Corus Entertainment Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Alliance Bernstein Third Quarter 2020 Earnings Review. At this time, all participants' lines 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 one week. I would now like to turn the conference over to the host for this call, Head of Investor Relations for AB, Mr. Mark Griffin. Sir, please go ahead.

Thank you, Carmen. Good morning, everyone, and welcome to our third quarter 2020 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. Seth Bernstein, our president and CEO, and Ali Dabaj, head of finance and strategy, will present our results. John Wisenseel, CFO, and Kate Burke, CLO, 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 third quarter 2020-10Q, 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. Thank you for joining us today. We're pleased to report third quarter results that highlight consistent strength across our platforms. All three channels delivered net inflows, led by another robust quarter for active equities in both retail and institutional. We posted annualized active organic growth of 5% net of X redemptions, while expanding our margins and delivering double-digit earnings and distribution growth to unit holders. The third quarter saw a continued broad-based recovery in global financial markets across both equities and fixed income. Our retail fixed income funds outperformed peers in the third quarter as credit sectors improved, while our equities platform retained good long-term performance. Let's get into the specifics, starting with a firm-wide overview on slide four. Gross sales of $29.3 billion were up $3 billion, or 11% from a year ago, moderating sequentially from second quarter's near record levels. Firm-wide net inflows were $5.3 billion, excluding $2.2 billion of previously disclosed low-fee acts of redemptions. Active net inflows of $7.3 billion, excluding acts of redemptions, represented a 5% annualized organic growth rate. Quarter-end assets under management of $631 billion increased 6% year-over-year and 5% from the prior quarter. An average AUM of $624 billion increased 6% year-over-year and 8% sequentially. Slide five shows our quarterly flow trend by channel. Firm-wide net inflows reflected growth in each channel driven by strength and institutional. In retail, we generated net inflows of $700 million led by continued strength in active equities. which grew by 8% organically, and munis, which grew at 12% organically, more than offsetting the effect of moderating taxable fixed income sales. As shown in the bottom left chart, institutional gross sales remained strong at $8.3 billion. Excluding the acts of redemptions, we generated net inflows of $4.3 billion, balanced across both active equities and active fixed incomes. In private wealth, gross sales increased 52% year over year and were up slightly sequentially. And we generated net inflows of $300 million for the quarter. Now let's turn to investment performance beginning on slide six. Our fixed income funds benefited from multi-sector credit positioning in a risk-on third quarter. For the quarter, our retail investments fixed income funds ranked in the 39th percentile of the Morningstar peer group. This follows the second quarter when we placed in the top quartile. In the third quarter, five of our top 10 retail taxable fixed income funds by AUM placed in the top quartile of their Morningstar peer group, and eight out of 10 were in the top half. And 10 of the top Eight out of the top ten retail municipal portfolios by AUM were in the top quartile, with six in the top decile. Our strategies benefited from continued recovery in credit sectors, which outperformed governments. U.S. high yield was up nearly 5%, European high yield up 3%, emerging markets up 2%, and global corporates up 2%. all posting healthy excess returns versus governments, which returned two-tenths of a percent. In fixed income, 49% of assets outperformed over the three-year period and 63% outperformed over the five-year period. On a one-year basis, the percentage of assets outperforming declined to 24%, as our large American income fund slightly underperformed the diverse peer group. It's important to note that, as mentioned, we outperformed the peer group in both Q2 and Q3. Since April 1, global high yield is in the top quartile, 24th percentile, and the American income is in the 34th percentile. Key industry participants have noted our team's ability to bounce back from short-term underperformance in the past. We remain confident in the proven track records of our people, process, and approach. In equities, long-term performance remains strong as 67% of assets outperformed over both the three- and five-year period. In the most recent one-year period, 43% of assets outperformed. One-year performance was impacted by our large cap growth portfolio, which, while still outperforming most peers over the one-year period at the 42nd percentile of the Morningstar peer group, fell below the Russell 1000 growth institutional benchmark, which continues to be driven by a narrow group of mega cap tech stocks. For perspective, before the tech sell-off in September, These five tech stocks were up 56% year-to-date through August, driving all of the S&P 500's year-to-date gains at that point and representing a record 39% of Brussels 1000 growth weighting. While our large cap and core growth equity strategies own these names, prudent risk management suggests lower weightings than their high benchmark levels. Fully 25% of the active risk in these five-megatax stocks is the momentum factor, which we're adverse to chasing. As market leadership broadens beyond technology, as it did in September, these strategies should be well-positioned versus relatively concentrated benchmarks. Slides 7 and 8 provide more insight on retail fixed income and equity investment performance. In slide seven, we show the majority of our offshore funds retaining good performance. As mentioned, both global high yield and American income have outperformed their peer group since the March downturn. American income retains top quartile performance for the three- and five-year periods driven by the fund's time-tested barbell allocation to rates and credit. Among U.S. taxable funds, as risk assets rallied continue, we have taken some gains, letting risk positions drift lower. In high yield, structured credit contributed significantly over the quarter, as did security selection. Our municipal funds continue to show strong performance across the board, then including from an overweight to mid-grade muni credit and favorable sector selection. Moving to equities on slide eight, Among offshore offerings, a number of strategies are in the top quartile for the three and five years. Our sustainable strategies have benefited from investing in secular growth companies that maintain high-quality attributes, including strong ESG ratings, high returns on capital, and clean balance sheets. These should continue to command a premium