• Level 1 – Quoted prices in active markets are available for identical assets or liabilities as of the reported date.
Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.
During the ninethree months ended September 30, 2017,March 31, 2023 there were no transfers between Level 12 and Level 23 securities.
The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as private equity and trading equity securities, is as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | (in thousands) |
Balance as of beginning of period | | | | | | $ | 129 | | | $ | 126 | |
Purchases | | | | | | — | | | — | |
Sales | | | | | | — | | | — | |
Realized gains (losses), net | | | | | | — | | | — | |
Unrealized gains (losses), net | | | | | | 41 | | | (7) | |
Balance as of end of period | | | | | | $ | 170 | | | $ | 119 | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| | | | | | | | |
Balance as of beginning of period | | $ | 5,028 |
| | $ | 4,938 |
| | $ | 5,023 |
| | $ | 16,148 |
|
Reclassification (see below) | | — |
| | — |
| | — |
| | (9,532 | ) |
Purchases | | — |
| | — |
| | — |
| | — |
|
Sales | | — |
| | — |
| | — |
| | — |
|
Realized gains (losses), net | | — |
| | — |
| | — |
| | — |
|
Unrealized gains (losses), net | | (3,958 | ) | | 2 |
| | (3,953 | ) | | (1,676 | ) |
Balance as of end of period | | $ | 1,070 |
| | $ | 4,940 |
| | $ | 1,070 |
| | $ | 4,940 |
|
Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. We reclassified the investments of our consolidated private equity fund from investments to investments of consolidated company-sponsored investment funds on our condensed consolidated statement of financial condition (see Note 13, Consolidated Company-Sponsored Investment Funds). Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the condensed consolidated statements of income.
As of September 30, 2017 and December 31, 2016, we have an investment in a private equity fund focused exclusively on the energy sector (fair value of $1.0 million and $4.9 million, respectively) that is classified as Level 3.This investment's valuation is based on a market approach, considering recent transactions in the fund and the industry.
We acquired Ramius Alternative Solutions LLC in 2016, CPH Capital Fondsmaeglerselskab A/S in 2014 and SunAmerica's alternative investment group in 2010, all of which includedOur acquisitions may include contingent consideration arrangements as part of the purchase price. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
| | | | | (in thousands) |
Balance as of beginning of period | | | | | | $ | 247,309 | | | $ | 38,260 | |
| | | | | | | | |
Accretion | | | | | | 2,443 | | | 838 | |
| | | | | | | | |
Payments | | | | | | (792) | | | — | |
Held for sale reclassification | | | | | | (775) | | | — | |
Balance as of end of period | | | | | | $ | 248,185 | | | $ | 39,098 | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| | | | | | | | |
Balance as of beginning of period | | $ | 16,777 |
| | $ | 30,861 |
| | $ | 17,589 |
| | $ | 31,399 |
|
Additions | | — |
| | 11,893 |
| | — |
| | 11,893 |
|
Accretion | | 53 |
| | 354 |
| | 408 |
| | 1,060 |
|
Changes in estimates | | (193 | ) | | (21,483 | ) | | (193 | ) | | (21,483 | ) |
Payments | | (4,534 | ) | | (3,608 | ) | | (5,701 | ) | | (4,852 | ) |
Balance as of end of period | | $ | 12,103 |
| | $ | 18,017 |
| | $ | 12,103 |
| | $ | 18,017 |
|
During the third quarter of 2017, we made the final contingent consideration payment relating to our 2014 acquisition and recorded a change in estimate and wrote off the remaining contingent consideration payable relating to our 2010 acquisition. As of September 30, 2017, one acquisition-related contingent consideration liability of $12.1 million remains relating to our 2016 acquisition, which was valued using a revenue growth rate of 31% and a discount rate ranging from 1.4% to 2.3%.
As of DecemberMarch 31, 2016,2023, the three acquisition-related contingent consideration liabilities recorded have a combined fair value of $17.6 million and are valued using a projected AUM weighted average growth rate of 18% for one acquisition, andexpected revenue growth rates ranged from 2.0% to 83.9%, with a weighted average of 10.3%, calculated using cumulative revenues and range of revenue growth rates. The discount rates rangingrange from 4%1.9% to 31%10.4%, with a weighted average of 4.6%, calculated using total contingent liabilities and 1.4%range of discount rates. As of March 31, 2022, the expected revenue growth rates ranged from 2.0% to 6.4%83.9%, respectively, for the three acquisitions.with a weighted average of 7.9%, calculated using cumulative revenues and a range of revenue growth rates (excluding revenue growth from additional AUM contributed from existing clients). The discount rates ranged from 1.9% to 10.4%, with a weighted average of 7.0%, calculated using total contingent liabilities and range of discount rates.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We did not have any material assets or liabilities that were measured at fair value for impairment on a nonrecurring basis during the ninethree months ended September 30, 2017March 31, 2023 or during the year ended December 31, 2016.2022.
| |
12.
| Commitments and Contingencies
|
12. Commitments and Contingencies
Legal Proceedings
With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because litigation is subject to inherent uncertainties, particularly when
plaintiffs allege substantial or indeterminate damages. Such is also the case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose that we are unable to predict the outcome or estimate a possible loss or range of loss.
On December 14, 2022, four individual participants in the Profit Sharing Plan for Employees of AllianceBernstein L.P., (the "Plan") filed a class action complaint (the “Complaint”) in the U.S. District Court for the Southern District of New York against AB, current and former members of the Compensation Committee, and the Investment and Administrative Committees under the Plan. Plaintiffs, who seek to represent a class of all participants in the Plan from December 14, 2016 to the present, allege that defendants violated their fiduciary duties and engaged in prohibited transactions under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), by including proprietary collective investment trusts as investment options offered under the Plan. The Complaint seeks unspecified damages, disgorgement and other equitable relief. AB is prepared to defend itself vigorously against these claims. While the ultimate outcome of this matter is currently not determinable given the matter remains in its early stages, we do not believe this litigation will have a material adverse effect on our results of operations, financial condition or liquidity.
AB may be involved in various other matters, including regulatory inquiries, administrative proceedings and litigation, some of which may allege significant damages. It is reasonably possible that we could incur losses pertaining to these other matters, but currently we cannot currently estimate any such losses.
Management, after consultation with legal counsel, currently believes that the outcome of any other individual matter that is pending or threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or liquidity. However, any inquiry, proceeding or litigation has an element of uncertainty; management cannot determine whether further developments relating to any other individual matter that is pending or threatened, or all of them combined, will have a material adverse effect on our results of operation, financial condition or liquidity in any future reporting period.
Other
AllianceBernstein L.P., in its capacity as a general partner, committed to funding $52.3 million in two Real Estate Funds. As of March 31, 2023, we had funded $44.1 million of these commitments.
13. Leases
We lease office space, furniture and office equipment under various operating and financing leases. Our current leases have remaining lease terms of one year to 15 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Since 2010, we have sub-leased over one million square feet of office space.
Leases included in the condensed consolidated statement of financial condition as of March 31, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | |
| Classification | | March 31, 2023 | | December 31, 2022 |
| | | (in thousands) |
Operating Leases | | | | | |
Operating lease right-of-use assets | Right-of-use assets | | $ | 344,293 | | | $ | 360,092 | |
Operating lease liabilities | Lease liabilities | | 398,686 | | | 415,539 | |
| | | | | |
Finance Leases | | | | | |
Property and equipment, gross | Right-of-use assets | | 18,701 | | | 18,116 | |
Amortization of right-of-use assets | Right-of-use assets | | (7,386) | | | (6,310) | |
Property and equipment, net | | | 11,315 | | | 11,806 | |
Finance lease liabilities | Lease liabilities | | 11,063 | | | 11,940 | |
The components of lease expense included in the condensed consolidated statement of income as of March 31, 2023 and March 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, |
| Classification | | | | | | 2023 | | 2022 |
| | | | | | (in thousands) |
Operating lease cost | General and administrative | | | | | | $ | 23,164 | | | $ | 24,525 | |
Financing lease cost: | | | | | | | | | |
Amortization of right-of-use assets | General and administrative | | | | | | 1,076 | | | 740 | |
Interest on lease liabilities | Interest expense | | | | | | 65 | | | 37 | |
Total finance lease cost | | | | | | | 1,141 | | | 777 | |
Variable lease cost (1) | General and administrative | | | | | | 8,867 | | | 10,687 | |
Sublease income | General and administrative | | | | | | (8,260) | | | (8,561) | |
Net lease cost | | | | | | | $ | 24,912 | | | $ | 27,428 | |
(1) Variable lease expense includes operating expenses, real estate taxes and employee parking. 13.The sub-lease income represents all revenues received from sub-tenants. It is primarily fixed base rental payments combined with variable reimbursements such as operating expenses, real estate taxes and employee parking. The vast majority of sub-tenant income is derived from our New York metro sub-tenant agreements. Sub-tenant income related to base rent is recorded on a straight-line basis.
Maturities of lease liabilities were as follows:
| | | | | | | | | | | | | | | | | |
| Operating Leases | | Financing Leases | | Total |
Year ending December 31, | (in thousands) |
2023 (excluding the three months ended March 31, 2023) | $ | 74,188 | | | $ | 2,853 | | | $ | 77,041 | |
2024 | 105,833 | | | 3,468 | | | 109,301 | |
2025 | 38,128 | | | 3,039 | | | 41,167 | |
2026 | 36,546 | | | 1,810 | | | 38,356 | |
2027 | 33,578 | | | 324 | | | 33,902 | |
Thereafter | 147,132 | | | — | | | 147,132 | |
Total lease payments | 435,405 | | | 11,494 | | | 446,899 | |
Less interest | (36,719) | | | (431) | | | |
Present value of lease liabilities | $ | 398,686 | | | $ | 11,063 | | | |
We have signed a lease that commences in 2024, relating to approximately 166,000 square feet of space in New York City. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 20-year lease term is approximately $393.0 million.
| | | | | |
Lease term and discount rate: | |
Weighted average remaining lease term (years): | |
Operating leases | 7.28 |
Finance leases | 3.23 |
Weighted average discount rate: | |
Operating leases | 2.70 | % |
Finance leases | 2.29 | % |
Supplemental non-cash activity related to leases was as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| (in thousands) |
| | | |
| | | |
| | | |
| | | |
Right-of-use assets obtained in exchange for lease obligations(1): | | | |
Operating leases | 3,390 | | | 7,719 | |
Finance leases | 585 | | | 2,569 | |
(1) Represents non-cash activity and, accordingly, is not reflected in the condensed consolidated statement of cash flows.
14. Consolidated Company-Sponsored Investment Funds
We regularly provide seed capital to new company-sponsored investment funds. As such, we may consolidate or de-consolidate a variety of company-sponsored investment funds each quarter. Due to the similarity of risks related to our involvement with each company-sponsored investment fund, disclosures required under the VIE model are aggregated, such as disclosures regarding the carrying amount and classification of assets.
We are not required to provide financial support to company-sponsored investment funds, and only the assets of such funds are available to settle each fund's own liabilities. Our exposure to loss in regard toregarding consolidated company-sponsored investment funds is limited to our investment in, and our management fee earned from, such funds. Equity and debt holders of such funds have no recourse to AB’s assets or to the general credit of AB.
The balances of consolidated VIEs and VOEs included in our condensed consolidated statements of financial condition were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | (in thousands) |
| | VIEs | | VOEs | | Total | | VIEs | | VOEs | | Total |
Cash and cash equivalents | | $ | 20,417 | | | $ | — | | | $ | 20,417 | | | $ | 19,751 | | | $ | — | | | $ | 19,751 | |
Investments | | 526,530 | | | 16,809 | | | 543,339 | | | 516,536 | | | — | | | 516,536 | |
Other assets | | 30,556 | | | 239 | | | 30,795 | | | 44,424 | | | — | | | 44,424 | |
Total assets | | $ | 577,503 | | | $ | 17,048 | | | $ | 594,551 | | | $ | 580,711 | | | $ | — | | | $ | 580,711 | |
| | | | | | | | | | | | |
Liabilities | | $ | 43,586 | | | $ | 61 | | | $ | 43,647 | | | $ | 55,529 | | | $ | — | | | $ | 55,529 | |
Redeemable non-controlling interest | | 374,736 | | | 1,554 | | | 376,290 | | | 368,656 | | | — | | | 368,656 | |
Partners' capital attributable to AB Unitholders | | 159,181 | | | 15,433 | | | 174,614 | | | 156,526 | | | — | | | 156,526 | |
Total liabilities, redeemable non-controlling interest and partners' capital | | $ | 577,503 | | | $ | 17,048 | | | $ | 594,551 | | | $ | 580,711 | | | $ | — | | | $ | 580,711 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (in thousands) |
| | | | | | | | | | | | |
| | VIEs | | VOEs | | Total | | VIEs | | VOEs | | Total |
Cash and cash equivalents | | $ | 445,176 |
| | $ | 74 |
| | $ | 445,250 |
| | $ | 337,525 |
| | $ | — |
| | $ | 337,525 |
|
Investments | | 770,953 |
| | 28,982 |
| | 799,935 |
| | 550,850 |
| | 23,226 |
| | 574,076 |
|
Other assets | | 5,850 |
| | 605 |
| | 6,455 |
| | 44,570 |
| | — |
| | 44,570 |
|
Total assets | | $ | 1,221,979 |
| | $ | 29,661 |
| | $ | 1,251,640 |
| | $ | 932,945 |
| | $ | 23,226 |
| | $ | 956,171 |
|
| | | | | | | | | | | | |
Liabilities | | $ | 591,231 |
| | $ | 2,569 |
| | $ | 593,800 |
| | $ | 292,800 |
| | $ | — |
| | $ | 292,800 |
|
Redeemable non-controlling interest | | 415,761 |
| | 493 |
| | 416,254 |
| | 384,294 |
| | — |
| | 384,294 |
|
Partners' capital attributable to AB Unitholders | | 214,146 |
| | 26,599 |
| | 240,745 |
| | 221,229 |
| | 23,226 |
| | 244,455 |
|
Non-redeemable non-controlling interests in consolidated entities | | 841 |
| | — |
| | 841 |
| | 34,622 |
| | — |
| | 34,622 |
|
Total liabilities, redeemable non-controlling interest and partners' capital | | $ | 1,221,979 |
| | $ | 29,661 |
| | $ | 1,251,640 |
| | $ | 932,945 |
| | $ | 23,226 |
| | $ | 956,171 |
|
| | | | | | | | | | | | |
During three-month period ended March 31, 2023, we deconsolidated one fund in which we had a seed investment of approximately $1.7 million as of December 31, 2022, due to no longer having a controlling financial interest.
Fair Value
Cash and cash equivalents include cash on hand, demand deposits, overnight commercial paper and highly liquid investments with original maturities of three months or less. Due to the short-term nature of these instruments, the recorded value has been determined to approximate fair value.
Valuation of consolidated company-sponsored investment funds' financial instruments by pricing observability levels as of September 30, 2017March 31, 2023 and December 31, 20162022 was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | | | Total |
March 31, 2023: | | | | | | | | | |
Investments - VIEs | $ | 125,788 | | | $ | 400,742 | | | $ | — | | | | | $ | 526,530 | |
Investments - VOEs | 16,809 | | | — | | | — | | | | | 16,809 | |
Derivatives - VIEs | 1,211 | | | 2,459 | | | — | | | | | 3,670 | |
| | | | | | | | | |
Total assets measured at fair value | $ | 143,808 | | | $ | 403,201 | | | $ | — | | | | | $ | 547,009 | |
| | | | | | | | | |
Derivatives - VIEs | 14,830 | | | 1,481 | | | — | | | | | 16,311 | |
| | | | | | | | | |
Total liabilities measured at fair value | $ | 14,830 | | | $ | 1,481 | | | $ | — | | | | | $ | 16,311 | |
| | | | | | | | | |
December 31, 2022: | | | | | | | | | |
Investments - VIEs | $ | 129,706 | | | $ | 386,830 | | | $ | — | | | | | $ | 516,536 | |
| | | | | | | | | |
Derivatives - VIEs | 1,529 | | | 6,023 | | | — | | | | | 7,552 | |
| | | | | | | | | |
Total assets measured at fair value | $ | 131,235 | | | $ | 392,853 | | | $ | — | | | | | $ | 524,088 | |
| | | | | | | | | |
| | | | | | | | | |
Derivatives - VIEs | $ | 14,932 | | | $ | 6,608 | | | $ | — | | | | | $ | 21,540 | |
| | | | | | | | | |
Total liabilities measured at fair value | $ | 14,932 | | | $ | 6,608 | | | $ | — | | | | | $ | 21,540 | |
|
| | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | NAV Expedient | | Total |
September 30, 2017: | | | | | | | | | |
Investments - VIEs | $ | 663,348 |
| | $ | 105,627 |
| | $ | 1,897 |
| | $ | 81 |
| | $ | 770,953 |
|
Investments - VOEs | 6,830 |
| | 22,031 |
| | 121 |
| | — |
| | 28,982 |
|
Derivatives - VIEs | 68 |
| | 1,668 |
| | — |
| | — |
| | 1,736 |
|
Derivatives - VOEs | 17 |
| | 63 |
| | — |
| | — |
| | 80 |
|
Total assets measured at fair value | $ | 670,263 |
| | $ | 129,389 |
| | $ | 2,018 |
| | $ | 81 |
| | $ | 801,751 |
|
| | | | | | | | | |
Short equities - VIEs | $ | 583,491 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 583,491 |
|
Derivatives - VIEs | 104 |
| | 2,564 |
| | — |
| | — |
| | 2,668 |
|
Derivatives - VOEs | 7 |
| | 128 |
| | — |
| | — |
| | 135 |
|
Total liabilities measured at fair value | $ | 583,602 |
| | $ | 2,692 |
| | $ | — |
| | $ | — |
| | $ | 586,294 |
|
| | | | | | | | | |
December 31, 2016: | | | | | | | | | |
Investments - VIEs | $ | 341,830 |
| | $ | 203,197 |
| | $ | 5,741 |
| | $ | 82 |
| | $ | 550,850 |
|
Investments - VOEs | 10,188 |
| | 12,061 |
| | — |
| | 977 |
| | 23,226 |
|
Derivatives - VIEs | 58 |
| | 1,739 |
| | — |
| | — |
| | 1,797 |
|
Total assets measured at fair value | $ | 352,076 |
| | $ | 216,997 |
| | $ | 5,741 |
| | $ | 1,059 |
| | $ | 575,873 |
|
| | | | | | | | | |
Short equities - VIEs | $ | 248,419 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 248,419 |
|
Derivatives - VIEs | 48 |
| | 2,033 |
| | — |
| | — |
| | 2,081 |
|
Total liabilities measured at fair value | $ | 248,467 |
| | $ | 2,033 |
| | $ | — |
| | $ | — |
| | $ | 250,500 |
|
See Note 11 for a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
The change in carrying value associated with Level 3 financial instruments carried at fair value within consolidated company-sponsored investment funds was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | (in thousands) |
| | | | | | | | |
Balance as of beginning of period | | | | | | $ | — | | | $ | 3,357 | |
Deconsolidated funds | | | | | | — | | | (3,351) | |
Transfers (out) | | | | | | — | | | (6) | |
Purchases | | | | | | — | | | 248 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Balance as of end of period | | | | | | $ | — | | | $ | 248 | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| | | | | | | | |
Balance as of beginning of period | | $ | 2,797 |
| | $ | 13,108 |
| | $ | 5,741 |
| | $ | — |
|
Impact of adoption of ASU 2015-02 | | — |
| | — |
| | — |
| | 14,740 |
|
Deconsolidated funds | | — |
| | (1,403 | ) | | (6,697 | ) | | (1,403 | ) |
Transfers (out) in | | (35 | ) | | (23,566 | ) | | 378 |
| | (24,881 | ) |
Purchases | | 346 |
| | 640 |
| | 5,358 |
| | 996 |
|
Sales | | (1,148 | ) | | (278 | ) | | (3,045 | ) | | (786 | ) |
Realized gains (losses), net | | 5 |
| | 15 |
| | 1 |
| | (24 | ) |
Unrealized gains (losses), net | | 52 |
| | 14,243 |
| | 269 |
| | 14,120 |
|
Accrued discounts | | 1 |
| | — |
| | 13 |
| | (3 | ) |
Balance as of end of period | | $ | 2,018 |
| | $ | 2,759 |
| | $ | 2,018 |
| | $ | 2,759 |
|
The Level 3 securities primarily consist of corporate bonds that are vendor priced with no ratings available, bank loans, non-agency collateralized mortgage obligations and asset-backed securities.
Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the condensed consolidated statements of income.
Derivative Instruments
As of September 30, 2017March 31, 2023 and December 31, 2016,2022, the VIEs held $14.1$12.6 million and $2.9$14.0 million (net), respectively, of futures, forwards and swaps within their portfolios (including $15.0 million and $3.2 million, respectively, of derivatives included in their investments balance on the condensed consolidated statements of financial condition).portfolios. For the three and nine months ended September 30, 2017,March 31, 2023 and March 31, 2022, we recognized $3.8$1.7 million and $18.8 million, respectively, of gains on these derivative positions. For the three and nine months ended September 30, 2016, we recognized $2.0 million of losses and $0.7$0.5 million of gains, respectively, on these derivative positions.derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income.
As of September 30, 2017March 31, 2023 and December 31, 2016,2022, the VIEs held $0.2$1.7 million and $0.5$2.7 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in our condensed consolidated statements of financial condition.
As of September 30, 2017March 31, 2023 and December 31, 2016,2022, the VIEs delivered $4.6 million and $3.3$5.4 million, respectively, of cash collateral into brokerage accounts. The VIEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our condensed consolidated statements of financial condition.
As of September 30, 2017,March 31, 2023, the VOEs held no futures, forwards, options or swaps within their portfolios.
As of March 31, 2023, the VOEs held no cash collateral and investment gains (losses) are not considered material and, accordingly,payable to trade counterparties.
As of March 31, 2023, the VOEs delivered no further discloses are necessary.
cash collateral in brokerage accounts.
Offsetting Assets and Liabilities
Offsetting of derivative assets of consolidated company-sponsored investment funds as of September 30, 2017March 31, 2023 and December 31, 20162022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Statement of Financial Condition | | Net Amounts of Assets Presented in the Statement of Financial Condition | | Financial Instruments Collateral | | Cash Collateral Received | | Net Amount |
| (in thousands) |
March 31, 2023: | | | | | | | | | | | |
Derivatives - VIEs | $ | 3,670 | | | $ | — | | | $ | 3,670 | | | $ | — | | | $ | (1,689) | | | $ | 1,981 | |
| | | | | | | | | | | |
December 31, 2022: | | | | | | | | | | | |
Derivatives - VIEs | $ | 7,552 | | | $ | — | | | $ | 7,552 | | | $ | — | | | $ | (2,731) | | | $ | 4,821 | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Statement of Financial Condition | | Net Amounts of Assets Presented in the Statement of Financial Condition | | Financial Instruments | | Cash Collateral Received | | Net Amount |
| (in thousands) |
September 30, 2017: | | | | | | | | | | | |
Derivatives - VIEs | $ | 16,767 |
| | $ | — |
| | $ | 16,767 |
| | $ | — |
| | $ | (186 | ) | | $ | 16,581 |
|
Derivatives - VOEs | $ | 80 |
| | $ | — |
| | $ | 80 |
| | $ | — |
| | $ | (12 | ) | | $ | 68 |
|
December 31, 2016: | |
| | |
| | | | |
| | |
| | |
|
Derivatives - VIEs | $ | 4,997 |
| | $ | — |
| | $ | 4,997 |
| | $ | — |
| | $ | (461 | ) | | $ | 4,536 |
|
Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of September 30, 2017March 31, 2023 and December 31, 20162022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Statement of Financial Condition | | Net Amounts of Liabilities Presented in the Statement of Financial Condition | | Financial Instruments Collateral | | Cash Collateral Pledged | | Net Amount |
| (in thousands) |
March 31, 2023: | | | | | | | | | | | |
Derivatives - VIEs | $ | 16,311 | | | $ | — | | | $ | 16,311 | | | $ | — | | | $ | (4,634) | | | $ | 11,677 | |
| | | | | | | | | | | |
December 31, 2022: | | | | | | | | | | | |
Derivatives - VIEs | $ | 21,540 | | | $ | — | | | $ | 21,540 | | | $ | — | | | $ | (5,444) | | | $ | 16,096 | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Statement of Financial Condition | | Net Amounts of Liabilities Presented in the Statement of Financial Condition | | Financial Instruments | | Cash Collateral Pledged | | Net Amount |
| (in thousands) |
September 30, 2017: | | | | | | | | | | | |
Derivatives - VIEs | $ | 2,668 |
| | $ | — |
| | $ | 2,668 |
| | $ | — |
| | $ | (2,668 | ) | | $ | — |
|
Derivatives - VOEs | $ | 135 |
| | $ | — |
| | $ | 135 |
| | $ | — |
| | $ | (34 | ) | | $ | 101 |
|
December 31, 2016: | |
| | |
| | | | |
| | |
| | |
|
Derivatives - VIEs | $ | 2,081 |
| | $ | — |
| | $ | 2,081 |
| | $ | — |
| | $ | (2,081 | ) | | $ | — |
|
Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty.
Non-Consolidated VIEs
As of September 30, 2017,March 31, 2023, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately $52.1$49.0 billion, and our maximum risk of loss is our investment of $7.4$8.8 million in these VIEs and our advisory fee receivables from these VIEs which are not material.is $57.5 million. As of December 31, 2022, the net assets of company-sponsored investment products that were non-consolidated VIEs was approximately $46.4 billion; our maximum risk of loss was our investment of $5.7 million in these VIEs and our advisory fees receivable from these VIEs was $54.2 million.
15. Units Outstanding
Changes in AB Units outstanding during the nine-monththree-month period ended September 30, 2017March 31, 2023 were as follows:
|
| | | | |
| |
Outstanding as of December 31, 20162022 | 268,893,534285,979,913 |
|
Options exercised | 1,039,632 |
|
Units issued | 1,944,31094,258 |
|
Units retired(1) | (6,053,419(419,736) | ) |
BalanceOutstanding as of September 30, 2017March 31, 2023 | 265,824,057285,654,435 |
|
(1) Includes 43,600 During the three-months ended March 31, 2023, we purchased 600 AB Units purchased in private transactions and retired them.
16. Debt
Credit Facility
AB has an $800.0 million committed, unsecured senior revolving credit facility (the “Credit Facility”) with a group of commercial banks and other lenders, which matures on October 13, 2026. The Credit Facility was amended and restated on February 9, 2023, to reflect the transition from US LIBOR, which will be retired as of June 30, 2023, to the term Secured Overnight Financial Rate or "SOFR". Other than this immaterial change, there were no other significant changes included in the amendment. The Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $200.0 million; any such increase is subject to the consent of the affected lenders. The Credit Facility is available for AB and Sanford C. Bernstein & Co., LLC ("SCB LLC") business purposes, including the support of AB’s commercial paper program. Both AB and SCB LLC can draw directly under the Credit Facility and management may draw on the Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Credit Facility.
The Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of March 31, 2023, we were in compliance with these covenants. The Credit Facility also includes customary events of default (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the Credit Facility would automatically become immediately due and payable, and the lender’s commitments automatically would terminate.
Amounts under the Credit Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. Voluntary prepayments and commitment reductions requested by us are permitted at any time without a fee (other than customary breakage costs relating to the prepayment of any drawn loans) upon proper notice and subject to a minimum dollar requirement. Borrowings under the Credit Facility bear interest at a rate per annum, which will be, at our option, a rate equal to an applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indices: SOFR; a Prime rate; or the Federal Funds rate.
As of March 31, 2023 and December 31, 2022, we had no amounts outstanding under the Credit Facility. Furthermore, during the first ninethree months of 2017.2023 and the full year 2022, we did not draw upon the Credit Facility.
EQH Facility
AB also has a $900.0 million committed, unsecured senior credit facility (“EQH Facility”) with EQH. The EQH Facility matures on November 4, 2024 and is available for AB's general business purposes. Borrowings under the EQH Facility generally bear interest at a rate per annum based on prevailing overnight commercial paper rates.
The EQH Facility contains affirmative, negative and financial covenants which are substantially similar to those in AB’s committed bank facilities. As of March 31, 2023, we were in compliance with these covenants. The EQH Facility also includes customary events of default substantially similar to those in AB’s committed bank facilities, including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or the lender’s commitment may be terminated.
Amounts under the EQH Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. AB or EQH may reduce or terminate the commitment at any time without penalty upon proper notice. EQH also may terminate the facility immediately upon a change of control of our general partner.
As of September 30, 2017both March 31, 2023 and December 31, 2016,2022, AB had $297.4$900.0 million outstanding under the EQH Facility, with interest rates of approximately 4.7% and 4.3%, respectively. Average daily borrowings on the EQH Facility for the first three months of 2023 and the full year 2022 were $804.1 million and $513.0$655.2 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 1.4%4.4% and 0.9%1.7%, respectively.
EQH Uncommitted Facility
In addition to the EQH Facility, AB has a $300.0 million uncommitted, unsecured senior credit facility (“EQH Uncommitted Facility”) with EQH. The EQH Uncommitted Facility matures on September 1, 2024 and is available for AB's general business purposes. Borrowings under the EQH Uncommitted Facility generally bear interest at a rate per annum based on prevailing overnight commercial paper rates. The EQH Uncommitted Facility contains affirmative, negative and financial covenants which are substantially similar to those in the EQH Facility. As of March 31, 2023 and December 31, 2022, we had $135.0 million and $90.0 million outstanding under the EQH Uncommitted Facility, with interest rates of approximately 4.7% and 4.3%, respectively. Average daily borrowing on the EQH Uncommitted Facility for the first three months of 2023 and the full year 2022 were $7.0 million and $0.7 million, respectively, with weighted average interest rates of approximately 4.5% and 4.3%, respectively.
Commercial Paper
As of March 31, 2023 and December 31, 2022, we had no commercial paper outstanding. The commercial paper is short term in nature, and as such, recorded value is estimated to approximate fair value (and considered a Level 2 security in the fair value hierarchy). Average daily borrowings of commercial paper during the first ninethree months of 20172023 and the full year 20162022 were $449.6$339.5 million and $422.9$189.9 million, respectively, with weighted average interest rates of approximately 1.3%4.7% and 0.6%1.5%, respectively.
Changes in capitalSCB Lines of Credit
SCB LLC currently has five uncommitted lines of credit with five financial institutions. Four of these lines of credit permit us to borrow up to an aggregate of approximately $315.0 million, with AB named as an additional borrower, while the other line has no stated limit. AB has agreed to guarantee the obligations on SCB LLC under these lines of credit. As of March 31, 2023 and December 31, 2022, SCB LLC had no outstanding balance on these lines of credit. Average daily borrowings during the nine-month period ended September 30, 2017first three months of 2023 and full year 2022 were as follows: $3.7 million and $1.4 million, respectively, with weighted average interest rates of approximately 7.7% and 3.7%, respectively.
|
| | | | | | | | | | | |
| Partners’ Capital Attributable to AB Unitholders | | Non-Controlling Interests In Consolidated Entities | | Total Capital |
| (in thousands) |
| | | | | |
Balance as of December 31, 2016 | $ | 4,032,017 |
| | $ | 36,172 |
| | $ | 4,068,189 |
|
Comprehensive income: | |
| | |
| | |
|
Net income | 415,994 |
| | 9,680 |
| | 425,674 |
|
Other comprehensive income, net of tax: | |
| | |
| | |
|
Unrealized gains on investments | 9 |
| | — |
| | 9 |
|
Foreign currency translation adjustments | 23,114 |
| | 977 |
| | 24,091 |
|
Changes in employee benefit related items | 755 |
| | — |
| | 755 |
|
Comprehensive income | 439,872 |
| | 10,657 |
| | 450,529 |
|
| | | | | |
Distributions to General Partner and unitholders | (489,049 | ) | | — |
| | (489,049 | ) |
Compensation-related transactions | (89,567 | ) | | — |
| | (89,567 | ) |
Capital contributions from affiliates | 79 |
| | — |
| | 79 |
|
Purchase of non-controlling interest | 172 |
| | (2,005 | ) | | (1,833 | ) |
Distributions to non-controlling interests of our consolidated venture capital fund | — |
| | (43,217 | ) | | (43,217 | ) |
Other | 1,257 |
| | — |
| | 1,257 |
|
Balance as of September 30, 2017 | $ | 3,894,781 |
| | $ | 1,607 |
| | $ | 3,896,388 |
|
17. Divestitures
Changes in capital during the nine-month period ended September 30, 2016 were as follows:
|
| | | | | | | | | | | |
| Partners’ Capital Attributable to AB Unitholders | | Non-Controlling Interests In Consolidated Entities | | Total Capital |
| (in thousands) |
| | | | | |
Balance as of December 31, 2015 | $ | 3,992,748 |
| | $ | 24,473 |
| | $ | 4,017,221 |
|
Comprehensive income: | |
| | |
| | |
|
Net income (loss) | 448,820 |
| | 5,689 |
| | 454,509 |
|
Other comprehensive income, net of tax: | |
| | |
| | |
|
Unrealized (losses) on investments | (2 | ) | | — |
| | (2 | ) |
Foreign currency translation adjustments | 521 |
| | 24 |
| | 545 |
|
Changes in employee benefit related items | 238 |
| | — |
| | 238 |
|
Comprehensive income | 449,577 |
| | 5,713 |
| | 455,290 |
|
| | | | | |
Distributions to General Partner and unitholders | (400,441 | ) | | — |
| | (400,441 | ) |
Compensation-related transactions | (119,877 | ) | | — |
| | (119,877 | ) |
Capital contributions from affiliates | 439 |
| | — |
| | 439 |
|
Other | 1,742 |
| | 363 |
| | 2,105 |
|
Balance as of September 30, 2016 | $ | 3,924,188 |
| | $ | 30,549 |
| | $ | 3,954,737 |
|
During 2016, deferred taxes were not recognized on foreign currency translation adjustments for foreign subsidiaries which had earnings that were considered permanently invested outsideOn November 22, 2022, AB and SocGen, a leading European bank, announced plans to form a joint venture combining their respective cash equities and research businesses. The consummation of the United States.
| |
17. | Non-controlling Interests
|
Non-controllingjoint venture is subject to customary closing conditions, including regulatory clearances. The closing is expected to occur before the end of 2023. Upon closing, AB will own a 49% interest in netthe joint venture and SocGen will own a 51% interest, with an option to reach 100% ownership after five years. The assets and liabilities of AB's research services business (“the disposal group”) have been classified as held for sale on the condensed consolidated statement of financial condition and recorded at fair value, less cost to sell.As a result of classifying these assets as held for sale, we recognized a non-cash valuation adjustment of $2.5 million and $7.4 million on the condensed consolidated statement of income for the three and nine months ended September 30, 2017March 31, 2023 and 2016 consistedDecember 31, 2022, respectively, to recognize the net carrying value at lower of cost or fair value, less estimated costs to sell.
