AllianceBernstein Holding L.P. Units

thank you for standing by and welcome to the alliance bernstein second 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 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 second 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, and Bill Seamers, Interim CFO, Controller, and Chief Accounting Officer. Carl Sproles, Chief Operating Officer, and Onur 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 two of our presentation. You can also find our Safe Harbor language in the MD&A of our 10-Q, which we filed yesterday. 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 second quarter, equity markets continued to rebound, with the bulk of the gains in June led by a small number of large U.S. technology companies. Government bond yields rose amidst generally higher rates and a significant drop in market volatility. We generated net inflows two of three months in the quarter, led by U.S. retail and our global fixed income platform, both growing at 9% annualized organically. Our municipal SMA platform continued to gain market share, growing for the 11th of the last 12 quarters. Our institutional pipeline grew to $14.4 billion, up 10% sequentially. reflecting several active equity wins, and our private market AUM ended the quarter at $61 billion, up 13% year-over-year, apples to apples, assuming Carvel had been owned last June 30th, and up 5% sequentially. During the quarter, Equitable Holdings made its second $10 billion commitment to grow this platform in the coming years. Let's get into the specifics, starting with a firm-wide overview on slide four. Gross sales were $22.4 billion, down $1.5 billion, or 6% from the year-ago period. Firm-wide active net outflows were $4 billion, reflecting $6 billion of pre-announced low-fee redemptions early in the quarter. Net flows were positive in both May and June. Quarter-end assets under management of $692 billion increased by 7% year-over-year and were up 2% sequentially. An average assets under management of $678 billion was down 1% year-over-year and up 2% sequentially. Slide 5 shows our quarterly flow trend by channel. Firm-wide second quarter net outflows were $4 billion, or a positive $2.2 billion excluding pre-announced low-fee redemptions of $6.2 billion. Retail gross sales of $16.5 billion declined 5% year-over-year and slightly sequentially. Net outflows were $700 million despite strong demand for taxable and municipal fixed income, up 9% and 13% annualized organically, respectively. Our institutional channel had gross sales of $1.5 billion, declining from prior quarters. Net outflows were $3.2 billion, reflecting the pre-announced low-fee redemptions. In private wealth, gross sales were resilient at $4.4 billion, driven by money market funds and private alternatives. Net flows were flat in the seasonally slower quarter. Investment performance is shown on slide 6. Starting with fixed income. Developed market government bond yields rose in all major markets as most major central banks hiked interest rates, giving persistent core inflation. Global developed market treasury returns were essentially flat. AB's fixed income performance showed meaningful improvement in the one-year period, improving to 73% of assets outperforming as both American income and global high-yield funds outperformed. The three- and five-year periods remained strong at 76% and 75% respectively. Investors are showing greater comfort with duration as the Fed appears to near the end of its rake hiking cycle. American income net inflows in the quarter were positive $1.5 billion or $4 billion year-to-date. We secured our first systematic U.S. investment-grade fixed income client with a $100 million win, a validation of the strategy we discussed last quarter, which marries our fixed-income technology with our quantitative research. We are initiating a number of other active conversations where there's a preference for higher-quality bonds. Now, turning to equities. Global equities advanced in the second quarter, led by a narrow group of stocks seen as big winners from the artificial intelligence revolution. During the first half of 2023, just 10 U.S. stocks accounted for 79% of the S&P 500's gain and 54% of MSCI All-Country World Index's gain. Over this time, medium forward P.E. ratio of the 10 largest capitalization stocks in the S&P 500 surged by nearly 50% to 28.2 times at the end of June, compared to a median increase of just 7% for the rest of the market. While we own many of these companies, we're wary of the concentration risk of the high benchmark weightings in mega-cap tech, a risk highlighted earlier this week when a major benchmark provider carried out a special rebalance of its technology index to reduce the weightings of its seven largest constituents. Near-term equity performance was challenged, with just 23% of equity assets outperforming over the one-year period. Our three-year performance improved 48 percent, while five-year declined 52 percent of assets outperforming. Importantly, we continue to outperform our peer group with 65 percent and 71 percent of our equity assets outperforming the Morningstar peer groups over the three- and five-year periods, respectively. At quarter end, 62 percent and 65 percent of our equity assets under management in U.S. and Lux funds, respectively, were in funds ranked four and five stars. Now I'll review our client channels, beginning with retail on slide seven. Gross sales of $16.5 billion in our retail channel declined 4% from a year ago and were down 2% sequentially. The redemption rate was slightly higher at 27% versus 25% last quarter, resulting in net outflows of $700 million. We continue to see strong growth in U.S. retail, which