AllianceBernstein Holding L.P. Units

Ladies and gentlemen, thank you for standing by and welcome to the Alliance Bernstein third quarter 2024 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, Vice President of Investor Relations for AB, Mr. Yanis Draghali. Please go ahead.

Good morning, everyone, and welcome to our third quarter 2024 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 are Seth Bernstein, President and CEO, and Jackie Marks, CFO. Onur Erzan, Head of Global Client Group and Private Wealth, and Matt Bass, Head of Private Alternatives, 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 would 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 10Q, which we filed this morning. We base our distribution to unit holders on our adjusted results, which we provide in addition to, and not as a substitute for, our gap results. Our standard gap reporting and a reconciliation of gap to adjusted results are in our presentation appendix, press release, NR10Q. 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. Over the last several years, Alliance Bernstein has been on a journey to redefine itself and emerge as a leader in asset and wealth management, and I'm pleased with the progress we're making. We've delivered positive net flows each quarter this year and surpassed $800 billion in assets under management as of quarter end. I want to take this opportunity to express my gratitude to our colleagues, clients, and unit holders who have supported us throughout this journey. Today, AB is a stronger company with a distinctive value proposition, which is highlighted on slide three. We have a differentiated distribution platform, which includes our proprietary private wealth business. This gives us an edge in growing markets like Asia, U.S. high net worth, and global insurance. We can also deliver our clients diversified investment capabilities across traditional and alternative asset classes. This includes our growing private markets platform, which is supported by our strategic relationship with Equipol. In addition, as Jackie will discuss in detail later, we have a clear path for margin improvements. which will reflect on our results as we move into 2025, assuming no market deterioration. Finally, AB has a tax-efficient partnership structure that prioritizes capital returns to shareholders and ensures a disciplined approach to growth investments. Moving to slide four, I'll review our third quarter business highlights. First, we delivered our third consecutive quarter of organic growth. Active fixed income inflows totaled $6 billion, led by retail, where taxable and tax-exempt each grew 17% and 27% organically on an annualized rate. We've been among the first asset managers to benefit from reallocations into fixed income, having registered nearly $20 billion in active fixed income inflows year-to-date, more than 50% higher than 2023's full-year flows. American income continues to headline taxable demand, with over $2 billion of net inflows during the third quarter. Our tax-exempt franchise is also gaining market share and had over $3 billion in net inflows, led by retail muni SMAs and demand from Bernstein Private Wealth. We're also seeing preliminary signs of a turnaround in U.S. retail demand for taxable, with over half a billion dollars in inflows year-to-date into our ETF and mutual fund suite. Active equity outflows of $4.5 billion remained elevated in the third quarter. Concentrated institutional redemptions outweighed pockets of strength in retail active equities, where we observed continued inflows into U.S. large cap growth and renewed interest for our value strategies. Second, we continue to expand our private markets platform through deepening existing partnerships and forging new ones in the growing retail channel. Our private markets AUM reached $68 billion in the third quarter, up 11% year-over-year, driven by strong net fundings into our alternative strategies. At the institutional level, we deployed over $1 billion across CLOs, real estate, mortgages, and renewable energy strategies. Last month, we announced the launch of the AB Carvel Credit Opportunities Fund, which is an unlisted, closed-end interval fund that brings Carvel's expertise in specialty finance, aircraft leasing, and energy transition to the broader retail audience. Our sales teams are engaged across key channels, leveraging our established footprint in the large U.S. retail market. The Interval Fund is already live with one third-party platform and on track for others. As a reminder, Bernstein Wealth Management has been a pioneer in bringing alternative assets to U.S. high net worth segments. and we're able to leverage this distribution expertise as we forge our third-party retail market strategy. A third highlight for the quarter is that our fee rate has stabilized, so we saw base management fees grow in line with AUM. Finally, we're making steady progress on our margin accretion initiatives, including the completion of our New York City office relocation in September. Our adjusted operating margin in the quarter of 31.3%, It's up 330 basis points year over year, and we have a clear line of sight to further improvement in 2025, provided there is no market deterioration. Slide 5 reflects a summary page of our key financials metrics. Jackie will follow up with more commentary on the fee rate, performance fees, and margin. Turning to slide 6, I'll review our investment reporting, starting with fixed income. September kick-started the Fed's monetary easing cycle in the U.S., following in the footsteps of other major central banks. Rates moved down and the yield curve steepened, pushing bond prices higher. The Bloomberg U.S. Aggregate Index returned 5% in the third quarter, with both duration and credit performing well in an environment of moderating growth and inflation. Our near-term performance has benefited from both active duration management and credit positioning. as we've successfully navigated a shift in the rate regime and continued tight spreads. 