The following table summarizes the assets and liabilities of the following:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| | | | | | | | |
Non-redeemable non-controlling interests: | | | | | | | | |
Consolidated company-sponsored investment funds | | $ | 21 |
| | $ | 12,499 |
| | $ | 9,436 |
| | $ | 5,346 |
|
Other | | 50 |
| | 143 |
| | 245 |
| | 343 |
|
Total non-redeemable non-controlling interests | | 71 |
| | 12,642 |
| | 9,681 |
| | 5,689 |
|
Redeemable non-controlling interests: | | | | | | | | |
Consolidated company-sponsored investment funds | | 16,455 |
| | 3,054 |
| | 40,332 |
| | 9,102 |
|
Total non-controlling interest in net income (loss) | | $ | 16,526 |
| | $ | 15,696 |
| | $ | 50,013 |
| | $ | 14,791 |
|
Non-redeemable non-controlling interestdisposal group classified as held for sale on the condensed consolidated statement of financial condition as of September 30, 2017March 31, 2023 and December 31, 2016 consisted2022:
| | | | | | | | |
| March 31, 2023 | December 31, 2022 |
Cash and cash equivalents | $ | 154,484 | | $ | 159,123 | |
Receivables, net: | | |
Brokers and dealers | 64,547 | | 44,717 | |
Brokerage clients | 29,709 | | 29,243 | |
Other fees | 22,245 | | 22,988 | |
Investments | 15,988 | | 24,507 | |
Furniture and equipment, net | 4,008 | | 4,128 | |
Other assets | 223,933 | | 107,764 | |
Right-of-use assets | 1,537 | | 1,552 | |
Intangible assets | 4,692 | | 4,903 | |
Goodwill | 159,826 | | 159,826 | |
Valuation adjustment (allowance) on disposal group | (9,900) | | (7,400) | |
Total assets held for sale | $ | 671,069 | | $ | 551,351 | |
| | |
Payables: | | |
Brokers and dealers | $ | 43,001 | | $ | 32,983 | |
Brokerage clients | 31,529 | | 10,232 | |
Other liabilities | 66,407 | | 50,884 | |
Accrued compensation and benefits | 16,824 | | 13,853 | |
Total liabilities held for sale | $ | 157,761 | | $ | 107,952 | |
| | |
As of the following:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (in thousands) |
| | | |
Consolidated company-sponsored investment funds | $ | 841 |
| | $ | 34,622 |
|
Other | 766 |
| | 1,550 |
|
Total non-redeemable non-controlling interest | $ | 1,607 |
| | $ | 36,172 |
|
Redeemable non-controlling interest as of September 30, 2017March 31, 2023 and December 31, 2016 consisted2022, cash and cash equivalents classified as held for sale included in the condensed consolidated statement of cash flows was $154.5 million and $159.1 million, respectively.
We have determined that the exit from the sell-side research business does not represent a strategic shift that has had, or is likely to have a major effect on our consolidated results of operations. Accordingly, we have not classified the disposal group as discontinued operations. The results of operations of the following:disposal group up to the respective dates of sale will be included in our consolidated results of operations for all periods presented. The lower of amortized cost or fair value adjustment upon transferring these assets to held for sale was not material.
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (in thousands) |
| | | |
Consolidated company-sponsored investment funds | $ | 416,254 |
| | $ | 384,294 |
|
CPH Capital Fondsmaeglerselskab A/S acquisition | 5,364 |
| | 8,665 |
|
Total redeemable non-controlling interest | $ | 421,618 |
| | $ | 392,959 |
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
Our total assets under management ("AUM"(“AUM”) as of September 30, 2017March 31, 2023 were $534.9$675.9 billion, up $18.3$29.5 billion, or 3.6%4.6%, compared to June 30, 2017,December 31, 2022, and up $44.7down $59.5 billion, or 9.1%8.1%, compared to September 30, 2016.March 31, 2022. During the thirdfirst quarter of 2017,2023, AUM increased as a result ofdue to market appreciation of $13.8$28.7 billion and net inflows of $4.5$0.8 billion (primarily due to Retail and Institutional(Private Wealth net inflows of $3.0$1.9 billion and $1.4Retail net inflows of $1.6 billion, respectively)offset by Institutional net outflows of $2.7 billion). During the twelve months ended September 30, 2017,
Institutional AUM increased as a result$9.3 billion, or 3.1%, to $306.6 billion during the first quarter of 2023, due to market appreciation of $35.9$12.0 billion, offset by net outflows of $2.7 billion. Gross sales decreased sequentially from $12.6 billion during the fourth quarter of 2022 to $3.0 billion during the first quarter of 2023, reflecting a $6.4 billion custom target date sale in the fourth quarter of 2022. Redemptions and terminations decreased sequentially from $3.5 billion to $3.4 billion.
Retail AUM increased $13.8 billion, or 5.7%, to $256.7 billion during the first quarter of 2023, due to market appreciation of $12.2 billion and net inflows of $8.8 billion (primarily due to Retail and Institutional net inflows of $6.3 billion and $2.4 billion, respectively).
During the third quarter of 2017, we had net inflows of $4.9 billion in our actively managed investment services and net outflows of $0.4 billion in our passively managed investment services. During the twelve months ended September 30, 2017, we had net inflows of $15.1 billion in our actively managed investment services and net outflows of $6.3 billion in our passively managed investment services.
Institutional AUM$1.6 billion. Gross sales increased $7.1 billion, or 2.8%, to $260.0sequentially from $14.2 billion during the thirdfourth quarter of 2017,2022 to $16.8 billion during the first quarter of 2023. Redemptions and terminations decreased sequentially from $15.4 billion to $13.3 billion.
Private Wealth AUM increased $6.4 billion, or 6.0%, to $112.6 billion during the first quarter of 2023, due to market appreciation of $5.7$4.5 billion and net inflows of $1.4$1.9 billion. Gross sales decreased 18.5%increased sequentially from $4.0$4.1 billion during the secondfourth quarter of 20172022 to $3.3$5.8 billion during the thirdfirst quarter of 2017.2023. Redemptions and terminations decreased 33.0% sequentially from $2.9$4.3 billion to $2.0$3.9 billion.
Retail AUM increased $8.4 billion, or 4.8%, to $185.7 billion during the third quarter of 2017, due to market appreciation of $5.4 billion and net inflows of $3.0 billion. Gross sales increased 3.0% sequentially from $13.5 billion during the second quarter of 2017 to $13.9 billion during the third quarter of 2017. Redemptions and terminations increased 5.3% sequentially from $8.9 billion to $9.4 billion.
Private Wealth Management AUM increased $2.8 billion, or 3.2%, to $89.2 billion during the third quarter of 2017, due to market appreciation of $2.7 billion and net inflows of $0.1 billion. Gross sales decreased 5.0% sequentially from $2.9 billion during the second quarter of 2017 to $2.8 billion during the third quarter of 2017. Redemptions and terminations were essentially flat sequentially.
Bernstein Research Services revenue for the thirdfirst quarter of 20172023 was $108.4$100.0 million, down $2.5$17.8 million, or 2.3%15.1%, compared to the thirdfirst quarter of 2016,2022. The decrease was driven primarily by lower clienta significant decline in customer trading activity in the U.S., partially offset by an increase in client activity in both Europe and Asia and the impactacross all regions as a result of a weaker U.S. dollar.market conditions.
Net revenues for the thirdfirst quarter of 2017 increased $64.62023 decreased $81.6 million, or 8.6%7.4%, to $812.2 million$1.0 billion from $747.6 million$1.1 billion in the thirdfirst quarter of 2016.2022. The most significant contributorsdecrease was primarily due to the increase were higherlower investment advisory base advisory fees of $51.4$55.5 million, higherlower performance-based fees of $39.4 million, lower distribution revenues of $8.4$27.3 million and lower Bernstein Research Services revenue of $17.8 million, partially offset by higher investment gains of $44.3 million compared to investment losses in the prior-year period and higher net dividend and interest income of $3.1 million, higher performance-based fees of $2.3 million and higher investment gains of $1.2$14.0 million. Operating expenses for the thirdfirst quarter of 2017 increased $87.92023 decreased $48.5 million, or 15.6%5.7%, to $650.2$808.8 million from $562.3$857.3 million in the thirdfirst quarter of 2016.2022. The increase primarilydecrease was due to higher otherlower general and administrative expenses of $22.2$38.0 million, (see below), lower adjustments to contingent payment arrangements of $21.3 million, higher real estate charges of $18.8 million, higher employee compensation and benefits of $13.0 million and higher promotion and servicing expenses of $11.2$29.7 million and lower employee compensation and benefits expenses of $5.3 million, offset by higher interest expense of $12.3 million, higher amortization of intangibles of $10.6 million and higher accretion expense associated with contingent payment arrangements of $1.6 million. Our operating income decreased $23.3$33.1 million, or 12.6%13.3%, to $162.0$215.3 million from $185.3$248.4 million in the first quarter of 2022 and our operating margin decreased to 17.9%20.1% in the thirdfirst quarter of 20172023 from 22.7%24.7% in the thirdfirst quarter of 2016.2022.
During
Market Commentary
Despite significant market volatility during the thirdfirst quarter of 2017, we recorded2023, equity and debt markets had positive returns, with the S&P 500, the Dow Jones Industrial Average and the Nasdaq each registering positive returns to end the quarter. The market volatility, particularly during March 2023, was driven by significant instability in the banking sector. This turmoil in banking stocks triggered declines in yields for U.S. Treasuries and Eurozone bonds, and gold prices renewed their recent rally as investors sought safe havens. The markets experienced additional volatility in the quarter as the U.S. Federal Reserve continued with interest rate increases in a $19.7 million reserve forfurther effort to reduce inflation. The Fed, however, held off on a payment we expectmore aggressive rate increase in March 2023 that could have roiled markets after weeks of bank turmoil.
Further fears of a banking crisis arose globally, as Switzerland's Central Bank stepped in to make to a third-party vendor as a result ofshore up liquidity and investor confidence in the early termination of an outsourcing contract relating to our trade settlement and reconciliation processes. We intend to transition these processes back to AB from our vendor withinSwiss banking system, particularly Credit Suisse. In the next two years. As a result of this transition, we expect to incur $2 millionU.K., equities fell in additional transitional costs in 2018 and realize ongoing annual savings of approximately $11 million in general and administrative expenses beginning in 2019.
Market Environment
The third quarter of 2017 built upon the strength of the first halfquarter, as the European Central Bank increased interest rates despite the banking turmoil in its continued effort to dampen inflation. The anticipation of another rate increase in 2023 gave rise to an upgraded economic outlook for the U.K., which anticipates modest growth in the second quarter. The U.K., however, continues to face labor shortages and the impact of rising taxes. In China, the People's Bank of China, surprised markets by cutting its reserve requirement ratio by 25 basis points in a move expected to inject 500 billion yuan (US$72.6 billion) worth of liquidity into the interbank system. China’s economy continued to show a mild recovery at the start of the year - U.S. equity markets reached record highs, emerging markets continued to gain momentumas the zero tolerance COVID policy was lifted, but its resilience could still be tested by domestic employment and fixed income assets added to their already positive year-to-date returns. The volatility index spiked in August, asreal estate pressures, coupled with a complex geopolitical tensions flaredenvironment.
Relationship with EQH and natural disasters rattled markets, but settled down to muted levels by quarter-end. In the U.S., inflation remains low as unemployment improves, but wages have been slower to recover, leaving core CPI without a driver. The U.S. Federal Reserve kept rates steady, but indicated that it intended to begin shrinking its balance sheetSubsidiaries
in October 2017EQH (our parent company) and maintained its forecast for a third rate increase during the fourth quarter of 2017. Globally, monetary policy between developed and emerging markets continues to diverge,subsidiaries are our largest client. EQH is collaborating with emerging market stocks trading at a substantial discount, and uncertainty persists over the potential for rising inflation in the U.S. and the ability of the Trump administration to pursue pro-growth policies, ongoing concerns about geopolitics, MiFID II implementation in Europe and the sustainability of emerging markets growth. Additionally, while the industry-wide shift from actively-managed investment services to passively-managed investment services has persisted in 2017, with $509 billion in passive inflows year-to-date, total active flows are positive, at $66 billion year-to-date, as fixed income strength has offset continued, though improving, equity outflows.
MiFID II
The second installment of the Markets in Financial Instruments Directive II (“MiFID II”), which is effective January 1, 2018, makes significant modifications to the manner in which European broker-dealers can be compensated for research. These modifications are recognized in the industry as having the potential to significantly decrease the overall research spend by European buy-side firms. Consequently, our U.K.-based broker-dealer is considering new charging mechanisms for its researchAB in order to minimizeimprove the risk-adjusted yield for the General Accounts of EQH's insurance subsidiaries by investing additional assets at AB, including the utilization of AB's higher-fee, longer-duration alternative offerings. Equitable Financial Life Insurance Company, a subsidiary of EQH ("Equitable Financial"), has agreed to provide $10 billion in permanent capital1 to build out AB's private illiquid offerings, including private alternatives and private placements. Deployment of this impact as part of its broader MiFID II implementation program. Itcapital commitment is importantapproximately 70% completed and is expected to note, however, thatcontinue over the next year. We expect this anticipated capital from Equitable Financial will continue to accelerate both organic and inorganic growth in our new charging techniquesprivate alternatives business, allowing us to continue to deliver for our clients, employees, unitholders and other strategic decisionsstakeholders. For example included in this $10 billion commitment by EQH is $750 million in capital to address the new environment created by MiFID II may not be successful, which could result in a significant decline in our sell-side revenues.deployed through AB CarVal.
Also, although MiFID II does permit buy-side firms to purchase research through the use of client-funded research payment accounts most buy-side firms that operate in the Eurozone, including our U.K. buy-side subsidiaries, have decided to use their own funds to pay for research in the Eurozone. This change in practice will increase our expenses in the Eurozone and, if this practice become more pervasive globally, may have a significant adverse effect on our net income in future periods.
The ultimate impact of MiFID II on payments for research currently is uncertain.
AXA America Holdings IPO
On May, 10, 2017, AXA S.A. (“AXA”) announced its intention to sell and list for trading a minority stake of its U.S. operations (expected to consist of AXA’s U.S. Life & Savings business and its interest in AB) during the first half of 2018, subject to market conditions and SEC review process. While we cannot at this time predict the eventual impact, if any, on AB of this proposed transaction, it could include a reduction in the support AXA has provided to AB in the past with respect to AB's investment management business, resulting in a decrease to our revenues and ability to initiate new investment services. Also, AB relies on AXA for a number of significant services and benefits from its affiliation with AXA in certain common vendor relationships. These arrangements also may change with possible negative financial implications for AB.
Assets Under Management
Assets under management by distribution channel are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, | | | | |
| 2023 | | 2022 | | $ Change | | % Change |
| (in billions) | | |
| | | | | | | |
Institutions | $ | 306.6 | | | $ | 325.9 | | | $ | (19.3) | | | (5.9) | % |
Retail | 256.7 | | | 292.6 | | | (35.9) | | | (12.3) | |
Private Wealth | 112.6 | | | 116.9 | | | (4.3) | | | (3.6) | |
Total | $ | 675.9 | | | $ | 735.4 | | | $ | (59.5) | | | (8.1) | % |
|
| | | | | | | | | | | | | | |
| As of September 30, | | | | |
| 2017 | | 2016 | | $ Change | | % Change |
| (in billions) | | |
| | | | | | | |
Institutions | $ | 260.0 |
| | $ | 247.0 |
| | $ | 13.0 |
| | 5.3 | % |
Retail | 185.7 |
| | 162.2 |
| | 23.5 |
| | 14.5 |
|
Private Wealth Management | 89.2 |
| | 81.0 |
| | 8.2 |
| | 10.1 |
|
Total | $ | 534.9 |
| | $ | 490.2 |
| | $ | 44.7 |
| | 9.1 |
|
Assets under management by investment service are as follows:
|
| | | | | | | | | | | | | | |
| As of September 30, | | | | |
| 2017 | | 2016 | | $ Change | | % Change |
| (in billions) | | |
Equity | | | | | | | |
Actively Managed | $ | 131.7 |
| | $ | 111.1 |
| | $ | 20.6 |
| | 18.5 | % |
Passively Managed(1) | 52.3 |
| | 48.5 |
| | 3.8 |
| | 7.9 |
|
Total Equity | 184.0 |
| | 159.6 |
| | 24.4 |
| | 15.3 |
|
| | | | | | | |
Fixed Income | |
| | |
| | |
| | |
|
Actively Managed | |
| | |
| | |
| | |
|
Taxable | 243.0 |
| | 229.9 |
| | 13.1 |
| | 5.7 |
|
Tax–exempt | 39.4 |
| | 38.2 |
| | 1.2 |
| | 3.1 |
|
| 282.4 |
| | 268.1 |
| | 14.3 |
| | 5.3 |
|
| | | | | | | |
Passively Managed(1) | 9.9 |
| | 11.6 |
| | (1.7 | ) | | (14.6 | ) |
Total Fixed Income | 292.3 |
| | 279.7 |
| | 12.6 |
| | 4.5 |
|
| | | | | | | |
Other(2) | | | | |
|
| |
|
|
Actively Managed | 58.6 |
| | 50.9 |
| | 7.7 |
| | 15.1 |
|
Passively Managed(1) | — |
| | — |
| | — |
| | — |
|
Total Other | 58.6 |
| | 50.9 |
| | 7.7 |
| | 15.1 |
|
Total | $ | 534.9 |
| | $ | 490.2 |
| | $ | 44.7 |
| | 9.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, | | | | |
| 2023 | | 2022 | | $ Change | | % Change |
| (in billions) | | |
Equity | | | | | | | |
Actively Managed | $ | 229.1 | | | $ | 265.2 | | | $ | (36.1) | | | (13.6) | % |
Passively Managed(1) | 56.6 | | | 66.2 | | | (9.6) | | | (14.6) | |
Total Equity | 285.7 | | | 331.4 | | | (45.7) | | | (13.8) | |
| | | | | | | |
Fixed Income | | | | | | | |
Actively Managed | | | | | | | |
Taxable | 198.4 | | | 225.9 | | | (27.5) | | | (12.2) | |
Tax–exempt | 55.3 | | | 54.9 | | | 0.4 | | | 0.8 | |
| 253.7 | | | 280.8 | | | (27.1) | | | (9.7) | |
Passively Managed(1) | 9.5 | | | 12.7 | | | (3.2) | | | (24.4) | |
Total Fixed Income | 263.2 | | | 293.5 | | | (30.3) | | | (10.3) | |
| | | | | | | |
Alternatives/Multi-Asset Solutions(2) | | | | | | | |
Actively Managed | 119.9 | | | 104.7 | | | 15.2 | | | 14.5 | |
Passively Managed(1) | 7.1 | | | 5.8 | | | 1.3 | | | 22.3 | |
Total Alternatives/Multi-Asset Solutions | 127.0 | | | 110.5 | | | 16.5 | | | 14.9 | |
Total | $ | 675.9 | | | $ | 735.4 | | | $ | (59.5) | | | (8.1) | % |
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services andnot included in equity or fixed income services.
1 Permanent capital means investment capital of indefinite duration, which may be withdrawn under certain alternative investments.
conditions. Although Equitable Financial has indicated its intention over time to provide this investment capital to AB, which is mutually beneficial to both firms, it has no binding commitment to do so.
