AllianceBernstein Holding L.P. Units

Thank you for standing by and welcome to the Alliance Bernstein First Quarter 2023 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 of this call, Head of Investor Relations, Mr. Mark Griffin, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our first quarter 2023 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, and our co-heads of Fixed Income, Scott DiMaggio and Gershon Distenfeldt. Owner Erzan, head of Global Client Group and Private Wealth, 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 2 of our presentation. You can also find our Safe Harbor language in the MD&A of our 10-Q. 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. The first quarter saw positive returns in both equities and fixed income markets, though equity leadership was relatively narrow and yields in bond markets were volatile. Our global platform generated positive net flows as retail and high net worth investors became more comfortable taking on risk and were keen to take advantage of higher fixed income yields. Our realized fee rate improved by 4% year-over-year, driven by the addition of CarVal. And we executed on several focused growth investments, launching three new active equity ETFs, filing for our AB CarVal Interval Fund, and continuing to grow market penetration of our customized Muni SMA platform. Let's get into the specifics, starting with a firm-wide overview on slide 4. Gross sales were $25.6 billion, down $5.7 billion, or 18% from the year-ago period, excluding last year's large custom target date sale. Firm-wide active net inflows were $1.8 billion, or 1% annualized, positive in two of three channels. Quarter-end assets under management of $676 billion declined 8% versus the prior year and were up 5% sequentially. An average AUM of $667 billion was down 11% year-over-year and up 5% sequentially. Slide 5 shows our quarterly flow trend by channel. Firm-wide, first quarter net inflows were $800 million. Retail gross sales of $16.8 billion were down year over year, though improved sequentially, driving net inflows of $1.6 billion amid strong demand for taxable and municipal fixed income, up 15% and 21% on an annualized basis, respectively. Our institutional channel had gross sales of $3 billion, declining from prior quarters, both of which included large custom target date sales. Net outflows were $2.7 billion. In private wealth, gross sales were strong at $5.8 billion, with clients inclined to invest this into money market funds given market volatility. Net inflows were $1.9 billion, now positive eight of the last 11 quarters. Investment performance is shown on slide six. Starting with fixed income. During the first quarter, developed markets government bond yields fell in all major markets. Yields remained volatile as investors factored in shifting inflation and growth assumptions. Global developed market treasury returns rose 3.1% as measured by the Bloomberg Global Treasury Index on a hedge basis. AB's fixed income performance improved in all periods. Notably, the percentage of assets outperforming over the three-year period improved to 83%, driven by our flagship global high-yield fund, which posted top quartile performance. Fully 75% of our fixed income assets are outperforming over the five-year period. Our one-year underperformance continues to reflect our broader positioning in global credit during a period in which the U.S. has outperformed, challenging some peer comparisons. Turning to equities. Global equities were volatile during the quarter as turmoil in the banking sector jolted markets in March. After recovering toward quarter end, the MSCI World Index had advanced by 7.4% in local currency terms. In a reversal of last year's performance patterns, growth stocks outperformed value stocks with the Russell 1000 growth index up 14% while the Russell 1000 value index was flat. Our XOE's performance was generally strong, with one year improving to 74% as global core and several small cap strategies outperformed. Three-year performance reverted back to 38% after rebounding in the prior quarter. Our U.S. large-cap growth portfolio beat the Morningstar peer group but lagged the Russell 1000 growth benchmark, which remains heavily weighted in mega-cap technology, presenting concentration risk. 73% of our AUM outperformed over the five-year period. Versus the Morningstar peer groups, 68%, 61%, and 70% of our equity assets outperformed over the one, three, and five-year periods, respectively. Now I'll review our client channels, beginning with retail on slide 7. Gross sales of $16.8 billion in our retail channel declined by $3.8 billion from last year and were up $2.6 billion sequentially. Net inflows were $1.6 billion, or 2.6% annualized organic growth, reflecting strong taxable fixed income and municipal demand. The overall redemption rate improved to 25%, the lowest rate in the last 12 quarters. Taxable fixed income sales more than doubled year over year and rose 80% sequentially, led by meaningful acceleration in our American income fund. This translated to 15% annualized organic growth in taxable fixed income. Muni sales and flows were also robust, with sales up over strong prior periods and net inflows of $1.4 billion, or 21% annualized organic growth. This was the 10th quarter in the last 11 of Muni net inflows. As shown in the lower left, we handily outpaced the industry growth rates, gaining market share in the quarter. Sales grew sequentially and we had net inflows in all regions. U.S. retail