posted 9% annualized organic growth, driven by taxable fixed income equities and munis. Last quarter, we highlighted our belief that we're in the initial innings of a fixed income reallocation. Our Asia business continued to grow, bolstered by American income, which grew sales at five times year over year, driving taxable fixed income net inflows of $1.3 billion. or 9% annualized organic growth. Muni sales and flows also continued to be robust, with net inflows of $1 billion, or 13% annualized organic growth, positive for 11 of the last 12 quarters. Active equity sales were $8 billion, the highest level in four quarters, reflecting strong momentum in U.S. retail for marquee strategies. Increased global redemptions resulted in net equity outflows. As shown on the bottom right, we ranked in the top 2% for cross-border flows for fixed income, substantiated by Broadridge, which ranked AB first in Asia for year-to-date fixed income sales and net inflows. We're experiencing a strong start for our ETF launches, for which assets under management reached $800 million, having raised approximately $500 million year-to-date. balance between retail and private wealth channels with sales from well over 100 distributors. Turning to institutional on slide 8, second quarter gross sales were $1.5 billion, down from both comparable prior periods. Net outflows were $3.2 billion, reflecting previously announced low-fee redemption split between our custom target date and fixed income businesses, driven by rebalancing. Our pipeline grew to $14.4 billion at quarter end, up 10% sequentially. Additions included a $1.3 billion U.S. large cap growth mandate, which funded earlier in July, and for which annualized fees exceed those of the preannounced redemptions. We saw over $300 million of CARVAL additions and a number of additional active equity wins. We're pleased that at the imminent close of its latest clean energy fund, AB Carvalho raised approximately $1.5 billion, which is triple the size of its first clean energy fund. Notably, Equitable announced at its May investor day a second $10 billion multi-year commitment to AB's private markets platform. The initial $10 billion program announced in mid-2021 is now 75% deployed. Moving to private wealth on slide nine, second quarter gross sales were resilient at 4.4 billion, up 35% year-over-year, while down 23% from a seasonally strong first quarter. We continue to experience strong sales in money market funds and private alts. While second quarter net flows were essentially flat, on a year-to-date basis, they've grown at a 3.4% annualized organically, double the rate of the prior year period. Our AUM growth from business sales well outpaced the industry, as measured by M&A volumes, and the pre-transaction planning pipeline remained solid. We continue to see sustained growth in the ultra-high net worth, $20 million and over category. Year-to-date alternative raises of $1.3 billion were well diversified across strategies, including secondaries, private credit, real estate equity, and clean energy. And our proprietary direct indexing strategy grew to $3 billion, posting strong annualized organic growth of 35%. I'll finish our business overview with the sell side on slide 10. Second quarter Bernstein research revenues of $92 million decreased by 14% year-over-year and 8% sequentially. Industry-wide, global institutional equity trading volumes remain constrained, with investors reluctant to turn over portfolios in the face of continuing market and economic uncertainty. Research checks were up at Autonomous for the quarter. We launched coverage on four global sectors this past quarter, three in the EU and one in Japan. Our 39th Annual Strategic Decisions Conference was a resounding success with over 1,200 clients, and nearly 150 companies attending. Our joint venture with Societe Generale, announced last November, is proceeding. The timeframe for closing has been extended into the first half of 2024, and we remain highly confident that we will obtain necessary regulatory approvals. The economics are essentially unchanged, and we anticipate disclosing further 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 while equities near-term performance lagged versus capitalization-weighted benchmarks. The second quarter was led by 9 percent annualized organic growth in fixed income, and we gained market share across retail, taxable, and municipal categories, including Muni SMA. We had several active equity wins, which grew the institutional pipeline. In private markets, we progressed toward the imminent close of AB Carvalho's latest clean energy fund at $1.5 billion, three times its predecessor fund. We were pleased to participate in Equitable's May Investor Day, at which Equitable announced its second $10 billion permanent capital commitment to growth of our private markets platform. Additionally, we outlined at that meeting that at current market levels, we have visibility to 350 to 500 basis points of margin expansion through the 2027 horizon period. This reflects the margin benefit of the Bernstein Research deconsolidation, about 200 to 250 basis points, the completion of the Nashville relocation, about 100 to 150 basis points in additions to savings already realized, and the growth of private markets and other investments, about 50 to 100 basis points. Second quarter financial comparisons reflected lower assets under management versus the prior year period. Adjusted operating income declined by 3%, adjusted operating margin was 27%, and adjusted earnings and unit holder distributions were 61 cents per unit, down 14% versus the prior year. Now I'll turn the call over to Bill Siemers to discuss the financials. Bill?