Changes in assets under management for the three-month nine-month and twelve-month periods ended September 30, 2017March 31, 2023 are as follows:
|
| | | | | | | | | | | | | | | |
| Distribution Channel |
| Institutions | | Retail | | Private Wealth Management | | Total |
| (in billions) |
| | | | | | | |
Balance as of June 30, 2017 | $ | 252.9 |
| | $ | 177.3 |
| | $ | 86.4 |
| | $ | 516.6 |
|
Long-term flows: | |
| | |
| | |
| | |
|
Sales/new accounts | 3.3 |
| | 13.9 |
| | 2.8 |
| | 20.0 |
|
Redemptions/terminations | (2.0 | ) | | (9.4 | ) | | (2.5 | ) | | (13.9 | ) |
Cash flow/unreinvested dividends | 0.1 |
| | (1.5 | ) | | (0.2 | ) | | (1.6 | ) |
Net long-term inflows | 1.4 |
| | 3.0 |
| | 0.1 |
| | 4.5 |
|
Market appreciation | 5.7 |
| | 5.4 |
| | 2.7 |
| | 13.8 |
|
Net change | 7.1 |
| | 8.4 |
| | 2.8 |
| | 18.3 |
|
Balance as of September 30, 2017 | $ | 260.0 |
| | $ | 185.7 |
| | $ | 89.2 |
| | $ | 534.9 |
|
| | | | | | | |
Balance as of December 31, 2016 | $ | 239.3 |
| | $ | 160.2 |
| | $ | 80.7 |
| | $ | 480.2 |
|
Long-term flows: | |
| | |
| | |
| | |
|
Sales/new accounts | 9.8 |
| | 40.9 |
| | 8.7 |
| | 59.4 |
|
Redemptions/terminations | (10.4 | ) | | (28.4 | ) | | (7.9 | ) | | (46.7 | ) |
Cash flow/unreinvested dividends | 1.2 |
| | (4.6 | ) | | (0.3 | ) | | (3.7 | ) |
Net long-term inflows | 0.6 |
| | 7.9 |
| | 0.5 |
| | 9.0 |
|
Market appreciation | 20.1 |
| | 17.6 |
| | 8.0 |
| | 45.7 |
|
Net change | 20.7 |
| | 25.5 |
| | 8.5 |
| | 54.7 |
|
Balance as of September 30, 2017 | $ | 260.0 |
| | $ | 185.7 |
| | $ | 89.2 |
| | $ | 534.9 |
|
| | | | | | | |
Balance as of September 30, 2016 | $ | 247.0 |
| | $ | 162.2 |
| | $ | 81.0 |
| | $ | 490.2 |
|
Long-term flows: | |
| | |
| | |
| | |
Sales/new accounts | 16.5 |
| | 51.2 |
| | 11.0 |
| | 78.7 |
|
Redemptions/terminations | (11.6 | ) | | (38.9 | ) | | (10.4 | ) | | (60.9 | ) |
Cash flow/unreinvested dividends | (2.5 | ) | | (6.0 | ) | | (0.5 | ) | | (9.0 | ) |
Net long-term inflows | 2.4 |
| | 6.3 |
| | 0.1 |
| | 8.8 |
|
Market appreciation | 10.6 |
| | 17.2 |
| | 8.1 |
| | 35.9 |
|
Net change | 13.0 |
| | 23.5 |
| | 8.2 |
| | 44.7 |
|
Balance as of September 30, 2017 | $ | 260.0 |
| | $ | 185.7 |
| | $ | 89.2 |
| | $ | 534.9 |
|
| | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment Service |
| Equity Actively Managed | | Equity Passively Managed(1) | | Fixed Income Actively Managed - Taxable | | Fixed Income Actively Managed - Tax- Exempt | | Fixed Income Passively Managed(1) | | Other(2) | | Total |
| (in billions) | | |
| | | | | | | | | | | | | |
Balance as of June 30, 2017 | $ | 124.5 |
| | $ | 50.1 |
| | $ | 236.6 |
| | $ | 39.2 |
| | $ | 9.9 |
| | $ | 56.3 |
| | $ | 516.6 |
|
Long-term flows: | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Sales/new accounts | 5.8 |
| | 0.7 |
| | 10.4 |
| | 1.6 |
| | 0.1 |
| | 1.4 |
| | 20.0 |
|
Redemptions/terminations | (4.7 | ) | | (0.2 | ) | | (6.5 | ) | | (1.7 | ) | | (0.1 | ) | | (0.7 | ) | | (13.9 | ) |
Cash flow/unreinvested dividends | (0.2 | ) | | (0.8 | ) | | (0.2 | ) | | — |
| | (0.1 | ) | | (0.3 | ) | | (1.6 | ) |
Net long-term inflows (outflows) | 0.9 |
| | (0.3 | ) | | 3.7 |
| | (0.1 | ) | | (0.1 | ) | | 0.4 |
| | 4.5 |
|
Market appreciation | 6.3 |
| | 2.5 |
| | 2.7 |
| | 0.3 |
| | 0.1 |
| | 1.9 |
| | 13.8 |
|
Net change | 7.2 |
| | 2.2 |
| | 6.4 |
| | 0.2 |
| | — |
| | 2.3 |
| | 18.3 |
|
Balance as of September 30, 2017 | $ | 131.7 |
| | $ | 52.3 |
| | $ | 243.0 |
| | $ | 39.4 |
| | $ | 9.9 |
| | $ | 58.6 |
| | $ | 534.9 |
|
| | | | | | | | | | | | | |
Balance as of December 31, 2016 | $ | 111.9 |
| | $ | 48.1 |
| | $ | 220.9 |
| | $ | 36.9 |
| | $ | 11.1 |
| | $ | 51.3 |
| | $ | 480.2 |
|
Long-term flows: | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Sales/new accounts | 15.9 |
| | 1.1 |
| | 32.2 |
| | 5.7 |
| | 0.1 |
| | 4.4 |
| | 59.4 |
|
Redemptions/terminations | (13.8 | ) | | (1.3 | ) | | (22.8 | ) | | (4.7 | ) | | (1.7 | ) | | (2.4 | ) | | (46.7 | ) |
Cash flow/unreinvested dividends | (1.3 | ) | | (2.6 | ) | | 0.5 |
| | — |
| | (0.1 | ) | | (0.2 | ) | | (3.7 | ) |
Net long-term inflows (outflows) | 0.8 |
| | (2.8 | ) | | 9.9 |
| | 1.0 |
| | (1.7 | ) | | 1.8 |
| | 9.0 |
|
Market appreciation | 19.0 |
| | 7.0 |
| | 12.2 |
| | 1.5 |
| | 0.5 |
| | 5.5 |
| | 45.7 |
|
Net change | 19.8 |
| | 4.2 |
| | 22.1 |
| | 2.5 |
| | (1.2 | ) | | 7.3 |
| | 54.7 |
|
Balance as of September 30, 2017 | $ | 131.7 |
| | $ | 52.3 |
| | $ | 243.0 |
| | $ | 39.4 |
| | $ | 9.9 |
| | $ | 58.6 |
| | $ | 534.9 |
|
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of September 30, 2016 | $ | 111.1 |
| | $ | 48.5 |
| | $ | 229.9 |
| | $ | 38.2 |
| | $ | 11.6 |
| | $ | 50.9 |
| | $ | 490.2 |
|
Long-term flows: | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Sales/new accounts | 20.1 |
| | 1.2 |
| | 43.9 |
| | 7.6 |
| | 0.1 |
| | 5.8 |
| | 78.7 |
|
Redemptions/terminations | (18.2 | ) | | (1.8 | ) | | (29.5 | ) | | (6.6 | ) | | (1.8 | ) | | (3.0 | ) | | (60.9 | ) |
Cash flow/unreinvested dividends | (2.3 | ) | | (4.1 | ) | | (1.9 | ) | | (0.2 | ) | | 0.1 |
| | (0.6 | ) | | (9.0 | ) |
Net long-term (outflows) inflows | (0.4 | ) | | (4.7 | ) | | 12.5 |
| | 0.8 |
| | (1.6 | ) | | 2.2 |
| | 8.8 |
|
Market appreciation | 21.0 |
| | 8.5 |
| | 0.6 |
| | 0.4 |
| | (0.1 | ) | | 5.5 |
| | 35.9 |
|
Net change | 20.6 |
| | 3.8 |
| | 13.1 |
| | 1.2 |
| | (1.7 | ) | | 7.7 |
| | 44.7 |
|
Balance as of September 30, 2017 | $ | 131.7 |
| | $ | 52.3 |
| | $ | 243.0 |
| | $ | 39.4 |
| | $ | 9.9 |
| | $ | 58.6 |
| | $ | 534.9 |
|
| | | | | �� | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Distribution Channel |
| Institutions | | Retail | | Private Wealth | | Total |
| (in billions) |
Balance as of December 31, 2022 | $ | 297.3 | | | $ | 242.9 | | | $ | 106.2 | | | $ | 646.4 | |
Long-term flows: | | | | | | | |
Sales/new accounts | 3.0 | | | 16.8 | | | 5.8 | | | 25.6 | |
Redemptions/terminations | (3.4) | | | (13.3) | | | (3.9) | | | (20.6) | |
Cash flow/unreinvested dividends | (2.3) | | | (1.9) | | | — | | | (4.2) | |
Net long-term (outflows) inflows | (2.7) | | | 1.6 | | | 1.9 | | | 0.8 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Market appreciation | 12.0 | | | 12.2 | | | 4.5 | | | 28.7 | |
Net change | 9.3 | | | 13.8 | | | 6.4 | | | 29.5 | |
Balance as of March 31, 2023 | $ | 306.6 | | | $ | 256.7 | | | $ | 112.6 | | | $ | 675.9 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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| | | | | | | |
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| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance as of March 31, 2022 | $ | 325.9 | | | $ | 292.6 | | | $ | 116.9 | | | $ | 735.4 | |
Long-term flows: | | | | | | | |
Sales/new accounts | 20.9 | | | 62.1 | | | 17.3 | | | 100.3 | |
Redemptions/terminations | (14.5) | | | (60.9) | | | (16.0) | | | (91.4) | |
Cash flow/unreinvested dividends | (12.9) | | | (10.3) | | | — | | | (23.2) | |
Net long-term (outflows) inflows(1) | (6.5) | | | (9.1) | | | 1.3 | | | (14.3) | |
Adjustments(2) | (0.4) | | | — | | | — | | | (0.4) | |
Transfers | (0.1) | | | 0.1 | | | — | | | — | |
Acquisition(3) | 12.2 | | | — | | | — | | | 12.2 | |
Market depreciation | (24.5) | | | (26.9) | | | (5.6) | | | (57.0) | |
Net change | (19.3) | | | (35.9) | | | (4.3) | | | (59.5) | |
Balance as of March 31, 2023 | $ | 306.6 | | | $ | 256.7 | | | $ | 112.6 | | | $ | 675.9 | |
(1)Net flows include $4.5 billion of AXA redemptions for the twelve-month period ended March 31, 2023.
(2)Approximately $0.4 billion of Institutional AUM was removed from our total assets under management during the second quarter of 2022 due to a change in the fee structure.
(3)The CarVal acquisition added approximately $12.2 billion of Institutional AUM in the third quarter of 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment Service |
| Equity Actively Managed | | Equity Passively Managed(1) | | Fixed Income Actively Managed - Taxable | | Fixed Income Actively Managed - Tax- Exempt | | Fixed Income Passively Managed(1) | | Alternatives/ Multi-Asset Solutions(2) | | Total |
| (in billions) |
Balance as of December 31, 2022 | $ | 217.9 | | | $ | 53.8 | | | $ | 190.3 | | | $ | 52.5 | | | $ | 9.4 | | | $ | 122.5 | | | $ | 646.4 | |
Long-term flows: | | | | | | | | | | | | | |
Sales/new accounts | 8.5 | | | 0.2 | | | 11.1 | | | 3.9 | | | — | | | 1.9 | | | 25.6 | |
Redemptions/terminations | (10.6) | | | — | | | (6.1) | | | (2.5) | | | (0.1) | | | (1.3) | | | (20.6) | |
Cash flow/unreinvested dividends | (1.3) | | | (1.0) | | | (1.5) | | | 0.2 | | | (0.1) | | | (0.5) | | | (4.2) | |
Net long-term (outflows) inflows | (3.4) | | | (0.8) | | | 3.5 | | | 1.6 | | | (0.2) | | | 0.1 | | | 0.8 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Market appreciation | 14.6 | | | 3.6 | | | 4.6 | | | 1.2 | | | 0.3 | | | 4.4 | | | 28.7 | |
Net change | 11.2 | | | 2.8 | | | 8.1 | | | 2.8 | | | 0.1 | | | 4.5 | | | 29.5 | |
Balance as of March 31, 2023 | $ | 229.1 | | | $ | 56.6 | | | $ | 198.4 | | | $ | 55.3 | | | $ | 9.5 | | | $ | 127.0 | | | $ | 675.9 | |
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| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of March 31, 2022 | $ | 265.2 | | | $ | 66.2 | | | $ | 225.9 | | | $ | 54.9 | | | $ | 12.7 | | | $ | 110.5 | | | $ | 735.4 | |
Long-term flows: | | | | | | | | | | | | | |
Sales/new accounts | 37.1 | | | 1.8 | | | 29.5 | | | 16.0 | | | — | | | 15.9 | | | 100.3 | |
Redemptions/terminations | (39.2) | | | (3.1) | | | (28.3) | | | (14.6) | | | (1.5) | | | (4.7) | | | (91.4) | |
Cash flow/unreinvested dividends | (8.6) | | | (3.1) | | | (11.0) | | | — | | | (0.4) | | | (0.1) | | | (23.2) | |
Net long-term (outflows) inflows(3) | (10.7) | | | (4.4) | | | (9.8) | | | 1.4 | | | (1.9) | | | 11.1 | | | (14.3) | |
Adjustments(4) | — | | | — | | | — | | | — | | | — | | | (0.4) | | | (0.4) | |
Acquisition(5) | — | | | — | | | — | | | — | | | — | | | 12.2 | | | 12.2 | |
Market depreciation | (25.4) | | | (5.2) | | | (17.7) | | | (1.0) | | | (1.3) | | | (6.4) | | | (57.0) | |
Net change | (36.1) | | | (9.6) | | | (27.5) | | | 0.4 | | | (3.2) | | | 16.5 | | | (59.5) | |
Balance as of March 31, 2023 | $ | 229.1 | | | $ | 56.6 | | | $ | 198.4 | | | $ | 55.3 | | | $ | 9.5 | | | $ | 127.0 | | | $ | 675.9 | |
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services and certain alternative investments.not included in equity or fixed income services.
(3)Net flows include $4.5 billion of AXA redemptions for the twelve-month period ended March 31, 2023.
(4)Approximately $0.4 billion of Institutional AUM was removed from our total assets under management during the second quarter of 2022 due to a change in the fee structure.
(5)The CarVal acquisition added approximately $12.2 billion of Institutional AUM in the third quarter of 2022.
