the sell side on slide 10. First quarter, Bernstein research revenues decreased 1% year-over-year and increased 3% sequentially. Relative to a year ago, revenues increased in the U.S. and Europe with higher volatility supporting trading volume and a mix toward high-touch trades. Asian revenues declined, reflecting continued investor claw shifts. Revenues from research checks grew 4%, reflecting the strength of our brand and the value brought to clients. We hired our first analyst in Japan, expanding the breadth of our coverage in Asia. And we launched coverage in two sectors this past quarter, U.S. multi-industrials and apparel and U.S. specialty retail. I'll review now progress against our strategic initiatives on slide 11. Fixed income investment performance remained strong, while equity performance weakened against benchmarks, though stayed healthy relative to Morningstar peers. We drove organic growth of 6%, positive for the eighth consecutive quarter, and we grew, excluding the large custom target date inflow, as strong active equities in municipalities more than offset weak taxable fixed income flows. Private wealth grew by 7%, positive for the sixth of the last seven quarters. Our ESG portfolios for purpose now stand at $27 billion in AUM, up 37% year over year. Our Sustainable U.S. Thematic Equities Fund won the U.K.' 's ESG Investing Award for Best ESG Investment Fund, U.S. Equities. In alternatives, we announced the Carvel acquisition and continue to see growth in our commercial real estate debt and private credit businesses. We also saw growth in liquid strategies, including systematic macro and U.S. select equity long short. Financially, we posted year-over-year incremental margin of 30%, below our long-term target range of 45% to 50%, which we assessed over a rolling three-year period. First quarter adjusted operating margin of 31.5% was down 20 basis points year-over-year, with adjusted earnings and unit holder distributions up 10% versus the prior year. As you know, in late March, former CFO and head of strategy, Ali Dabaj, announced his resignation to pursue another leadership opportunity in the industry. I'm pleased that Bill Seamers, our controller and chief accounting officer, is serving as our interim CFO. We continue to benefit from a deep bench of experienced finance and strategy teams. Now I'll turn it over to Kate Burke, who, in addition to her Chief Operating Officer responsibilities, has been leading our private wealth business since early last year. Kate?