grew by 11.5% annualized organically. Notably, AB ranked in the top 2% for cross-border flows for fixed income. During the quarter, we filed for our first interval fund, the AB Carvel Opportunistic Credit Fund, a continuation of an existing multi-strategy private credit hedge fund strategy offered since 2014. Over time, we plan to offer this through U.S. distribution partners to broad third-party retail. Turning to institutional on slide 8. First quarter gross sales were $3 billion, well diversified across asset classes, though down substantially from the comparable prior periods, which both saw large custom target date sales. Net outflows were $2.7 billion, concentrated in non-U.S. value strategies. Alternatives and multi-asset demand grew for the 12th consecutive quarter. This asset class now represents a third of our channel AUM, having posted a 24% compound annual organic growth rate over the last three years. Our pipeline was $13.1 billion at quarter end, essentially flat with the prior quarter. DISH has included $1.2 billion from Equitable for our U.S. commercial real estate debt service, along with a number of active equity mandates. Equitable's $10 billion commitment, split into private alternatives and private placements, was approximately 70% deployed at quarter end. Private alternatives continue to represent over 80% of the pipeline's annualized fee base, resulting in a pipeline fee rate three times the channel average. During the quarter, we received an upgrade from a large global consultancy for our sustainable global thematic platform, part of our portfolios with purpose, which now stand at $25.2 billion in assets under management. That said, in the month of April, we expect to incur a few large low-fee redemptions totaling about $6 billion. at a blended rate of about six basis points. These are split between our custom target date and fixed income businesses. Included in this rebalancing of a large custom target date account for which the vast majority of the AUM will remain at AB. As a reminder, we had $16 billion of new fundings in our custom target date business in 2022 and expect to see continued growth over the longer term. Offsetting the vast majority of the revenue impact from these low-fee redemptions in April, we were awarded a higher-fee, billion-dollar equity mandate in our U.S. large-cap growth strategy, which we expect we'll fund over the next few months. Moving to private wealth on slide 9. First quarter gross sales were $5.8 billion, down 3% year-over-year and up 41% sequentially. Productivity improved sequentially, and we drove net inflows of $1.9 billion, now positive for eight of the last 11 quarters. We experienced strong inflows in money market funds, which were elevated during the March banking dislocation. We continue to generate gross sales from liquidity events, for which our pipeline of pre-transaction planning remains solid. Our mix continues to shift towards our ultra-high net worth, 20 million and over clients, the fastest-growing client segment, which grew at a high single-digit rate this quarter. We had a strong quarter for alternative commitments, up 52% versus the prior year period. This quarter included raises in AB's CarVal's second clean energy fund. And our proprietary direct indexing strategy grew to $2.5 billion, posting strong annualized organic growth of 40%. I'll finish our business overview with the sell side on slide 10. First quarter, Bernstein research revenues of 100 million decreased by 15% year-over-year and were essentially flat with the prior quarter. While institutional trading volumes picked up sequentially, they were still generally soft industry-wide. We grew our leading share in research checks, which were up year-over-year and down seasonally, as expected from the prior quarter. We launched coverage on four global sectors this past quarter and continue to innovate in events, holding our first-ever technology, media, and telecom and consumer one-on-one forum with 21 companies and 65 clients participating. Our joint venture with Societe Generale announced last November is proceeding on plan. 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 conclude by reviewing the status of our strategic initiatives on slide 11. Performance in fixed income improved in every period. Equities remained solid, and more than 70% of assets are outperforming over five years in both equities and fixed income. First quarter growth was led by private wealth and retail, each of which experienced strong double-digit annualized organic growth in fixed income. We launched three active equity ETFs, U.S. low volatility equity, U.S. high dividend, and disruptors. In private alternatives, AB Carvel CLO 7 raised $420 million. Fund raising for AB Carvel's most recent clean energy fund continues to pace with over $1 billion raised and a final close expected in the second quarter. Lower markets versus prior years impacted our financial comparison. First quarter adjusted operating income declined by 21%, adjusted operating margin was 27%, and adjusted earnings and unit holdout distributions were 66 cents per unit, down 27% versus the prior year. Finally, I'd like to invite you to tune in to the upcoming inaugural Equitable Holdings Investor Day to be held on Wednesday, May 10th, where I will present a view of our longer-term horizon and our partnership with Equitable. Now I'm pleased to introduce both Scott DiMaggio and Gershon Distenfeld, co-heads of our fixed income platform. Scott will take it from here.