Net long-term inflows (outflows) for actively managed investment services as compared to passively managed investment services for the three-month nine-month and twelve-month periods ended September 30, 2017March 31, 2023 are as follows:
| | | | | | | | | | | | | |
| | | Periods Ended March 31, 2023 |
| | | Three-months | | Twelve-months |
| | | (in billions) |
Actively Managed | | | | | |
Equity | | | $ | (3.4) | | | $ | (10.7) | |
Fixed Income | | | 5.1 | | | (8.4) | |
Alternatives/Multi-Asset Solutions | | | 0.1 | | | 9.5 | |
| | | 1.8 | | | (9.6) | |
Passively Managed | | | | | |
Equity | | | (0.8) | | | (4.4) | |
Fixed Income | | | (0.2) | | | (1.9) | |
Alternatives/Multi-Asset Solutions | | | — | | | 1.6 | |
| | | (1.0) | | | (4.7) | |
Total net long-term inflows (outflows) | | | $ | 0.8 | | | $ | (14.3) | |
|
| | | | | | | | | | | |
| Periods Ended September 30, 2017 |
| Three-months | | Nine-months | | Twelve-months |
| (in billions) |
Actively Managed | | | | | |
Equity | $ | 0.9 |
| | $ | 0.8 |
| | $ | (0.4 | ) |
Fixed Income | 3.6 |
| | 10.9 |
| | 13.3 |
|
Other | 0.4 |
| | 1.8 |
| | 2.2 |
|
| 4.9 |
| | 13.5 |
| | 15.1 |
|
Passively Managed | |
| | |
| | |
|
Equity | (0.3 | ) | | (2.8 | ) | | (4.7 | ) |
Fixed Income | (0.1 | ) | | (1.7 | ) | | (1.6 | ) |
Other | — |
| | — |
| | — |
|
| (0.4 | ) | | (4.5 | ) | | (6.3 | ) |
Total net long-term inflows | $ | 4.5 |
| | $ | 9.0 |
| | $ | 8.8 |
|
Average assets under management by distribution channel and investment service wereare as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | | Nine Months Ended September 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| | (in billions) | | | | (in billions) | | |
Distribution Channel: | | | | | | | | | | | | | | | | |
Institutions | | $ | 257.1 |
| | $ | 250.0 |
| | $ | 7.1 |
| | 2.8 | % | | $ | 250.1 |
| | $ | 244.3 |
| | $ | 5.8 |
| | 2.4 | % |
Retail | | 181.7 |
| | 161.5 |
| | 20.2 |
| | 12.5 |
| | 173.4 |
| | 157.1 |
| | 16.3 |
| | 10.4 |
|
Private Wealth Management | | 87.8 |
| | 80.5 |
| | 7.3 |
| | 9.1 |
| | 85.3 |
| | 78.5 |
| | 6.8 |
| | 8.6 |
|
Total | | $ | 526.6 |
| | $ | 492.0 |
| | $ | 34.6 |
| | 7.0 |
| | $ | 508.8 |
| | $ | 479.9 |
| | $ | 28.9 |
| | 6.0 |
|
| | | | | | | | | | | | | | | | |
Investment Service: | | | | | | | | | | | | | | | | |
Equity Actively Managed | | $ | 128.0 |
| | $ | 110.8 |
| | $ | 17.2 |
| | 15.6 | % | | $ | 121.9 |
| | $ | 109.1 |
| | $ | 12.8 |
| | 11.7 | % |
Equity Passively Managed(1) | | 51.1 |
| | 47.9 |
| | 3.2 |
| | 6.6 |
| | 49.9 |
| | 46.2 |
| | 3.7 |
| | 7.9 |
|
Fixed Income Actively Managed – Taxable | | 240.7 |
| | 230.1 |
| | 10.6 |
| | 4.6 |
| | 233.4 |
| | 221.0 |
| | 12.4 |
| | 5.6 |
|
Fixed Income Actively Managed – Tax-exempt | | 39.6 |
| | 37.7 |
| | 1.9 |
| | 5.0 |
| | 38.5 |
| | 35.9 |
| | 2.6 |
| | 7.0 |
|
Fixed Income Passively Managed(1) | | 9.9 |
| | 11.6 |
| | (1.7 | ) | | (14.1 | ) | | 10.4 |
| | 10.9 |
| | (0.5 | ) | | (4.8 | ) |
Other (2) | | 57.3 |
| | 53.9 |
| | 3.4 |
| | 6.3 |
| | 54.7 |
| | 56.8 |
| | (2.1 | ) | | (3.6 | ) |
Total | | $ | 526.6 |
| | $ | 492.0 |
| | $ | 34.6 |
| | 7.0 |
| | $ | 508.8 |
| | $ | 479.9 |
| | $ | 28.9 |
| | 6.0 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | | | |
| | 2023 | | 2022 | | $ Change | | % Change | | | | | | | | |
| | (in billions) | | | | | | |
Distribution Channel: | | | | | | | | | | | | | | | | |
Institutions | | $ | 304.6 | | | $ | 331.6 | | | $ | (27.0) | | | (8.2) | % | | | | | | | | |
Retail | | 252.0 | | | 301.5 | | | (49.5) | | | (16.4) | | | | | | | | | |
Private Wealth | | 110.2 | | | 118.1 | | | (7.9) | | | (6.7) | | | | | | | | | |
Total | | $ | 666.8 | | | $ | 751.2 | | | $ | (84.4) | | | (11.2) | % | | | | | | | | |
Investment Service: | | | | | | | | | | | | | | | | |
Equity Actively Managed | | $ | 226.8 | | | $ | 270.5 | | | $ | (43.7) | | | (16.2) | % | | | | | | | | |
Equity Passively Managed(1) | | 55.9 | | | 67.5 | | | (11.6) | | | (17.3) | | | | | | | | | |
Fixed Income Actively Managed – Taxable | | 195.3 | | | 236.2 | | | (40.9) | | | (17.3) | | | | | | | | | |
Fixed Income Actively Managed – Tax-exempt | | 54.1 | | | 56.1 | | | (2.0) | | | (3.4) | | | | | | | | | |
Fixed Income Passively Managed(1) | | 9.5 | | | 12.9 | | | (3.4) | | | (26.3) | | | | | | | | | |
Alternatives/Multi-Asset Solutions(2) | | 125.2 | | | 108.0 | | | 17.2 | | | 15.9 | | | | | | | | | |
Total | | $ | 666.8 | | | $ | 751.2 | | | $ | (84.4) | | | (11.2) | % | | | | | | | | |
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services and certain alternative investments.not included in equity of fixed income services.
Our Institutional channel thirdfirst quarter average AUM of $257.1$304.6 billion increased $7.1decreased $27.0 billion, or 2.8%8.2%, compared to the thirdfirst quarter of 2016,2022, primarily due to our Institutionalthis AUM increasing $13.0decreasing $19.3 billion, or 5.3%5.9%, to $260.0$306.6 billion over the last twelve months.from March 31, 2022. The $13.0$19.3 billion increasedecrease in AUM resulted primarily from market appreciationdepreciation of $10.6$24.5 billion and net inflowsoutflows of $2.4 billion.$6.5 billion, partially offset by an addition of $12.2 billion due to the CarVal acquisition.
Our Retail channel thirdfirst quarter average AUM of $181.7$252.0 billion increased $20.2decreased $49.5 billion, or 12.5%16.4%, compared to the thirdfirst quarter of 2016,2022, primarily due to our Retailthis AUM increasing $23.5decreasing $35.9 billion, or 14.5%12.3%, to $185.7$256.7 billion over the last twelve months.from March 31, 2022. The $23.5$35.9 billion increase in AUMdecrease resulted primarily from market appreciationdepreciation of $17.2$26.9 billion and net inflowsoutflows of $6.3$9.1 billion.
Our Private Wealth Management channel thirdfirst quarter average AUM of $87.8$110.2 billion increased $7.3decreased $7.9 billion, or 9.1%6.7%, compared to the thirdfirst quarter of 2016,2022, primarily due to our Private Wealth Managementthis AUM increasing $8.2decreasing $4.3 billion, or 10.1%3.6%, to $89.2$112.6 billion over the last twelve months.from March 31, 2022. The $8.2$4.3 billion increase in AUMdecrease resulted from market appreciationdepreciation of $8.1$5.6 billion, andoffset by net inflows of $0.1$1.3 billion.
Absolute investment composite returns, gross of fees, and relative performance as of September 30, 2017March 31, 2023 compared to benchmarks for certain representative Institutional equity and fixed income services are as follows:
| | | | | | | | | | | | | | | | | |
| 1-Year | | 3-Year(1) | | 5-Year(1) |
| | | | | |
Global High Income - Hedged (fixed income) | | | | | |
Absolute return | (3.9) | % | | 6.9 | % | | 1.9 | % |
Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged) | (0.4) | | | 1.8 | | | — | |
Global Plus - Hedged (fixed income) | | | | | |
Absolute return | (3.8) | | | (0.4) | | | 1.2 | |
Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged) | — | | | 1.7 | | | 0.2 | |
Intermediate Municipal Bonds (fixed income) | | | | | |
Absolute return | 1.2 | | | 1.6 | | | 2.2 | |
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg) | 0.7 | | | 1.1 | | | 0.8 | |
U.S. Strategic Core Plus (fixed income) | | | | | |
Absolute return | (4.7) | | | (1.3) | | | 1.2 | |
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index) | 0.1 | | | 1.4 | | | 0.3 | |
Emerging Market Debt (fixed income) | | | | | |
Absolute return | (7.9) | | | 1.8 | | | (0.6) | |
Relative return (vs. JPM EMBI Global/JPM EMBI) | (2.0) | | | 1.5 | | | (0.4) | |
Sustainable Global Thematic (equity) | | | | | |
Absolute return | (8.9) | | | 17.2 | | | 10.2 | |
Relative return (vs. MSCI ACWI Index) | (1.5) | | | 1.9 | | | 3.2 | |
International Strategic Core Equity (equity) | | | | | |
Absolute return | (3.3) | | | 10.4 | | | 3.2 | |
Relative return (vs. MSCI EAFE Index) | (1.9) | | | (2.6) | | | (0.3) | |
U.S. Small & Mid Cap Value (equity) | | | | | |
Absolute return | (8.5) | | | 24.9 | | | 5.8 | |
Relative return (vs. Russell 2500 Value Index) | 2.0 | | | 3.1 | | | 0.1 | |
U.S. Strategic Value (equity) | | | | | |
Absolute return | (0.5) | | | 21.6 | | | 7.0 | |
Relative return (vs. Russell 1000 Value Index) | 5.4 | | | 3.7 | | | (0.5) | |
U.S. Small Cap Growth (equity) | | | | | |
Absolute return | (14.5) | | | 12.9 | | | 8.8 | |
Relative return (vs. Russell 2000 Growth Index) | (3.9) | | | (0.5) | | | 4.5 | |
U.S. Large Cap Growth (equity) | | | | | |
Absolute return | (8.3) | | | 16.4 | | | 13.8 | |
Relative return (vs. Russell 1000 Growth Index) | 2.6 | | | (2.1) | | | 0.1 | |
U.S. Small & Mid Cap Growth (equity) | | | | | |
Absolute return | (15.4) | | | 12.4 | | | 7.4 | |
Relative return (vs. Russell 2500 Growth Index) | (5.0) | | | (2.3) | | | 0.6 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | |
| 1-Year | | 3-Year | | 5-Year |
Global High Income - Hedged (fixed income) | | | | | |
Absolute return | 10.5 | % | | 6.4 | % | | 7.0 | % |
Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged) | 1.7 |
| | (0.4 | ) | | (0.1 | ) |
U.S. High Yield (fixed income) | | | | | |
Absolute return | 8.5 |
| | 5.3 |
| | 6.7 |
|
Relative return (vs. Bloomberg Barclays U.S. Corp. High Yield Index) | (0.4 | ) | | (0.5 | ) | | 0.4 |
|
Global Plus - Hedged (fixed income) | | | | | |
Absolute return | 1.4 |
| | 4.0 |
| | 3.7 |
|
Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged) | 1.6 |
| | 0.8 |
| | 0.6 |
|
Intermediate Municipal Bonds (fixed income) | | | | | |
Absolute return | 0.9 |
| | 2.4 |
| | 2.1 |
|
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg) | 0.4 |
| | 0.9 |
| | 0.7 |
|
U.S. Strategic Core Plus (fixed income) | | | | | |
Absolute return | 1.3 |
| | 3.7 |
| | 3.1 |
|
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index) | 1.2 |
| | 1.0 |
| | 1.0 |
|
Emerging Market Debt (fixed income) | | | | | |
Absolute return | 7.6 |
| | 6.6 |
| | 4.9 |
|
Relative return (vs. JPM EMBI Global/JPM EMBI) | 3.4 |
| | 0.6 |
| | 0.6 |
|
Emerging Markets Value | | | | | |
Absolute return | 19.7 |
| | 4.4 |
| | 3.7 |
|
Relative return (vs. MSCI EM Index) | (2.7 | ) | | (0.5 | ) | | (0.3 | ) |
Global Strategic Value | | | | | |
Absolute return | 21.6 |
| | 8.2 |
| | 14.0 |
|
Relative return (vs. MSCI ACWI Index) | 3.0 |
| | 0.8 |
| | 3.8 |
|
U.S. Small & Mid Cap Value | | | | | |
Absolute return | 18.4 |
| | 11.6 |
| | 15.9 |
|
Relative return (vs. Russell 2500 Value Index) | 2.6 |
| | 1.6 |
| | 2.6 |
|
U.S. Strategic Value | | | | | |
Absolute return | 15.6 |
| | 5.4 |
| | 13.2 |
|
Relative return (vs. Russell 1000 Value Index) | 0.5 |
| | (3.2 | ) | | — |
|
U.S. Small Cap Growth | | | | | |
Absolute return | 29.6 |
| | 12.0 |
| | 14.3 |
|
Relative return (vs. Russell 2000 Growth Index) | 8.6 |
| | (0.2 | ) | | — |
|
U.S. Large Cap Growth | | | | | |
Absolute return | 22.7 |
| | 15.2 |
| | 17.7 |
|
Relative return (vs. Russell 1000 Growth Index) | 0.8 |
| | 2.5 |
| | 2.5 |
|
U.S. Small & Mid Cap Growth | | | | | |
Absolute return | 25.1 |
| | 10.5 |
| | 13.7 |
|
Relative return (vs. Russell 2500 Growth Index) | 5.1 |
| | (0.7 | ) | | (0.8 | ) |
Concentrated U.S. Growth | | | | | |
Absolute return | 22.0 |
| | 11.9 |
| | 15.5 |
|
Relative return (vs. S&P 500 Index) | 3.4 |
| | 1.1 |
| | 1.3 |
|
Select U.S. Equity | | | | | |
Absolute return | 19.5 |
| | 10.5 |
| | 14.3 |
|
Relative return (vs. S&P 500 Index) | 0.9 |
| | (0.3 | ) | | 0.1 |
|
Strategic Equities | | | | | |
Absolute return | 17.0 |
| | 10.6 |
| | 14.2 |
|
Relative return (vs. Russell 3000 Index) | (1.7 | ) | | (0.2 | ) | | — |
|
Global Core Equity | | | | | |
Absolute return | 18.9 |
| | 8.8 |
| | 11.8 |
|
Relative return (vs. MSCI ACWI Index) | 0.3 |
| | 1.4 |
| | 1.6 |
|
| | | | | | | | | | | | | | | | | |
| 1-Year | | 3-Year(1) | | 5-Year(1) |
Concentrated U.S. Growth (equity) | | | | | |
Absolute return | (9.3) | | | 16.8 | | | 12.5 | |
Relative return (vs. S&P 500 Index) | (1.6) | | | (1.8) | | | 1.3 | |
Select U.S. Equity (equity) | | | | | |
Absolute return | (7.3) | | | 19.3 | | | 11.3 | |
Relative return (vs. S&P 500 Index) | 0.4 | | | 0.7 | | | 0.1 | |
Strategic Equities (equity) | | | | | |
Absolute return | (8.6) | | | 16.7 | | | 9.3 | |
Relative return (vs. Russell 3000 Index) | — | | | (1.8) | | | (1.2) | |
Global Core Equity (equity) | | | | | |
Absolute return | (5.0) | | | 13.6 | | | 7.1 | |
Relative return (vs. MSCI ACWI Index) | 2.4 | | | (1.8) | | | 0.2 | |
U.S. Strategic Core Equity (equity) | | | | | |
Absolute return | (2.3) | | | 16.4 | | | 10.8 | |
Relative return (vs. S&P 500 Index) | 5.5 | | | (2.3) | | | (0.3) | |
Select U.S. Equity Long/Short (alternatives) | | | | | |
Absolute return | (5.6) | | | 11.2 | | | 7.9 | |
Relative return (vs. S&P 500 Index) | 2.1 | | | (7.5) | | | (3.3) | |
Global Strategic Core Equity (equity) | | | | | |
Absolute return | (3.8) | | | 13.8 | | | 8.0 | |
Relative return (vs. S&P 500 Index) | 3.2 | | | (2.6) | | | — | |
(1)Reflects annualized returns.
Consolidated Results of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | | Nine Months Ended September 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| | (in thousands, except per unit amounts) | | | | (in thousands, except per unit amounts) | | |
| | | | | | | | | | | | | | | | |
Net revenues | | $ | 812,150 |
| | $ | 747,591 |
| | $ | 64,559 |
| | 8.6 | % | | $ | 2,379,380 |
| | $ | 2,242,523 |
| | $ | 136,857 |
| | 6.1 | % |
Expenses | | 650,123 |
| | 562,282 |
| | 87,841 |
| | 15.6 |
| | 1,888,504 |
| | 1,741,597 |
| | 146,907 |
| | 8.4 |
|
Operating income | | 162,027 |
| | 185,309 |
| | (23,282 | ) | | (12.6 | ) | | 490,876 |
| | 500,926 |
| | (10,050 | ) | | (2.0 | ) |
Income taxes | | 4,547 |
| | 11,578 |
| | (7,031 | ) | | (60.7 | ) | | 24,869 |
| | 37,315 |
| | (12,446 | ) | | (33.4 | ) |
Net income | | 157,480 |
| | 173,731 |
| | (16,251 | ) | | (9.4 | ) | | 466,007 |
| | 463,611 |
| | 2,396 |
| | 0.5 |
|
Net income of consolidated entities attributable to non-controlling interests | | 16,526 |
| | 15,696 |
| | 830 |
| | 5.3 |
| | 50,013 |
| | 14,791 |
| | 35,222 |
| | 238.1 |
|
Net income attributable to AB Unitholders | | $ | 140,954 |
| | $ | 158,035 |
| | $ | (17,081 | ) | | (10.8 | ) | | $ | 415,994 |
| | $ | 448,820 |
| | $ | (32,826 | ) | | (7.3 | ) |
| | | | | | | | | | | | | | | | |
Diluted net income per AB Unit | | $ | 0.52 |
| | $ | 0.58 |
| | $ | (0.06 | ) | | (10.3 | ) | | $ | 1.54 |
| | $ | 1.64 |
| | $ | (0.10 | ) | | (6.1 | ) |
| | | | | | | | | | | | | | | | |
Distributions per AB Unit | | $ | 0.58 |
| | $ | 0.51 |
| | $ | 0.07 |
| | 13.7 |
| | $ | 1.66 |
| | $ | 1.42 |
| | $ | 0.24 |
| | 16.9 |
|
| | | | | | | | | | | | | | | | |
Operating margin (1) | | 17.9 | % | | 22.7 | % | | | | | | 18.5 | % | | 21.7 | % | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | | | |
| | 2023 | | 2022 | | $ Change | | % Change | | | | | | | | |
| | (in thousands, except per unit amounts) |
Net revenues | | $ | 1,024,091 | | | $ | 1,105,687 | | | $ | (81,596) | | | (7.4) | % | | | | | | | | |
Expenses | | 808,831 | | | 857,284 | | | (48,453) | | | (5.7) | | | | | | | | | |
Operating income | | 215,260 | | | 248,403 | | | (33,143) | | | (13.3) | | | | | | | | | |
Income taxes | | 11,342 | | | 12,721 | | | (1,379) | | | (10.8) | | | | | | | | | |
Net income | | 203,918 | | | 235,682 | | | (31,764) | | | (13.5) | | | | | | | | | |
Net income (loss) of consolidated entities attributable to non-controlling interests | | 9,767 | | | (25,045) | | | 34,812 | | | n/m | | | | | | | | |
Net income attributable to AB Unitholders | | $ | 194,151 | | | $ | 260,727 | | | $ | (66,576) | | | (25.5) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Diluted net income per AB Unit | | $ | 0.67 | | | $ | 0.95 | | | $ | (0.28) | | | (29.5) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Distributions per AB Unit | | $ | 0.74 | | | $ | 0.99 | | | $ | (0.25) | | | (25.3) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Operating margin (1) | | 20.1 | % | | 24.7 | % | | | | | | | | | | | | |
(1)Operating income excluding net (loss) income attributable to non-controlling interests as a percentage of net revenues.
