AllianceBernstein Holding L.P. Units

Thank you for standing by and welcome to the Alliance Bernstein fourth 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 on our website shortly after the conclusion of this call. 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, operator. Good morning, everyone, and welcome to our fourth 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, and Kate Burke, COO and CFO. Owner Erzan, head of our global client group and private wealth, and 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-K, which we will file on Friday, February 10th. 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. Despite a fourth quarter market rally, 2022 was a challenging year for diversified investors, with equity and debt markets both down double digits and fixed income markets posting their worst annual returns on record. Our financial results contracted along with markets, with full-year average AUM down 6%, revenues down 8%, and adjusted EPU down 24%. Nevertheless, I'm very proud of what our teams were able to accomplish. Our globally diversified platform grew our active assets organically for the fourth consecutive year, continuing to buck industry trends. Our effective fee rate improved for the second straight year due to a mix of organic growth and to the Carvel acquisition. And we executed on multiple strategic transactions, growing in private alternatives supported by equitable holdings and embarking on a promising growth opportunity for Bernstein Research. Let's get into specifics, starting with the firm-wide overview on slide four. Fourth quarter gross sales of $30.9 billion declined by $9 billion, or 22% from a year ago. We saw slight firm-wide active net outflows in the quarter. For the full year, gross sales of $115.6 billion were down 23% from the record prior year. And we posted full-year active net flows of $900 million, our fourth consecutive year of active organic growth. Year-end assets under management of $646 billion declined 17% year-over-year. Fourth quarter average AUM of $636 billion was down 16% versus the prior year, while full-year average AUM of $686 billion declined by 6%. Slide 5 shows our quarterly flow trends by channel. Firm-wide, fourth quarter net outflows were 1.9 billion, with net inflows and institutional offset by net outflows in retail and private wealth. Retail gross sales were 14.2 billion, with net outflows of 3.4 billion. Institutional sales were 12.6 billion, supported by a 6.4 billion custom target date mandate, generating net inflows of 1.7 billion. In private wealth, gross sales were 4.1 billion, with slight net outflows of $200 million as we continued to grow engagement in the ultra-high net worth cohort, supported by a focus on pre-liquidity planning. Slide 6 shows annual net flow trends. In a challenging year for active managers, gross sales of $116 billion led to firm-wide net inflows of $900 million, excluding acts of redemptions. Retail sales of $66 billion were 34% below last year's record levels. Net outflows of $9.5 billion ex-ACSA were driven by taxable fixed income offset by organic growth in active equities and municipals. Institutional sales increased to $32 billion, the highest level since 2008, driven by $16 billion in fundings related to two institutional custom target date mandates. We had our fourth consecutive year of organic growth in this channel with net inflows of $8.6 billion ex-ACSA. And private wealth had gross sales of $17.5 billion with net inflows of $1.7 billion, the second straight year of organic growth and the fifth of the last seven. Investment performance is shown on slide seven. Starting with fixed income. Despite a fourth quarter rally, fixed income markets fell in tandem with equity markets in 2022 as central banks battled inflation, interest rates soared, and recession fears mounted. Longer-term yields in developed markets rose sharply, leading global treasury returns to fall 10.8 percent during the year. All credit sectors were challenged relative to government bonds. Securitized assets outperformed other credit sectors while emerging markets' hard currency sovereign and corporate bonds trailed. In this environment, our fixed income performance lagged, with 20 percent of our fixed income assets outperforming over the one-year period while 53% and 70% of assets outperformed over the three- and five-year periods, respectively. As we said last quarter, our one-year underperformance reflected our positioning in global credit, as most of our retail fixed income strategies are broader-based than just the U.S. in our focus. The U.S. outperformed last year, making peer comparisons more challenged. Municipal performance was impacted by an overweight to mid-grade and lower-weighted municipals and by overall yield curve positioning. Encouragingly, in our retail channel, we've seen Asian investors, supported by our global financial institution partners, begin to rotate back into fixed income on the back of better valuations and a greater comfort with exposure to duration, not if the Fed appears to be nearing the end of the interest rate hiking cycle. Turning to equities, U.S. equity markets advanced during the fourth quarter with the S&P 500 up 7.6%, lessening the full year's 18% loss. For the quarter and year, growth underperformed value as higher rates weighed on longer duration stocks. The Russell 1000 growth index returned 2.2% for the quarter, bringing the year-to-date loss to 29.1% versus the Russell 1000 value index's return of 12.4% for the quarter and negative 7.5% for the year. The majority of our equity assets outperformed. with 59% of AUM outperforming for the one- and three-year periods and 77% for the five-year period. Our one-year performance improved sequentially as our U.S. large-cap growth composite beat the Russell 1000 growth benchmark, aided by an overweight to healthcare sector and underweights to mega-cap technology. In this environment, we're maintaining discipline on identifying high-quality, profitable companies with sustainable business models and large recurring revenue streams. all defensive characteristics, which can help buffer against spikes in market volatility. Quality companies with strong pricing power often demonstrate consistent profitability, even in inflationary environments. Stable companies have cushioned on the downside because they typically have lower beta or sensitivity to the broader market than traditional growth firms. Now I'd like to review our client channels, beginning with retail on slide eight. Fourth quarter sales were $14 billion, down $13 billion from last year's record fourth quarter, but up sequentially. Annual sales of $66 billion were down $34 billion from last year's record level. The annual redemption rate reached a historical low of 24%. Fourth quarter net outflows were $3.4 billion, contributing to full-year net outflows of $11 billion, the latter driven primarily by taxable fixed income, a dynamic scene industry-wide. Despite the challenging environment, active equities grew organically for the sixth straight year, while municipals grew organically for the 10th straight year. The latter led by our SMA tax-aware and our SMA custom strategies. The bottom left graph shows that we are taking market share in both businesses, with AB's net inflows clearly bucking the trend of industry-wide outflows. From a regional perspective, U.S. retail grew organically for its fourth consecutive year, and Japan grew for the fifth straight year. Several flow rankings are shown on the bottom right. For the year, AB ranked 10 of 456 in U.S. equity flow rankings, with positive flows in the U.S. led by large cap growth. A few words on flows. Our January 2023 AUM, which will be released today after market closes, benefited from net inflows. In retail, we saw accelerating inflows into American income, a fund that is ranked first in flows in the U.S. dollar flexible bond category for the last two quarters. We also saw continued strength in muni SMAs. Turning to institutional on slide nine. Fourth quarter growth sales of 12.6 billion included 6.4 billion from a previously disclosed low fee custom target date mandate. Full year sales were 32 billion, the highest since 2008, driven by $16 billion in fundings from two custom target date mandates. 