AllianceBernstein Holding L.P. Units

Thank you for standing by, and welcome to the Alliance Bernstein Second Quarter 2022 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 two weeks. 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, Sarah. Good morning, everyone, and welcome to our second 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, Kate Burke, COO and CFO of and Matt Bass, head of private alternatives. Bill Seamers, controller and chief accounting officer, 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 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. Our second quarter results reflected adverse market conditions as negative market sentiment was amplified by a sharp decline in asset prices in the quarter. Despite outflows from taxable fixed income, we generated continued organic growth and market share gains in municipals and active equities and grew in alternatives, multi-asset, highlighting the strength of our globally diversified and differentiated services. Our fee rate improved by 2% year over year, driven by a mix as higher fee active equities and alternatives both grew organically by 7% on a trailing 12-month basis. Our institutional business saw inflows in the quarter, and our pipeline grew, driven by alternatives. We closed on the Carvel acquisition on July 1, providing complementary private credit capabilities and specific strategies sought by our clients. AB now has a $54 billion private markets platform, which we are growing in partnership with Equitable. Let's get into specifics, starting with a firm-wide overview on slide 4. Gross sales were $23.8 billion, down $12 billion, or 34% from a year ago, excluding the impact of a one-time $8.7 billion venerable sale in the prior year quarter. Firm-wide active net outflows were $3.4 billion, or $2.8 billion, excluding acts of redemptions. Quarter-end assets under management of $647 billion declined 12%, both year-over-year and sequentially. An average AUM of $689 billion was down 5% year-over-year and 8% sequentially. Slide 5 shows our quarterly flow trend by channel. Firm-wide, second quarter net outflows were $2.7 billion, or $2.1 billion, excluding AXA redemptions. Retail gross sales of $17 billion continued to moderate from a record 2021, resulting in net outflows of $2.2 billion. Investors continued to shed risk assets and returns were negative amidst rapidly increasing inflation and interest rate expectations. Organic growth in munis, alternatives, multi-asset, and active equities was more than offset by net outflows and taxable fixed income. Our institutional channel grew organically for the eighth consecutive quarter, driven by alternatives, multi-asset, and active equities. Sales of $3.3 billion were down from prior comparison periods, both of which had large one-time sales, the venerable sale last year and the $9.6 billion target date sale in this year's first quarter. In private wealth, gross sales decreased 8% compared to prior year periods, with net outflows of $1.2 billion, driven primarily by capital gains, tax-related withdrawals, and 2021 business sales. Investment performance is shown on slide six, starting with fixed income. In the second quarter, yields continued to move significantly higher, reflecting a much more aggressive central bank tightening cycle. Credit sector returns were challenged, with developed market investment grade and high-yield corporate bonds materially underperforming global treasuries. Within credit, investment grade outperformed high-yield. While long-term fixed income performance remains solid, with 63% of assets outperforming over the five-year period, our one-year performance dipped in municipals where an overweight to credit detracted as credit spreads widened dramatically, particularly in BBBs. Despite the municipal sell-off, muni credit fundamentals remain strong, with 49 states reporting revenue collections above budget projections in fiscal 2022. Emerging markets exposure in our global high-yield income funds also detracted from performance. Our long-term tax-exempt performance remains stellar, with all 10 of our strategies in the top quartile and half in the top decile across the five-year period. Sustained demand for our tax-exempt SMA vehicles continues to generate high teens' organic growth, and our taxware strategies grew by over 20% annualized. Turning to equities. Global equities fell sharply in the second quarter as U.S. markets slid into bear market territory. The MSCI world index fell by 14.3% in local currency terms, with U.S. large-cap stocks tumbling by 16.1%. Regional returns varied meaningfully, with relatively modest declines in the U.K. and Japan. Emerging markets losses were offset by gains in Chinese stock. a strengthening U.S. dollar reduced losses for non-U.S. investors in American equity portfolios. The dramatic style shift seen in the first quarter continued in the second, with the Russell 1000 growth index declining by 21% compared with 11% decline in the Russell 1000 value index in the quarter. Growth peers continued to struggle against the benchmark, with just 18% of U.S. large cap growth managers and 35% of small cap mid-cap growth managers beating their benchmarks year-to-date. While our equity returns over one in three years have also lagged benchmarks, we continue to outperform Morningstar peers. And several of our larger equity strategies, including U.S. large-cap growth, select U.S. equity, and global core outperformed their benchmarks in the second quarter as key factors we emphasize, including profitability and quality, came back into favor as recessionary concerns deepened. Our value strategies continued through year-to-date outperformance against benchmarks, and once again, we saw inflows into several international value strategies, including China value and Asia X Japan value. In total, 49% of our AUM outperformed for one year, 36% for three years, and 82% for the five-year periods, respectively. Versus Morningstar peers, 69%, 59%, and 78% of our equity assets outperformed over the one, three, and five-year periods. I'm pleased to note that for the third time in the last four years, our equity buy-side trading team was named Best Buy-Side Global Equity Desk by Markets Choice Awards. Now I'll review our client channels, beginning with retail on slide seven. Sales of $17 billion in our retail channel declined by $6.5 billion year-over-year and $3.3 billion sequentially, impacted by negative market sentiment across both fixed income and equities. The overall redemption rate improved over both prior periods to 26.6%, most notably in our high-income products in Asia. Net outflows were $2.2 billion driven by our global high-income suite. Of