Net income attributable to AB Unitholders for the three months ended September 30, 2017March 31, 2023 decreased $17.1$66.6 million, or 10.8%25.5%, from the three months ended September 30, 2016.March 31, 2022. The decrease resulted fromprimarily is due to (in millions):
| | | | | |
Lower base advisory fees | $ | (55.5) | |
Lower performance-based fees | (39.4) | |
Higher net income of consolidated entities attributable to non-controlling interest | (34.8) | |
Lower distribution revenues | (27.3) | |
Lower Bernstein Research Services revenue | (17.8) | |
Higher interest on borrowings | (12.3) | |
Higher amortization of intangible assets | (10.6) | |
Higher investment gains | 44.3 | |
Lower general and administrative expenses | 38.0 | |
Lower promotion and servicing expenses | 29.7 | |
Higher net dividend and interest income | 14.0 | |
Lower employee compensation and benefits expense | 5.3 | |
Other | (0.2) | |
| $ | (66.6) | |
|
| | | |
Higher other general and administrative expenses | $ | (22.2 | ) |
Lower adjustments to contingent payment arrangements | (21.3 | ) |
Higher real estate charges | (18.8 | ) |
Higher employee compensation and benefits | (13.0 | ) |
Higher promotion and servicing expenses | (11.2 | ) |
Higher base advisory fees | 51.4 |
|
Higher distribution revenues | 8.4 |
|
Lower income tax expense | 7.0 |
|
Other | 2.6 |
|
| $ | (17.1 | ) |
Net income attributable to AB Unitholders for the nine months ended September 30, 2017 decreased $32.8 million, or 7.3%, from the nine months ended September 30, 2016. The decrease resulted from (in millions):
|
| | | |
Higher employee compensation and benefits | $ | (51.4 | ) |
Higher other general and administrative expenses | (38.2 | ) |
Higher net income of consolidated entities attributable to non-controlling interest | (35.2 | ) |
Lower Bernstein Research Services revenue | (21.8 | ) |
Lower adjustments to contingent payment arrangements | (21.3 | ) |
Higher promotion and servicing expenses | (17.4 | ) |
Lower investment gains | (17.3 | ) |
Higher real estate charges | (14.8 | ) |
Higher base advisory fees | 133.0 |
|
Higher performance-based fees | 21.7 |
|
Higher distribution revenues | 15.1 |
|
Lower income tax expense | 12.4 |
|
Other | 2.4 |
|
| $ | (32.8 | ) |
Real Estate Charges
Since 2010, in connection with our workforce reductions and in an effort to reduce our global real estate footprint, we have implemented a global office space consolidation. As a result, we have sub-leased over one million square feet of office space.
During the first nine months of 2017, we recorded pre-tax real estate charges of $39.4 million, resulting from new charges of $40.2 million primarily relating to the further consolidation of office space at our New York offices, offset by changes in estimates pertaining to previously recorded real estate charges of $0.8 million. During the first nine months of 2016, we recorded pre-tax real estate charges of $24.6 million, resulting from new charges of $26.7 million relating to the further consolidation of office space at our New York offices, offset by changes in estimates related to previously recorded real estate charges of $2.1 million.
Units OutstandingOutstanding; Unit Repurchases
Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to RuleRules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (“Exchange Act”Act”). A Rule 10b5-1 plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker we select has the authority under the terms and limitations specified in the plan to repurchase AB Holding Units on our behalf in accordance with the terms ofand limitations specified in the plan. Repurchases are subject to regulations promulgated by the SEC, as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the second quarter of 2017 expired at the close of business on July 26, 2017. We did not adopt a new plan during the thirdfirst quarter of 2017.2023. We may adopt additional Rule 10b5-1 plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes.
Cash Distributions
AB isWe are required to distribute all of itsour Available Cash Flow, as defined in the AB Partnership Agreement, to itsour Unitholders and to the General Partner. Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines, with the concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. See Note 46 to the condensedour consolidated financial statements contained in Item 1 for a description of Available Cash Flow.
Management Operating Metrics
We are providing the non-GAAP measures “adjusted net revenues”,revenues,” “adjusted operating income” and “adjusted operating margin” because they are the principal operating metrics management uses in evaluating and comparing period-to-period operating performance. Management principally uses these metrics in evaluating performance because they present a clearer picture of our
operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, real estate consolidation chargesacquisition-related expenses and other adjustment items. Similarly, we believe that these management operating metrics help investors better understand the underlying trends in our results and, accordingly, provide a valuable perspective for investors.
These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating
margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both accounting principles generally accepted in the United States of America (“("US GAAP”GAAP") and non-GAAP measures in evaluating our financial performance. The non-GAAP measures alone may pose limitations because they do not include all of our revenues and expenses.
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| | (in thousands, except per unit amounts) |
Net revenues, US GAAP basis | | $ | 1,024,091 | | | $ | 1,105,687 | | | | | |
Adjustments: | | | | | | | | |
Distribution-related adjustments: | | | | | | | | |
Distribution revenues | | (141,078) | | | (168,341) | | | | | |
Investment advisory services fees | | (15,456) | | | (17,285) | | | | | |
Pass-through adjustments: | | | | | | | | |
Investment advisory services fees | | (9,763) | | | (35,976) | | | | | |
Other revenues | | (9,343) | | | (8,963) | | | | | |
Impact of consolidated company-sponsored funds | | (10,409) | | | 24,538 | | | | | |
Incentive compensation-related items | | (5,443) | | | 4,084 | | | | | |
| | | | | | | | |
| | | | | | | | |
Adjusted net revenues | | $ | 832,599 | | | $ | 903,744 | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| | | | | | | | |
Net revenues, US GAAP basis | | $ | 812,150 |
| | $ | 747,591 |
| | $ | 2,379,380 |
| | $ | 2,242,523 |
|
Adjustments: | | | | | | |
| | |
|
Long-term incentive compensation-related investment (gains) | | (2,055 | ) | | (2,556 | ) | | (6,960 | ) | | (2,021 | ) |
Long-term incentive compensation-related dividends and interest | | (130 | ) | | (142 | ) | | (438 | ) | | (435 | ) |
Distribution-related payments | | (108,284 | ) | | (95,844 | ) | | (307,407 | ) | | (276,188 | ) |
Amortization of deferred sales commissions | | (7,629 | ) | | (9,787 | ) | | (25,015 | ) | | (31,606 | ) |
Pass-through fees and expenses | | (9,759 | ) | | (9,768 | ) | | (29,868 | ) | | (33,126 | ) |
Gain on sale of investment carried at cost | | — |
| | — |
| | — |
| | (75,273 | ) |
Gain on sale of software technology | | (361 | ) | | — |
| | (4,593 | ) | | — |
|
Impact of consolidated company-sponsored funds | | (23,368 | ) | | (16,114 | ) | | (71,222 | ) | | (16,529 | ) |
Adjusted net revenues | | $ | 660,564 |
| | $ | 613,380 |
| | $ | 1,933,877 |
| | $ | 1,807,345 |
|
| | | | | | | | |
Operating income, US GAAP basis | | $ | 162,027 |
| | $ | 185,309 |
| | $ | 490,876 |
| | $ | 500,926 |
|
Adjustments: | | | | | | |
| | |
|
Long-term incentive compensation-related items | | 329 |
| | 363 |
| | 813 |
| | 972 |
|
Gain on sale of investment carried at cost | | — |
| | — |
| | — |
| | (75,273 | ) |
Gain on sale of software technology | | (361 | ) | | — |
| | (4,593 | ) | | — |
|
Acquisition-related expenses | | 1,462 |
| | 303 |
| | 2,012 |
| | 542 |
|
Contingent payment arrangements | | (193 | ) | | (21,483 | ) | | (193 | ) | | (21,483 | ) |
Real estate charges (credits) | | 18,655 |
| | (140 | ) | | 39,400 |
| | 24,645 |
|
Sub-total of non-GAAP adjustments | | 19,892 |
| | (20,957 | ) | | 37,439 |
| | (70,597 | ) |
Less: Net income of consolidated entities attributable to non-controlling interests | | 16,526 |
| | 15,696 |
| | 50,013 |
| | 14,791 |
|
Adjusted operating income | | 165,393 |
| | 148,656 |
| | 478,302 |
| | 415,538 |
|
Adjusted income taxes | | 10,188 |
| | 10,268 |
| | 29,511 |
| | 32,126 |
|
Adjusted net income | | 155,205 |
| | 138,388 |
| | 448,791 |
| | 383,412 |
|
| | | | | | | | |
Diluted net income per AB Unit, GAAP basis | | $ | 0.52 |
| | $ | 0.58 |
| | $ | 1.54 |
| | $ | 1.64 |
|
Impact of non-GAAP adjustments | | 0.06 |
| | (0.07 | ) | | 0.12 |
| | (0.24 | ) |
Adjusted diluted net income per AB Unit | | $ | 0.58 |
| | $ | 0.51 |
| | $ | 1.66 |
| | $ | 1.40 |
|
| | | | | | | | |
Adjusted operating margin | | 25.0 | % | | 24.2 | % | | 24.7 | % | | 23.0 | % |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
Operating income, US GAAP basis | | $ | 215,260 | | | $ | 248,403 | | | | | |
Adjustments: | | | | | | | | |
Real estate | | (206) | | | (206) | | | | | |
Incentive compensation-related items | | 1,608 | | | 945 | | | | | |
EQH award compensation | | 191 | | | 175 | | | | | |
| | | | | | | | |
Acquisition-related expenses | | 17,725 | | | 10,687 | | | | | |
| | | | | | | | |
Sub-total of non-GAAP adjustments | | 19,318 | | | 11,601 | | | | | |
Less: Net income (loss) of consolidated entities attributable to non-controlling interests | | 9,767 | | | (25,045) | | | | | |
Adjusted operating income | | 224,811 | | | 285,049 | | | | | |
Adjusted income taxes | | 11,848 | | | 14,595 | | | | | |
Adjusted net income | | $ | 212,963 | | | $ | 270,454 | | | | | |
| | | | | | | | |
Diluted net income per AB Unit, GAAP basis | | $ | 0.67 | | | $ | 0.95 | | | | | |
Impact of non-GAAP adjustments | | 0.07 | | | 0.04 | | | | | |
Adjusted diluted net income per AB Unit | | $ | 0.74 | | | $ | 0.99 | | | | | |
| | | | | | | | |
Operating margin, GAAP basis | | 20.1 | % | | 24.7 | % | | | | |
Impact of non-GAAP adjustments | | 6.9 | | | 6.8 | | | | | |
Adjusted operating margin | | 27.0 | % | | 31.5 | % | | | | |
Adjusted operating income for the three months ended September 30, 2017 increased $16.7March 31, 2023 decreased $60.2 million, or 11.3%21.1%, from the three months ended September 30, 2016,March 31, 2022, primarily due to higherlower investment advisory base fees of $51.8$58.5 million, lower Bernstein Research Services revenue of $17.8 million, higher interest on borrowings of $12.3 million and lower performance-based fees of $12.0 million, partially offset by higher generallower employee compensation and administrative expenses (excluding real estate charges) of $15.4 million, higher employee compensationbenefits expense (excluding the impact of long-term incentive compensation-related items) of $13.6$21.5 million, investments losses in current year compared to investments gains in prior yearhigher net dividend and interest income of $3.2$13.7 million and lower Bernstein Research Services revenueinvestment losses of $2.5 million. Adjusted operating income for the nine months ended September 30, 2017 increased $62.8 million, or 15.1%, from the nine months ended September 30, 2016, primarily due to higher investment advisory base fees of $134.6 million and higher performance-based fees of $21.7 million, offset by higher employee compensation expense (excluding the impact of long-term incentive compensation-related items) of $46.1 million, lower Bernstein Research Services revenue of $21.8 million and higher general and administrative expenses (excluding real estate charges) of $20.1$3.8 million.
Adjusted Net Revenues
Adjusted netNet Revenue, as adjusted, is reduced to exclude all of the company's distribution revenues, exclude investment gains and losses and dividends and interestwhich are recorded as a separate line item on employee long-term incentive compensation-related investments. In addition, adjusted net revenues offset distribution-related payments to third partiesthe consolidated statement of income, as well as amortizationa portion of deferred sales commissions againstinvestment advisory services fees received that is used to pay distribution revenues.and servicing costs. For certain products, based on the distinct arrangements, certain distribution fees are collected by us and passed through to third-party client intermediaries, while for certain other products, we collect investment advisory services fees and a portion is passed through to third-party client intermediaries. In both arrangements, the third-party client intermediary owns the relationship with the client and is responsible for performing services and distributing the product to the client on our behalf. We believe offsetting netdistribution revenues by distribution-related paymentsand certain investment advisory services fees is useful for our investors and other users of our financial statements because such presentation appropriately reflects the nature of these costs as pass-through payments to third parties whothat perform functions on behalf of our sponsored mutual funds and/or shareholders of these funds. We offsetDistribution-related adjustments fluctuate each period based on the type of investment products sold, as well as the average AUM over the period. Also, we adjust distribution revenues for the amortization of deferred sales commissions against net revenues because suchas these costs, over time, essentiallywill offset our distributionsuch revenues.
We also exclude additional pass-through expenses we incur (primarilyadjust investment advisory and services fees and other revenues for pass through costs, primarily related to our transfer agency) that are reimbursedagent and recorded asshareholder servicing fees. Also, we adjust for certain investment advisory and service fees in revenues.passed through to our investment advisors. These fees do not affect operating income, but they do affect our operating margin. Asas such, we exclude these fees from adjusted net revenues.
We adjust for the revenue impact of consolidating company-sponsored investment funds by eliminating the consolidated company-sponsored investment funds' revenues and including AB's fees from such consolidated company-sponsored investment funds and AB's investment gains and losses on its investments in such consolidated company-sponsored investment funds that were eliminated in consolidation. Lastly, in the second
Adjusted net revenues exclude investment gains and third quarters of 2017losses and dividends and interest on employee long-term incentive compensation-related investments. Also, we excluded a cumulative realized gain of $4.6 million on the exchange of software technologyadjust for an ownership stake in a third party provider of financial market datacertain acquisition-related pass-through performance-based fees and trading tools and in the first quarter of 2016 we excluded a realized gain of $75.3 million resulting from the liquidation of an investment in Jasper Wireless Technologies, Inc. ("Jasper"), which was acquired by Cisco Systems, Inc., because these transactions are not part of our core operating results.
performance related compensation.
Adjusted Operating Income
Adjusted operating income represents operating income on a US GAAP basis excluding (1) real estate charges (credits), (2) the impact on net revenues and compensation expense of the investment gains and losses (as well as the dividends and interest) associated with employee long-term incentive compensation-related investments, (2) the gain on the sale of our investment in Jasper during 2016, (3) the gain on the sale of software technology during 2017equity compensation paid by EQH to certain AB executives, (4) real estate charges (credits), (5) acquisition-related expenses (6) adjustments to contingent payment arrangements, and (7)(5) the impact of consolidated company-sponsored investment funds.
Real estate charges (credits) incurred during the fourth quarter of 2019 through the fourth quarter of 2020, while excluded in the period in which the charges (credits) were recorded, are included ratably over the remaining applicable lease term.
Prior to 2009, a significant portion of employee compensation was in the form of long-term incentive compensation awards that were notionally invested in AB investment services and generally vested over a period of four years. AB economically hedged the exposure to market movements by purchasing and holding these investments on its balance sheet. All such investments had vested as of year-end 2012 and the investments have been delivered to the participants, except for those investments with respect to which the participant elected a long-term deferral. Fluctuation in the value of these investments, which also impacts compensation expense, is recorded within investment gains and losses on the income statement and also impacts compensation expense.statement. Management believes it is useful to reflect the offset achieved from economically hedging the market exposure of these investments in the calculation of adjusted operating income and adjusted operating margin. The non-GAAP measures exclude gains and losses and dividends and interest on employee long-term incentive compensation-related investments included in revenues and compensation expense.
A realized gainThe board of directors of EQH granted to Seth Bernstein, our CEO, equity awards in connection with EQH's IPO. Additionally, equity awards have been granted to Mr. Bernstein and other AB executives for their membership on the liquidationEQH Management Committee. These individuals may receive additional equity or cash compensation from EQH in the future related to their service on the Management Committee. Any awards granted to these individuals by EQH are recorded as compensation expense in AB’s consolidated statement of our Jasper investment during 2016income. The compensation expense associated with these awards has been excluded due to its non-recurring nature and because it is not part offrom our core operating results.
A realized gain on the exchange of software technology for an ownership stake in a third party company during 2017 has been excluded due to its non-recurring nature and because it is not part of our core operating results.
Real estate charges (credits) have been excludednon-GAAP measures because they are non-cash and are based upon EQH's, and not considered part of our core operating results when comparingAB's, financial results from period to period and to industry peers.
performance.
Acquisition-related expenses have been excluded because they are not considered part of our core operating results when comparing financial results from period to period and to industry peers.
The Acquisition-related expenses include professional fees, amortization of acquired intangible assets and certain compensation-related expenses. These expenses also include the recording of accretion expense and changes in estimates of contingent consideration payable with respect to acquisition related contingent payment arrangements associated with our acquisitions are not considered part of our core operating results and, accordingly, have been excluded.
arrangements.
We adjusted for the operating income impact of consolidating certain company-sponsored investment funds by eliminating the consolidated company-sponsored funds' revenues and expenses and including AB's revenues and expenses that were eliminated in consolidation. We also excluded the limited partner interests we do not own.
Adjusted Net Income and Adjusted Diluted Net Income per AB Unit
As previously discussed, our quarterly distribution is typically our adjusted diluted net income per unit (which is derived from adjusted net income) for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. Adjusted income taxes, used in calculating adjusted net income, are calculated using the GAAP effective tax rate adjusted for non-GAAP income tax adjustments.
Adjusted Operating Margin
Adjusted operating margin allows us to monitor our financial performance and efficiency from period to period without the volatility noted above in our discussion of adjusted operating income and to compare our performance to industry peers on a basis that better reflects our performance in our core business. Adjusted operating margin is derived by dividing adjusted operating income by adjusted net revenues.