92% of our assets under management are outperforming in the past year, while 65% and 59% of our AUM outperformed over the three and five year periods. Despite elevated volatility, active management of duration and credit exposure has yielded strong returns for our clients over the past year. Our marquee income strategies American income and global high yield returned more than 13% and 15% respectively over the one-year period. Relative performance of these strategies was also strong in the near term, with American income outperforming both its benchmark and its Morningstar category average, while global high yield outperformed its Morningstar category average over the one-year period. Our outlook remains constructive. Importantly, we observed the normalization in asset class return correlations As bonds regain their diversification value, credit fundamentals remain healthy, and monetary policy becomes more certain, we expect investors to accelerate their reallocation into fixed income by tapping on the large money market holdings. While the timing of the pace of the rebalancing is debatable, the case for fixed income is self-evident, and the capital can move swiftly, as we observed with cash sorting in 2023. Turning equities in the U.S., the equal-weighted S&P 500 returned 10%, outperforming the market-weighted S&P by 400 basis points as large-cap value outperformed large-cap growth. Small caps also had a solid quarter, with the Russell 2000 returning 9%. Among non-U.S. equities, emerging markets delivered strong gains in the third quarter, led by China, which posted double-digit returns following monetary and fiscal stimulus measures announced in September. Performance for our equity-to-equity strategies remains mixed, with 55% of our AUM outperforming over the one year, while 47% outperformed over the three-year and 67% over the five-year period. U.S. large-cap growth performance has lagged in recent quarters. However, year-to-date absolute returns remain strong, and the strategy continues to outperform over the long term, beating the Morningstar peer group average over the three-, five-, and ten-year periods. We have more than 20 strategies or funds across value, SMIT cap, China, emerging markets, and international healthcare that outperform their respective benchmarks or composites over the one, three, and five-year periods. Our U.S. value services across the cap spectrum are performing well. Active management in U.S. large-cap value is working, and investors who are underexposed or passive in large-cap U.S. value are missing out on the experience. Over the last quarter, we had nearly 400 million in inflows into U.S. value services, and we are ramping up efforts to increase client awareness of our differentiated capabilities. In addition, we're seeing increased client RFP activity for our new European growth service. Now turning to slide seven. Retail posted its fifth straight quarter of positive net inflows and had its highest quarterly inflows since 2021. with a 7% organic growth rate. Our advantageous competitive position in APAC and our growing presence in the U.S., EMEA, and Latin America helped us deliver positive net flows across all regions. All active asset classes were inflowing in the third quarter, with total inflows of $5.4 billion, led by robust gains in active fixed income and modest inflows into active equities. Taxable fixed income grew at 17% annual rate or 14% excluding money market flows. Offshore retail continues to drive taxable gains, reflecting inflows into American income and global high yield. Retail muni SMAs continued to gain market share, growing at a 27% annualized rate. Finally, active equity also grew organically, supported by continuing inflows into U.S. hardship growth, U.S. select, and value services. Base management fees grew 19% year-over-year and 8% sequentially, reflective of market growth in addition to organic flows and fee-based growth. Organic-based fee growth was 3% over the last 12 months and 8% as of the third quarter of 2024. Moving to slide 8. Institutions continued to shed assets in the third quarter, with outflows totaling $4.4 billion at a 5% annualized loss rate. Active equity strategies continued to drive redemptions, weighing on channel flows and offsetting demand for fixed income and alts. Excluding money market outflows, taxable fixed income grew at a 3% annualized organic rate, primarily driven by corporate investment grade. We had $1.9 billion in pipeline fundings during the third quarter, with the pipeline now standing at $10.1 billion as of the end of the quarter. Note that institutional fundings accelerated in the third quarter with $2.3 billion in pass-through mandates that were not captured on our pipeline. The pipeline fee rate declined as we continued to fund higher-fee alternative mandates. Lower-fee mandates, such as the $500 million systematic fixed income win in the third quarter, also drove down the pipeline fee rate. We continue to make inroads, marketing the systematic product to institutional client channel where we're looking to gain market share. RFP activity and proposals are picking up the pace with a notable uptick in requests for fixed income value and emerging markets equities. This is a good leading indicator for future pipeline additions. However, these mandates tend to be lower feed and will impact our pipeline fee rate. As we add equitable second $10 billion commitment to the pipeline, we expect these additions to partially offset some of these pressures. While deployments and higher fee alts detract from the pipeline fee rate, they benefit the channel fee rate, which is up 2% sequentially. Turning now to slide 9. Private wealth posted modest inflows in the third quarter as increased sales momentum versus the prior year was offset by increased redemptions. The band dynamics within the channel favored tax exempt, posting a 10% annualized organic growth rate in addition to alternatives growing at a similar pace. More than $500 million of inflows within alternatives were driven by U.S. real estate equity, real estate debt, and secondaries. Fundraising and alternatives remained a key driver for channel activity, with $700 million raised in the third quarter, including our newly established Carvel Interval Fund. Within taxable, outflows were concentrated within money markets. As we approach year-end, we remain constructive on the channel outlook, giving strong momentum in fundraising for alternatives, and risk appetite reviving. Advisor productivity and sales momentum is tracking at record levels in 2024. Base management fees grew 13% year-over-year and 4% quarter-over-quarter. Private wealth is also a significant driver of performance fees, reflective of the channel's private market exposure and net interest margin. This is defined as dividends and interest income minus the interest expense on private wealth cash. Now I'll pass it to Jackie to cover our financial results.