in today's uncertain environments. In the U.S., our growth teams have driven strong long-term performance by investing in companies with proven profitability that can self-fund their reinvestment to drive future growth. These high-quality companies are able to successfully manage through any environment and come out the other side in a better competitive position. In a market saddled by diverse hazards, our fundamental research teams are focused on broadening our portfolios, sources of risk and return to build equity portfolios with short-term shock absorbers and long-term staying power. Moving on to our client channels, beginning with retail on slide nine. Gross sales of $17.5 billion normalized following very strong prior year comparisons. We generated net inflows of $700 million, the eighth in the last nine quarters of positive net flows. The left-hand chart shows that our retail channel has benefited from improved balance and asset classes brought by consistent active equity inflows. That was our 14th straight quarter of active equity organic growth delivered against a challenging industry backdrop. Once again, AB ranked in the top 3% for U.S. equity fund flows in the quarter. placing 14th out of 450 managers. Inflows were led by U.S. large cap growth and sustainable global thematic. Our scaled retail offerings remain diverse, with 55 products of more than a billion dollars balanced across asset classes. As shown in the bottom right, a number of these have excellent net flow rankings. Now I'll discuss institutional on slide 10. Gross sales of $8.3 billion were nearly triple that of our prior quarter and were down slightly sequentially. We generated $4.3 billion of net inflows, excluding the low-fee acts of redemption. Active equity sales have accelerated to greater than $2 billion in six of the last seven quarters. In the third quarter, active equity net inflows of $1.6 billion represented a 14% annualized organic growth rate. This was the 10th of the last 11 quarters in which we have grown in active equities organically. Equity flows were led by international small cap, global core, and concentrated growth. Our institutional pipeline was $16.9 billion at quarter end, with $4.9 billion in pipeline additions in the quarter. $7.1 billion was funded in the quarter, including a $2.6 billion lifetime income strategies mandate. Notable pipeline additions include $4 billion of customized retirement strategies, $450 million in global core equity, and $250 million in concentrated Australian equity. Taking a step back, we've been explicit in our goal to offer investment strategies that deliver idiosyncratic returns that can't be replicated by factors or other betas, and that has resonated with our clients. But that alone isn't enough. Additionally, we've cultivated our network of consultants and asset owners. In equities, we've received five consultant upgrades this quarter, two for select long short in addition to global core, Eurozone equity, and global sustainable. Additionally, we have seen a substantial increase in client requests related to ESG, including an increase in RFPs for our ESG-focused portfolios with purpose. We now manage nearly $15 billion in these strategies with AUM up 50% year-to-date. Four of these funds were named as finalists by Investment Week in their 2020 Sustainable and ESG Investment Awards, including Sustainable Global Thematic, Responsible U.S. Equities, Green Managed Volatility Equities, and Sustainable Thematic Global Credit. We're also pleased to have recently launched a commercial real estate debt business in Europe, including a planned sizable commitment from our partner, Equitable. This is part of our stated strategy to expand our institutional alternatives platform to new markets while leveraging our strong relationship with Equitable as they seek yield-enhancing investment alternatives. Moving to private wealth management on slide 11. Gross sales of $3.5 billion increased by 52% year over year and were up 3% sequentially. Redemptions improved as outflows stabilized. We generated net inflows of $300 million in the quarter. Clients still remain relatively risk-averse, though it was hardening to see some signs of thawing in business transactions that are a precursor to client funding. Our focused client engagement efforts continue to emphasize virtual events and we're seeing traction on online client engagement with unique downloads up 88% across Bernstein Insight Network. The Muni impact portfolios continue to grow, now 950 million in AUM, while ESG strategies have grown to 3.7 billion. Our proprietary separately managed equity loss harvesting portfolio continues to scale, with AUM up 34% this quarter. I'll finish our business overview with the sell side on slide 12. Bernstein Research experienced slowing institutional trading volumes this quarter, with revenues down 3% year-over-year and down 13% sequentially. A significant share of year-over-year U.S. market volume growth was due to higher retail trading, which Bernstein does not participate in. We were pleased that our Asian business, including India, continues to post strong growth, validating our earlier investments. Our European Strategic Decisions Conference had over 100 CEOs and senior executives virtually presenting and 1,250 institutional investors from well over 400 buy-side firms. We initiated on four sectors this quarter and published an integrated ESG research report across 50 global sectors, leveraging our bottoms-up sector expertise to identify critical ESG issues for the stocks. We also experienced strong flow and readership of pre-IPO research enabled by our conflict-free research platforms. Highlights of some of our third quarter accomplishments are shown on slide 13. Sixty-seven percent of our equity assets are outperforming over three years, including 11 top quartile funds across multiple styles, capitalization, and geographic categories. Our differentiated return streams continue to resonate with clients as we drove net inflows across all three client channels in the quarter. This was led by active equity growth across retail and institutional, which grew organically by 8% and 14% respectively. Our institutional pipeline remains very strong, with over 50% of the fee base comprised of alternatives. We continue to grow our alternatives and multi-asset offerings as evidenced by seeding six multi-asset strategies in 2020. Importantly, our results show strong expense management, which is benefiting our bottom line as we grew earnings and distributions by double digits this quarter. Finally, as announced earlier this quarter, our CFO, John Wiesensee, has decided to retire from AB effective in early 2021. John's been a strong partner to me in recent years and to AB over his nine-year tenure, and we're grateful for his leadership. John is currently transitioning his responsibilities to Ali Dabaj, head of finances strategy, who will assume the CFO role in February. Ali will walk us through the financials this quarter.