Net Revenues
The components of net revenues are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | | | |
| | 2023 | | 2022 | | $ Change | | % Change | | | | | | | | |
| | (in thousands) | | | | | | |
Investment advisory and services fees: | | | | | | | | | | | | | | | | |
Institutions: | | | | | | | | | | | | | | | | |
Base fees | | $ | 155,366 | | | $ | 138,073 | | | $ | 17,293 | | | 12.5 | % | | | | | | | | |
Performance-based fees | | 18,803 | | | 41,809 | | | (23,006) | | | (55.0) | | | | | | | | |
| | 174,169 | | | 179,882 | | | (5,713) | | | (3.2) | | | | | | | | | |
Retail: | | | | | | | | | | | | | | | | |
Base fees | | 308,713 | | | 366,174 | | | (57,461) | | | (15.7) | | | | | | | | | |
Performance-based fees | | (9) | | | 556 | | | (565) | | | n/m | | | | | | | | |
| | 308,704 | | | 366,730 | | | (58,026) | | | (15.8) | | | | | | | | | |
Private Wealth: | | | | | | | | | | | | | | | | |
Base fees | | 228,248 | | | 243,566 | | | (15,318) | | | (6.3) | | | | | | | | | |
Performance-based fees | | 17,786 | | | 33,604 | | | (15,818) | | | (47.1) | | | | | | | | | |
| | 246,034 | | | 277,170 | | | (31,136) | | | (11.2) | | | | | | | | | |
Total: | | | | | | | | | | | | | | | | |
Base fees | | 692,327 | | | 747,813 | | | (55,486) | | | (7.4) | | | | | | | | | |
Performance-based fees | | 36,580 | | | 75,969 | | | (39,389) | | | (51.8) | | | | | | | | | |
| | 728,907 | | | 823,782 | | | (94,875) | | | (11.5) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Bernstein Research Services | | 100,038 | | | 117,807 | | | (17,769) | | | (15.1) | | | | | | | | | |
Distribution revenues | | 141,078 | | | 168,341 | | | (27,263) | | | (16.2) | | | | | | | | | |
Dividend and interest income | | 50,679 | | | 11,475 | | | 39,204 | | | n/m | | | | | | | | |
Investment gains (losses) | | 5,264 | | | (39,024) | | | 44,288 | | | n/m | | | | | | | | |
Other revenues | | 26,146 | | | 26,155 | | | (9) | | | — | | | | | | | | | |
Total revenues | | 1,052,112 | | | 1,108,536 | | | (56,424) | | | (5.1) | | | | | | | | | |
Less: Interest expense | | 28,021 | | | 2,849 | | | 25,172 | | | n/m | | | | | | | | |
Net revenues | | $ | 1,024,091 | | | $ | 1,105,687 | | | $ | (81,596) | | | (7.4) | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | | Nine Months Ended September 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| | (in thousands) | | | | (in thousands) | | |
Investment advisory and services fees: | | | | | | | | | | | | | | | | |
Institutions: | | | | | | | | | | | | | | | | |
Base fees | | $ | 108,849 |
| | $ | 103,001 |
| | $ | 5,848 |
| | 5.7 | % | | $ | 318,347 |
| | $ | 301,229 |
| | $ | 17,118 |
| | 5.7 | % |
Performance-based fees | | 1,140 |
| | 1,754 |
| | (614 | ) | | (35.0 | ) | | 7,818 |
| | 2,779 |
| | 5,039 |
| | 181.3 |
|
| | 109,989 |
| | 104,755 |
| | 5,234 |
| | 5.0 |
| | 326,165 |
| | 304,008 |
| | 22,157 |
| | 7.3 |
|
Retail: | | | | | | | | | | |
| | |
| | |
| | |
|
Base fees | | 240,006 |
| | 207,377 |
| | 32,629 |
| | 15.7 |
| | 673,286 |
| | 599,080 |
| | 74,206 |
| | 12.4 |
|
Performance-based fees | | 229 |
| | 164 |
| | 65 |
| | 39.6 |
| | 13,652 |
| | 166 |
| | 13,486 |
| | 8,124.1 |
|
| | 240,235 |
| | 207,541 |
| | 32,694 |
| | 15.8 |
| | 686,938 |
| | 599,246 |
| | 87,692 |
| | 14.6 |
|
Private Wealth Management: | | | | | | | | | | |
| | |
| | |
| | |
|
Base fees | | 189,697 |
| | 176,775 |
| | 12,922 |
| | 7.3 |
| | 555,580 |
| | 513,941 |
| | 41,639 |
| | 8.1 |
|
Performance-based fees | | 3,186 |
| | 322 |
| | 2,864 |
| | 889.4 |
| | 3,877 |
| | 661 |
| | 3,216 |
| | 486.5 |
|
| | 192,883 |
| | 177,097 |
| | 15,786 |
| | 8.9 |
| | 559,457 |
| | 514,602 |
| | 44,855 |
| | 8.7 |
|
Total: | | | | | | | | | | |
| | |
| | |
| | |
|
Base fees | | 538,552 |
| | 487,153 |
| | 51,399 |
| | 10.6 |
| | 1,547,213 |
| | 1,414,250 |
| | 132,963 |
| | 9.4 |
|
Performance-based fees | | 4,555 |
| | 2,240 |
| | 2,315 |
| | 103.3 |
| | 25,347 |
| | 3,606 |
| | 21,741 |
| | 602.9 |
|
| | 543,107 |
| | 489,393 |
| | 53,714 |
| | 11.0 |
| | 1,572,560 |
| | 1,417,856 |
| | 154,704 |
| | 10.9 |
|
| | | | | | | | | | | | | | | | |
Bernstein Research Services | | 108,385 |
| | 110,885 |
| | (2,500 | ) | | (2.3 | ) | | 330,596 |
| | 352,403 |
| | (21,807 | ) | | (6.2 | ) |
Distribution revenues | | 106,042 |
| | 97,625 |
| | 8,417 |
| | 8.6 |
| | 302,745 |
| | 287,638 |
| | 15,107 |
| | 5.3 |
|
Dividend and interest income | | 17,619 |
| | 9,908 |
| | 7,711 |
| | 77.8 |
| | 51,023 |
| | 30,128 |
| | 20,895 |
| | 69.4 |
|
Investment gains (losses) | | 18,808 |
| | 17,606 |
| | 1,202 |
| | 6.8 |
| | 68,122 |
| | 85,469 |
| | (17,347 | ) | | (20.3 | ) |
Other revenues | | 24,902 |
| | 24,240 |
| | 662 |
| | 2.7 |
| | 71,532 |
| | 75,044 |
| | (3,512 | ) | | (4.7 | ) |
Total revenues | | 818,863 |
| | 749,657 |
| | 69,206 |
| | 9.2 |
| | 2,396,578 |
| | 2,248,538 |
| | 148,040 |
| | 6.6 |
|
Less: Interest expense | | 6,713 |
| | 2,066 |
| | 4,647 |
| | 224.9 |
| | 17,198 |
| | 6,015 |
| | 11,183 |
| | 185.9 |
|
Net revenues | | $ | 812,150 |
| | $ | 747,591 |
| | $ | 64,559 |
| | 8.6 |
| | $ | 2,379,380 |
| | $ | 2,242,523 |
| | $ | 136,857 |
| | 6.1 |
|
Investment Advisory and Services Fees
Investment advisory and services fees are the largest component of our revenues. These fees generally are calculated as a percentage of the value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and vary with the type of investment service, the size of the account and the total amount of assets we manage for a particular client.
Accordingly, fee income generally increases or decreases as AUM increasesincrease or decreasesdecrease and is affected by market appreciation or depreciation, the addition of new client accounts or client contributions of additional assets to existing accounts, withdrawals of assets from and termination of client accounts, purchases and redemptions of mutual fund shares, shifts of assets between accounts or products with different fee structures, and acquisitions. Our average basis points realized (investment advisory and services fees divided by average AUM) generally approximate 4030 to 110105 basis points for actively-managed equity services, 10 to 7570 basis points for actively-managed fixed income services and 2 to 2050 basis points for passively-managed services. Average basis points realized for other services could range from 53 basis points for certain Institutional asset allocationthird party managed services to over 100190 basis points for certain Retail and Private Wealth Management alternative services. These ranges include all-inclusive fee arrangements (covering investment management, trade execution and other services) for our Private Wealth Management clients.
We calculate AUM using established market-based valuation methodspolicies and procedures in accordance with applicable rules. Market-based and fair valuation (non-observable market) methods. Market-based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures;
evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; and mid prices derived from market standard models with inputs from recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing vendors and brokers for other derivative products. FairOTC derivatives. Internally derived fair valuation methods include:are used only when AUM cannot be valued using any of above valuation methods, and include discounted cash flow models evaluation of assets versus liabilities or any other methodology that is validated and approved by our Valuation Committee (see paragraph immediately below for more information regarding our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-based valuation methods, such as in the case of private equity or illiquid securities.Committee.
The Valuation Committee, which consists of senior officers and employees, is responsible for overseeing the pricing and valuation of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which reports to the Valuation Committee and is responsible for overseeing the pricing process for all investments.
We sometimes charge our clients performance-based fees. In these situations, we charge a base advisory fee and are eligible to earn an additional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. Some performance-based fees include a high-watermark provision, which generally provides that if a client account underperforms relative to its performance target (whether absolute or relative to a specified benchmark), it must gain back such underperformance before we can collect future performance-based fees. Therefore, if we fail to achieve our performance target for a particular period, we will not earn a performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-based fees will be impaired. We are eligible to earn performance-based fees on 7.1%9.8%, 3.9%8.7% and 1.0%0.4% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, 4.4%6.1% of our AUM).
During 2016 and 2017, we received carried interest distributions of $74.5 million, as general partner of our real estate fund ($66.6 million) and as investment advisor to a middle market lending fund ($7.9 million). In accordance with our revenue recognition policies, we did not recognize these carried interest distributions as performance fee revenues, instead recording a deferred revenue liability, because the distributions are subject to claw-back provisions. We will recognize the distribution as revenues when the potential claw-back obligations are mathematically remote, which may not occur until at or near termination of the applicable fund. In addition, we have revenue-sharing arrangements whereby certain employees are entitled to a share of carried interest proceeds distributed by certain funds, including the real estate fund. As such, we distributed $33.2 million of these carried interest proceeds to certain real estate fund employees. We have recorded this payment, which, like our carried interest distribution, is subject to claw-back provisions, as an advance to employees and will recognize it as compensation expense in the period in which the applicable revenue is recognized.
For the three months ended September 30, 2017,March 31, 2023, our investment advisory and services fees increaseddecreased by $53.7$94.9 million, or 11.0%11.5%, from the three months ended September 30, 2016,March 31, 2022, due to a $55.5 million, or 7.4%, decrease in base fees and a $39.4 million, or 51.8%, decrease in performance-based fees. The decrease in base fees is primarily due to a $51.4 million, or 10.6%, increase in base fees, which primarily resulted from a 7.0% increasean 11.2% decrease in average AUM, and the impact ofpartially offset by a shift in distribution channel mix from Institutions to Retail and Private Wealth Management, which generally have higher fees. In addition, performance-basedportfolio fee rate. Performance-based fees increased by $2.3 million. For the nine months ended September 30, 2017, our investment advisory and services fees increased by $154.7 million, or 10.9%, from the nine months ended September 30, 2016,decreased primarily due to a $133.0 million, or 9.4%, increase in baselower performance fees which primarily resulted from a 6.0% increase in average AUMearned on our U.S. Real Estate Funds, partially offset by higher performance fees earned on our Private Credit Fund and the impact of a shift in distribution channel mix from Institutions to Retail and Private Wealth Management. Also, performance-based fees increased by $21.7 million.Global Opportunistic Credit Fund.
Institutional investment advisory and servicesbase fees for the three months ended September 30, 2017March 31, 2023 increased by $5.2$17.3 million, or 5.0%12.5%, from the three months ended September 30, 2016,March 31, 2022, primarily due to a $5.8 million, or 5.7%, increase in base fees, which primarily resulted fromhigher portfolio fee rate, partially offset by a 2.8% increase8.2% decrease in average AUM and the impact of a shift in product mix into active equities, which generally have higher fees. Institutional investment advisory and services fees for the nine months ended September 30, 2017 increased by $22.1 million, or 7.3%, from the nine months ended September 30, 2016, primarily due to a $17.1 million, or 5.7%,
increase inAUM. Retail base fees, which primarily resulted from a 2.4% increase in average AUM and the impact of a shift in product mix into active equities. In addition, performance-based fees increased by $5.0 million.
Retail investment advisory and services fees for the three months ended September 30, 2017 increased by $32.7March 31, 2023 decreased $57.5 million, or 15.8%15.7%, from the three months ended September 30, 2016,March 31, 2022, primarily due to an increase in base fees of $32.6 million, or 15.7%, primarily resulting from a 12.5% increase16.4% decrease in average AUM. Retail investment advisory and services fees for the nine months ended September 30, 2017 increased by $87.7 million, or 14.6%, from the nine months ended September 30, 2016, due to an increase in base fees of $74.2 million, or 12.4%, primarily resulting from a 10.4% increase in average AUM. In addition, performance-based fees increased by $13.5 million.
Private Wealth Management investment advisory and servicesbase fees for the three months ended September 30, 2017 increased by $15.8March 31, 2023 decreased $15.3 million, or 8.9%6.3%, from the three months ended September 30, 2016,March 31, 2022, primarily due to an increase in base fees of $12.9 million, or 7.3%, primarily resulting from a 9.1% increase6.7% decrease in average AUM. In addition, performance-based fees increased by $2.8 million. Private Wealth Management investment advisory and services fees for the nine months ended September 30, 2017 increased by $44.9 million, or 8.7%, from the nine months ended September 30, 2016, due to an increase in base fees of $41.6 million, or 8.1%, primarily resulting from an 8.6% increase in average AUM. In addition, performance-based fees increased by $3.2 million.
Bernstein Research Services
We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to a lesser extent, but increasingly, by paying us directly for research through commission sharing agreements or cash payments. In the fourth quarter of 2022, AB and Société Générale (EURONEXT: SCGLY, “SocGen”), a leading European bank, announced plans to form a joint venture combining their respective cash equities and research businesses. As a result, the Bernstein Research Services revenue consists principallybusiness has been classified as held for sale on the condensed consolidated statement of equity commissions received for providing equity research and brokerage-related services to institutional investors.
financial condition. For further discussion, see Note 17 Divestitures.
Revenues from Bernstein Research Services for the three months ended September 30, 2017March 31, 2023 decreased $2.5$17.8 million, or 2.3%15.1%, compared tofrom the corresponding period in 2016,three months ended March 31, 2022. This decrease was driven by lower clienta significant decline in customer trading activity in the U.S., partially offset by an increase in client activity in both Europe and Asia and the impactacross all regions as a result of a weaker U.S. dollar. Revenues for the nine months ended September 30, 2017 decreased $21.8 million, or 6.2%, compared to the corresponding period in 2016, driven by lower client activity in the U.S., a volume mix shift to electronic trading in Europe and the impact of a stronger U.S. dollar, partially offset by increased client activity in Asia.market conditions.
Distribution Revenues
Two of our subsidiaries act as distributors and/or placingplacement agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as full or partial reimbursement of the distribution expenses they incur. Period-over-period fluctuations of distribution revenues typically are in line with fluctuations of the corresponding average AUM of these mutual funds.
Distribution revenues for the three and nine months ended September 30, 2017 increased $8.4March 31, 2023 decreased $27.3 million, or 8.6%16.2%, and $15.1 million, or 5.3%, respectively, compared tofrom the corresponding periods in 2016,three months ended March 31, 2022, primarily due to the corresponding average AUM of these mutual funds increasing 13.7%decreasing 15.0% and 9.0%, respectively, offset bya decrease in the impact of a shift in product mix. For the three months ended September 30, 2017, average AUM of A-share mutual funds (which have lower distributionoverall portfolio fee rates than B-share and C-share mutual funds) increased 18.9%, while average AUM of B-share and C-share mutual funds decreased by 18.7%. For the nine months ended September 30, 2017, average AUM of A-share mutual funds increased 21.6%, while average AUM of B-share and C-share mutual funds decreased 11.3%.rate.
Dividend and Interest Income and Brokerage Related Interest Expense
Dividend and interest income consists primarily of investment income and interest earned on customer margin balances and U.S. Treasury Bills as well as dividend and interest income in our consolidated company-sponsored investment funds. Interest expense principally reflects interest accrued on cash balances in customers’ brokerage accounts.
Dividend and interest income net offor the three months ended March 31, 2023 increased $39.2 million, from the three months ended March 31, 2022, primarily due to higher interest earned on customer margin balances and higher interest earned on U.S. Treasury Bills. Brokerage related interest expense for the three and ninemonths ended September 30, 2017March 31, 2023 increased $3.1$25.2 million or 39.1%, and $9.7 million, or 40.3%, respectively, compared tofrom the corresponding periods in 2016, primarilythree months ended March 31, 2022, due to higher dividend and interest incomepaid on cash balances in our consolidated company-sponsored investment funds.customers' brokerage accounts.
Investment Gains (Losses)
Investment gains (losses) consist primarily of realized and unrealized investment gains or losses on: (i) employee long-term incentive compensation-related investments, (ii) U.S. Treasury Bills, (iii) market-making in exchange-traded options and equities, (iv) seed capital investments, (v) derivatives and (vi) investments in our consolidated company-sponsored investment funds.
Investments Investment gains (losses) also include equity in earnings of proprietary investments in limited partnership hedge funds that we sponsor and manage.