2022 was the fourth straight year of net inflows in institutional, positive even net of AXA redemptions in each of the last three years. Net inflows were $6.3 billion in the year, or $8.6 billion excluding AXA. Our effective fee rate continued to improve in the fourth quarter, driven by the 10th consecutive quarter of net inflows into alternatives, and multi-asset. Our institutional pipeline declined to $13.2 billion at quarter end, with $12 billion funded in the quarter, including $1.5 billion of AB Carvel fundings, including Credit Value Fund 5, CLO 8, and Clean Energy. Private alternatives comprise about half of the additions to the pipeline in the quarter, notably middle market lending and Eurocred. And the pipeline fee rate remains more than three times the channel average, driven by private alternatives, which comprise more than 80% of the annualized fee rate. In January, we received an additional $1.3 billion commitment for U.S. cred from Equitable, part of their $10 billion permanent capital commitment to improve the returns while growing our higher-fee, longer-duration private markets business, for which well over half of the $10 billion has been deployed in our strategies at year-end. Thus far in 2023, we have seen an increase in institutional client inquiries, which are broad-based and well-diversified by asset class, style, cap, geography, and client type. Moving to private wealth management on slide 10. Fourth quarter's gross sales declined by 21% year-over-year and increased slightly sequentially. Full-year gross sales of $17.5 billion declined just 4% versus a strong prior year. with productivity remaining historically elevated, down 2% year-over-year. Full-year redemption rates improved to 13%, down 160 basis points from last year. Despite slight net outflows in the fourth quarter, the full year saw net inflows of $1.7 billion, the second year in a row of organic growth and the fifth in the last seven. Our client mix continues to shift toward our ultra-high net worth, $20 million and over clients, which remain our fastest-growing cohort. This cohort is a particular focus of our pre-liquidity event planning efforts, from which AUM generation in the fourth quarter well outpaced an industry-wide M&A volume contraction of more than 50%. For the full year, commitments of $1.8 billion to private alternative products were up 10%, which included the launch of Bernstein Impact Alternatives, a new third-party partnership. Looking to 2023, we have a robust set of new product launches planned, including AB Carval's clean energy, credit value, and transportation. Our proprietary direct indexing strategy grew by 62% year-over-year and 11% sequentially, while ESG AUM grew by 6% organically. I'll finish our business overview with the sell side on slide 11. Fourth quarter Bernstein research revenues of $100 million decreased by 12% year-over-year and were up 10% sequentially. Full-year revenues decreased by 8% year-over-year. The year was characterized by a stronger first half followed by a weaker second half as institutional trading volumes were constrained amidst global uncertainty. We'd continue to grow research checks driven by high single-digit growth at Autonomous. In November, we announced the strategic decision to enhance growth opportunities for Bernstein Research Services through contributing the business into a joint venture with Societe Generale's cash equities business. This announcement has been well received by our talented global research teams who recognize the potential in adding our new partners' equity capital markets, derivatives, and prime brokerage capabilities. We continue to expect the transaction to close before the end of 2023, subject to regulatory consultation and approval in several countries, and we anticipate disclosing financial details closer to that time. I'll now review progress against our growth initiatives on slide 12. Our investment performance was mixed in 2022. While disappointing in fixed income, the majority of our equity assets outperformed For the three- and five-year periods, performance was solid, with 70% or more of both asset classes outperforming over the five-year period. I'm proud of our teams for driving active organic growth last year for the fourth consecutive year, despite challenging financial market conditions. Robust growth in custom target date solutions and private alts led the way, with active equities and munis also contributing to retail. Our effective fee rate improved for the second straight year, influenced by both the mix of organic growth and the strategic acquisition of Carval. With the support of our strategic partner, Equitable, we launched our active ETF business and closed on the Carval transaction, which significantly enhanced diversification of our $56 billion private markets business, up 57% year over year. Financially contracting asset prices took their toll, as we posted a three-year rolling incremental margin of 35% below our long-term target range of 45% to 50%. Full-year adjusted operating margin of 28.4% declined 520 basis points year over year, with adjusted earnings and unit holder distributions down 24% versus the prior year. We entered 2023 facing pressures on our revenues and margins, with AUM 17% lower year over year, and we expect financial market conditions will remain volatile. Accordingly, we recently took measures to reduce headcount that affected a small portion of our global employee base. As I look forward, our team's accomplishments against our strategic initiatives in 2022 give me confidence for 2023. With continued diligence in managing compensation and other costs, we remain positioned to capitalize on growth opportunities ahead of us. These key initiatives include growing our active ETF offerings, investing in our insurance business to grow third-party clients, investing in technology and capabilities of our muni business, and standing up an asset management business in China for which regulatory approval remains pending, while executing on AB Carvel Opportunity and Bernstein Research's joint venture. Now I'll turn it over to Kate to review financials. Kate?