note, While industry-wide U.S. retail taxable bond outflows doubled sequentially, AB's taxable fixed income outflows improved from the prior quarter. While we've recently seen a small recovery, we believe global high-yield valuations and forward returns are attractive, though concern remains over the entry point. At quarter-end gross of fees, our global high-yield portfolio had a yield to worst of 11% versus 9.5% for the broader market. Investors await more certainty around inflation and central bank reaction, particularly in emerging markets-related strategies. Municipals, led by our SMA Muni Taxware product, have posted record sales in the quarter, growing at a 10% annualized organic rate, now positive for eight consecutive quarters. Despite softer sales, active equity continues to grow, now positive for the last 21 quarters. Several flow rankings are shown in the bottom right. Turning to institutional on slide 8, second quarter gross sales of $3.3 billion declined from prior periods, both of which benefited from large one-time sales. Redemptions continued to moderate to $2.6 billion, or a 3.2% annualized rate. Net inflows of $700 million, or $1.3 billion ex-axo, were positive for the eighth consecutive quarter and 12 of the last 13. Diverse inflows included China value, sustainable global thematic, global core equity, middle market lending, and merger arbitrage. Our pipeline stood at $10.2 billion at quarter end, up 4% sequentially. 90% of additions were alternatives, which now comprise three-quarters of the pipeline annualized fee base, supporting an active pipeline free rate more than three times the channel average. Additions in the quarter included $750 million from Equitable for Carvel's residential mortgage loan strategy, $750 million from AXA into CRED, evidence that we continue to see private alternatives inflows from AXA, and a $500 million win for merger arbitrage. Post-quarter end, we were informed that we've been awarded a large multi-billion dollar custom target date account. This is another nice win for our defined contribution business. which continues to grow its long-term customer base of nearly two dozen of the largest and most sophisticated DC plans in the U.S. We continue to see advocacy from global and regional consulting firms, which has led to new business across both their advisory and OCIO delegated clients. In the quarter, our China A emerging markets value and U.S. sustainable pneumatic received upgrades. Taking a step back, one year after announcing the equitable private market commitment of $10 billion, we're pleased with the progress we're making against our multi-year objective to deploying our partner's capital in a variety of strategies. Moving to private wealth on slide nine. Second quarter gross sales declined by 8% year-over-year and were up 4% on a year-to-date basis. Net outflows were $1.2 billion driven by large capital gains-related tax withdrawals due to 2021 business sales from our growing entrepreneur client base. We've discussed the success we've had in our strategy of cultivating our growing pre-transaction planning pipeline. As we ramp from a lower base, lumpy flows from large business sales, including subsequent year tax-related withdrawals, may continue to have an outsized impact. We continue to see our mix shift toward our ultra-high net worth, $20 million and over clients, with net client relationship growth well outpacing the channel average, influenced by our pre-liquidity event planning efforts. Private alternative commitments more than doubled in the quarter versus the prior year, driven by real estate equity, private equity fund of funds, and commercial real estate private debt. Our proprietary direct indexing strategy grew to $1.7 billion, up 70% year over year, and ESG portfolios continue to be an important differentiator for our clients. I'll finish our business overview with the sell side on slide 10. Second quarter, Bernstein Research revenues increased by 1% year-over-year and were down 10% sequentially. Despite a much more volatile 2022, U.S. institutional trading volumes remain relatively constrained amidst an uncertain environment. Revenues increased in the U.S. and declined in Asia and Europe. Encouragingly, revenues from research checks continued to post healthy growth, up 8%, reflecting the strength of our brand and the value brought to clients. Our 38th Strategic Decisions Conference, held in person for the first time since 2019, was a resounding success, with a strong and spirited client participation and a higher corporate turnout than pre-pandemic. And we launched coverage on four global sectors this past quarter, U.S. emerging internet, European autos, India industrials and infrastructure, and China software. I'll conclude by updating you on our strategic initiatives on slide 11. While long-term performance across both equities and fixed income remains strong, near-term performance reflects challenging markets. Performance improved this quarter against equity benchmarks, while credit exposures impacted fixed income results. Global product diversification and our engaged client teams drove both organic growth and institutional for the eighth consecutive quarter, as well as multiple asset classes within retail, offset by net outflows from taxable fixed income. Our ESG portfolios with purpose now stand at $24 billion in AUM. We recently announced our commitment to achieve net zero emissions, working to align our business operations and a range of investment strategies with a pathway to limit global temperature increase to 1.5 degrees Celsius by 2050. This advances our longstanding effort to both act and invest responsibly. In alternatives, we closed the Carvel acquisition and continue to see growth in our middle market lending and commercial real estate debt businesses. as well as liquid strategies, including merger arbitrage and risk overlay. Financially, second quarter adjusted operating income declined by 19%. Adjusted operating margin was 27.7%, and adjusted earnings and unit holder distributions of 71 cents per unit declined 22% versus the prior year. Early in July, we announced new leadership changes. I'm pleased that Kate Burke has assumed the role of chief financial officer in addition to her role as chief operating officer. I thank Bill Seamers for his capable service as interim CFO. Bill remains our controller and chief accounting officer. Owner Erzon, AB's head of client group, has been appointed head of Bernstein Private Wealth in conjunction with his client group role. The alignment resulting from these appointments will support our strategic growth plans going forward. Now I'll turn it over to Kate to review the financials. Kate?