Investment (losses) gains (losses) are as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| | (in thousands) |
Long-term incentive compensation-related investments: | | | | | | | | |
Realized gains | | $ | 655 | | | $ | 1,335 | | | | | |
Unrealized gains (losses) | | 1,150 | | | (5,485) | | | | | |
| | | | | | | | |
Investments held by consolidated company-sponsored investment funds: | | | | | | | | |
Realized (losses) | | (5,582) | | | (989) | | | | | |
Unrealized gains (losses) | | 16,162 | | | (40,898) | | | | | |
| | | | | | | | |
Seed capital investments: | | | | | | | | |
Realized gains (losses): | | | | | | | | |
Seed capital and other | | 52 | | | 3,576 | | | | | |
Derivatives | | (4,480) | | | 16,628 | | | | | |
Unrealized gains (losses): | | | | | | | | |
Seed capital and other | | 3,652 | | | (15,537) | | | | | |
Derivatives | | (5,995) | | | 3,104 | | | | | |
| | | | | | | | |
Brokerage-related investments: | | | | | | | | |
Realized (losses) | | (199) | | | (667) | | | | | |
Unrealized (losses) | | (151) | | | (91) | | | | | |
| | $ | 5,264 | | | $ | (39,024) | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands) |
Long-term incentive compensation-related investments | | | | | | | | |
Realized gains (losses) | | $ | 105 |
| | $ | 147 |
| | $ | 1,878 |
| | $ | 1,288 |
|
Unrealized gains (losses) | | 1,950 |
| | 2,409 |
| | 5,082 |
| | 733 |
|
| | | | | | | | |
Investments held by consolidated company-sponsored funds | | | | | | | | |
Realized gains (losses) | | 9,788 |
| | (2,334 | ) | | 38,169 |
| | (2,662 | ) |
Unrealized gains (losses) | | 14,512 |
| | 19,274 |
| | 33,062 |
| | 16,675 |
|
| | | | | | | | |
Seed capital investments | | | | | | |
| | |
|
Realized gains (losses) | | | | | | |
| | |
|
Seed capital | | 976 |
| | 2,033 |
| | 21,871 |
| | 67,287 |
|
Derivatives | | (4,797 | ) | | (10,293 | ) | | (20,251 | ) | | (16,340 | ) |
Unrealized gains (losses) | | | | | | |
| | |
|
Seed capital | | (3,245 | ) | | 5,916 |
| | (9,205 | ) | | 22,505 |
|
Derivatives | | (83 | ) | | 2,255 |
| | 488 |
| | (307 | ) |
| | | | | | | | |
Brokerage-related investments | | | | | | |
| | |
|
Realized gains (losses) | | (447 | ) | | (1,684 | ) | | (2,895 | ) | | (3,780 | ) |
Unrealized gains (losses) | | 49 |
| | (117 | ) | | (77 | ) | | 70 |
|
| | $ | 18,808 |
| | $ | 17,606 |
| | $ | 68,122 |
| | $ | 85,469 |
|
The investment gains in the three and nine months ended September 30, 2017, as well as the three months ended September 30, 2016, were primarily driven by gains on investments held by consolidated company-sponsored funds. The investment gains in the nine months ended September 30, 2016 were primarily the result of the sale of our investment in Jasper (see below) and gains on investments held by consolidated company-sponsored funds.
During 2017, we realized a gain of $4.6 million on the exchange of software technology for an ownership stake in a third party provider of financial market data and trading tools.
During the first quarter of 2016, we sold our investment in Jasper, a company in which we owned a 7.6% equity interest. We expect to receive a total of $85.5 million in cash, subject to final transaction costs and working capital adjustments. During March 2016, the transaction closed and we received $74.8 million in cash, recorded a $10.7 million receivable (of which we have received $10.2 million as of September 30, 2017) for the balance retained in escrow for 18 months and recorded an investment gain of $75.3 million.
Other Revenues
Other revenues consist of fees earned for transfer agency services provided to company-sponsored mutual funds, fees earned for administration and recordkeeping services provided to company-sponsored mutual funds and the general accounts of AXAEQH and its subsidiaries, and other miscellaneous revenues. Other revenues for the three months ended September 30, 2017 increased $0.7 million, or 2.7%,March 31, 2023 were flat as compared to the three months ended September 30, 2016, primarily due to higher shareholder servicing fees, offset by lower other revenue. Other revenues for the nine months ended September 30, 2017 decreased $3.5 million, or 4.7%, compared to the corresponding period in 2016, primarily due to lower shareholder servicing fees, offset by higher mutual fund reimbursements and other revenue.March 31, 2022.
Expenses
The components of expenses are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | | | |
| | 2023 | | 2022 | | $ Change | | % Change | | | | | | | | |
| | (in thousands) | | | | | | |
Employee compensation and benefits | | $ | 434,163 | | | $ | 439,420 | | | $ | (5,257) | | | (1.2) | % | | | | | | | | |
Promotion and servicing: | | | | | | | | | | | | | | | | |
Distribution-related payments | | 148,381 | | | 176,244 | | | (27,863) | | | (15.8) | | | | | | | | | |
Amortization of deferred sales commissions | | 8,154 | | | 9,383 | | | (1,229) | | | (13.1) | | | | | | | | | |
Trade execution, marketing, T&E and other | | 50,630 | | | 51,227 | | | (597) | | | (1.2) | | | | | | | | | |
| | 207,165 | | | 236,854 | | | (29,689) | | | (12.5) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
General and administrative | | 139,653 | | | 177,625 | | | (37,972) | | | (21.4) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Contingent payment arrangements | | 2,444 | | | 838 | | | 1,606 | | | 191.6 | | | | | | | | | |
Interest on borrowings | | 13,713 | | | 1,411 | | | 12,302 | | | n/m | | | | | | | | |
Amortization of intangible assets | | 11,693 | | | 1,136 | | | 10,557 | | | n/m | | | | | | | | |
Total | | $ | 808,831 | | | $ | 857,284 | | | $ | (48,453) | | | (5.7) | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | | Nine Months Ended September 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
| | | | | | | | | | (in thousands) | | |
| | | | | | | | | | | | | | | | |
Employee compensation and benefits | | $ | 329,777 |
| | $ | 316,737 |
| | $ | 13,040 |
| | 4.1 | % | | $ | 979,387 |
| | $ | 927,997 |
| | $ | 51,390 |
| | 5.5 | % |
Promotion and servicing: | | | | | | | | | | |
| | |
| | |
| | |
Distribution-related payments | | 108,284 |
| | 95,844 |
| | 12,440 |
| | 13.0 |
| | 307,407 |
| | 276,188 |
| | 31,219 |
| | 11.3 |
|
Amortization of deferred sales commissions | | 7,629 |
| | 9,787 |
| | (2,158 | ) | | (22.0 | ) | | 25,015 |
| | 31,606 |
| | (6,591 | ) | | (20.9 | ) |
Trade execution, marketing, T&E and other | | 48,088 |
| | 47,205 |
| | 883 |
| | 1.9 |
| | 149,537 |
| | 156,763 |
| | (7,226 | ) | | (4.6 | ) |
| | 164,001 |
| | 152,836 |
| | 11,165 |
| | 7.3 |
| | 481,959 |
| | 464,557 |
| | 17,402 |
| | 3.7 |
|
General and administrative: | | | | | | | | | | |
| | |
| | |
| | |
General and administrative | | 128,712 |
| | 106,504 |
| | 22,208 |
| | 20.9 |
| | 360,395 |
| | 322,184 |
| | 38,211 |
| | 11.9 |
|
Real estate charges (credits) | | 18,655 |
| | (140 | ) | | 18,795 |
| | n/m |
| | 39,400 |
| | 24,645 |
| | 14,755 |
| | 59.9 |
|
| | 147,367 |
| | 106,364 |
| | 41,003 |
| | 38.5 |
| | 399,795 |
| | 346,829 |
| | 52,966 |
| | 15.3 |
|
Contingent payment arrangements | | (140 | ) | | (21,129 | ) | | 20,989 |
| | (99.3 | ) | | 215 |
| | (20,423 | ) | | 20,638 |
| | n/m |
|
Interest | | 2,105 |
| | 1,009 |
| | 1,096 |
| | 108.6 |
| | 6,227 |
| | 3,293 |
| | 2,934 |
| | 89.1 |
|
Amortization of intangible assets | | 7,013 |
| | 6,465 |
| | 548 |
| | 8.5 |
| | 20,921 |
| | 19,344 |
| | 1,577 |
| | 8.2 |
|
Total | | $ | 650,123 |
| | $ | 562,282 |
| | $ | 87,841 |
| | 15.6 |
| | $ | 1,888,504 |
| | $ | 1,741,597 |
| | $ | 146,907 |
| | 8.4 |
|
Employee Compensation and Benefits
Employee compensation and benefits consistexpense consists of base compensation (including salaries and severance), annual short-term incentive compensation awards (cash bonuses), annual long-term incentive compensation awards, commissions, fringe benefits and other employment costs (including recruitment, training, temporary help and meals).
Compensation expense as a percentage of net revenues was 40.6%42.4% and 42.4%39.7% for the three months ended September 30, 2017March 31, 2023 and 2016, respectively. Compensation expense as a percentage of net revenues was 41.2% and 41.4% for the nine months ended September 30, 2017 and 2016,2022, respectively. Compensation expense generally is determined on a discretionary basis and is primarily a function of our firm’s current-year financial performance. The amounts of incentive compensation we award are designed to motivate, reward and retain top talent while aligning our executives' interests with the interests of our Unitholders. Senior management, with the approval of the Compensation and Workplace Practices Committee of the Board of Directors of AllianceBernstein Corporation (“Compensation Committee”), periodically confirms that the appropriate metric to consider in determining the amount of incentive compensation is the ratio of adjusted employee compensation and benefits expense to adjusted net revenues. Adjusted net revenues used in the adjusted compensation ratio are the same as the adjusted annual net revenues presented as a non-GAAP measure (discussed earlier in this MD&AItem 2). Adjusted employee compensation and benefits expense is total employee compensation and benefits
expense minus other employment costs such as recruitment, training, temporary help and meals (which werewas 1.0% and 1.1%, respectively, of adjusted net revenues for each of the three and nine months ended September 30, 2017, and was 1.1% and 1.2%, respectively,0.9% of adjusted net revenues for the three and nine months ended September 30, 2016)March 31, 2023 and March 31, 2022, respectively), and excludes the impact of mark-to-market vesting expense, as well as dividends and interest expense, associated with employee long-term incentive compensation-related investments.investments and the amortization expense associated with the awards issued by EQH to some of our firm's executive officers relating to their roles as members of the EQH Management Committee. Senior management, with the approval of the Compensation Committee, has established as an objective that adjusted employee compensation and benefits expense, excluding the impact of performance-based fees, generally should not exceed 50% of our adjusted net revenues in any year, except in unexpected or unusual circumstances. Our ratio of adjusted compensation expense as a percentage of adjusted net revenues was 48.5% and 49.2%, respectively,49.5% for the three and nine months ended September 30, 2017. Our ratio of adjusted compensation expense as a percentage of adjusted net revenuesMarch 31, 2023 and was 50.0%48.0% for the three and nine months ended September 30, 2016.March 31, 2022.
For the three months ended September 30, 2017,March 31, 2023, employee compensation and benefits expense increased $13.0decreased $5.3 million, or 4.1%1.2%, compared to the three months ended September 30, 2016,March 31, 2022, primarily due to higherlower incentive compensation of $13.8 million. For the nine months ended September 30, 2017, employee compensation$32.5 million and benefits expense increased $51.4lower commissions of $9.1 million, or 5.5%, compared to the nine months ended September 30, 2016, primarily due to higher incentive compensation of $40.9 million,partially offset by higher base compensation of $6.4$31.5 million which resulted from higher severance, and higher fringes of $2.8$4.6 million.
Promotion and Servicing
Promotion and servicing expenses include distribution-related payments to financial intermediaries for distribution of AB mutual funds and amortization of deferred sales commissions paid to financial intermediaries for the sale of back-end load shares of AB mutual funds. Also included in this expense category are costs related to trade execution and clearance, travel and entertainment, advertising and promotional materials.
Promotion and servicing expenses increased $11.2decreased $29.7 million, or 7.3%12.5%, during the three months ended September 30, 2017March 31, 2023 compared to the three months ended September 30, 2016.March 31, 2022. The increasedecrease was primarily was due to higherlower distribution-related payments of $12.4$27.9 million, higherlower transfer fees of $0.7$3.3 million, and higher marketing costslower trade execution expenses of $0.6$1.8 million offset byand lower amortization of deferred sales commissions of $2.2$1.2 million, and loweroffset by higher travel and entertainment expenses of $0.9 million. Promotion and servicing expenses increased $17.4 million, or 3.7%, during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase primarily was due to higher distribution-related payments of $31.2 million, offset by lower amortization of deferred sales commissions of $6.6 million, lower transfer fees of $2.7 million, lower travel and entertainment of $2.6 million, lower marketing costs of $1.0$3.0 million and lower trade executionhigher marketing and clearing costscommunication expenses of $1.0$1.5 million.
General and Administrative
General and administrative expenses include portfolio services expenses, technology expenses, professional fees and office-related expenses (occupancy, communications and similar expenses). General and administrative expenses as a percentage of net revenues were 18.1% (15.8% excluding real estate charges)13.6% and 14.2% (including and excluding real estate charges)16.1% for the three months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. General and administrative expenses increased $41.0decreased $38.0 million, or 38.5%21.4%, during the third quarter of 2017three months ended March 31, 2023 compared to the samecorresponding period in 2016,2022, primarily due to lower portfolio servicing fees of $34.7 million, lower professional fees of $6.0 million and a vendor termination accrualfavorable foreign exchange translation impact of $19.7$2.1 million, (partially offset by higher valuation adjustments related to the classification of Bernstein Research Services as held for additional information see Executive Overview), higher real estate chargessale of $18.8$2.5 million and higher technology expenses related to our consolidated company-sponsored investment funds of $6.3$2.2 million. General and administrative expenses as a percentage of net revenues were 16.8% (15.1% excluding real estate charges) and 15.5% (14.4% excluding real estate charges) for the nine months ended September 30, 2017 and 2016, respectively. General and administrative expenses increased $53.0 million, or 15.3%, during the first nine months of 2017 compared to the same period in 2016, primarily due to the vendor termination accrual of $19.7 million, higher expenses related to our consolidated company-sponsored investment funds of $19.4 million and higher real estate charges of $14.8 million.
Contingent Payment Arrangements
Contingent payment arrangements reflect changes in estimates of contingent payment liabilities associated with acquisitions in previous periods, as well as accretion expense of these liabilities. The expense forThere were no changes in our estimates during the ninefirst three months ended September 30, 2017March 31, 2023 or 2022.
Interest on Borrowings
Interest on borrowings reflects accretion expenses of $0.4 million, offset by a changeinterest expense related to our debt and credit facilities. See Note 16 to AB's condensed consolidated financial statements contained in estimate of the contingent consideration payableItem 1, for disclosures relating to our 2010 acquisition of $0.2 million. Thedebt and credit to operating expenses of $20.4 million forfacilities. For the ninethree months ended September 30, 2016March 31, 2023 interest on borrowings increased $12.3 million, compared to the three months ended March 31, 2022. The increase was due to higher average borrowings and higher interest rates.
Amortization of Intangible Assets
Amortization of intangible assets reflects changes in estimatesour amortization of costs assigned to acquired investment management contracts with a finite life. These assets are recognized at fair value and generally are amortized on a straight-line basis over their estimated useful life. Amortization of intangible assets increased $10.6 million during the contingent consideration payable relatingthree months ended March 31, 2023 compared to our 2013 and 2010 acquisitions of $21.5 million, offset by accretion expense of $1.1 million.the three months ended March 31, 2022. This increase was primarily due to acquired intangible assets associated with the CarVal acquisition.
Income Taxes
AB, a private limited partnership, is not subject to federal or state corporate income taxes, buttaxes. However, AB is subject to a 4.0% New York City unincorporated business tax (“UBT”). Our domestic corporate subsidiaries are subject to federal, state and local income taxes and generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are filed. Foreign corporate subsidiaries generally are subject to taxes in the jurisdictions where they are located.
Income tax expense for the three months ended September 30, 2017March 31, 2023 decreased $7.0$1.4 million, or 60.7%10.8%, compared to the three months ended September 30, 2016.March 31, 2022. The decrease iswas primarily due to a lower effective tax rateone-time discrete items in the current quarter of 2.8% compared to 6.2% in the third quarter of 2016, driven by the benefit of discrete tax items, primarily the $5.4 million reduction of the income tax liability originally recorded in the third quarter of 2016 relating to the Section 956 of the Internal Revenue Code deemed dividend inclusion, partially offset by the less favorable mix of earnings across the AB tax filing groups. Income tax expense for the ninethree months ended September 30, 2017 decreased $12.4 million, or 33.4%, compared to the nine months ended September 30, 2016. The decrease is due to a lower effective tax rate in the first nine months of 2017 of 5.1%, compared to 7.4% in the first nine months of 2016, driven by the benefit of discrete items described above, partially offset by the less favorable mix of earnings across the AB tax filing groups.March 31, 2023. There were no material changes to uncertain tax positions (FIN 48 reserves) or valuation allowances against deferred tax assets duringfor the three months and nine months ended September 30, 2017.March 31, 2023.
Net Income (Loss) of Consolidated Entities Attributable to Non-Controlling Interests
Net income (loss) of consolidated entities attributable to non-controlling interests primarily consists of limited partner interests owned by other investors in our consolidated company-sponsored investment funds. DuringFor the first ninethree months of 2017,ended March 31, 2023, we had $50.0$9.8 million of net gains of consolidated entities attributable to non-controlling interests compared to net gainslosses of $14.8$25.0 million duringfor the first ninethree months ended March 31, 2022. Period-to-period fluctuations result primarily from the number of 2016.consolidated company-sponsored investment funds and their respective market performance.
CAPITAL RESOURCES AND LIQUIDITY
Cash flows from operating activities primarily include the receipt of investment advisory and services fees and other revenues offset by the payment of operating expenses incurred in the normal course of business. Our cash flows from operating activities have historically been positive and sufficient in supporting our operations. We do not anticipate this to change in the foreseeable future. Cash flows from investing activities generally consist of small capital expenditures and, when applicable, business acquisitions. Cash flows from financing activities primarily consist of issuance and repayment of debt and the repurchase of AB Holding Units to fund our long-term deferred compensation plans. We are required to distribute all of our Available Cash Flow to our Unitholders and the General Partner.
During the first ninethree months of 2017 and 2016,2023, net cash used in operating activities was $46.9 million, compared to net cash provided by operating activities was $1.1 billionof $150.2 million during the corresponding 2022 period. The change is primarily due to lower earnings of $121.4 million (after non-cash reconciling items), an increase in each period. Lowerfees receivable of $101.6 million and net redemptionsactivity of seed capital and higher net purchasesour consolidated funds of broker-dealer investments of $261.4$43.7 million, andpartially offset by a decrease in broker-dealer related receivables (net of payables and segregated U.S. Treasurytreasury bills activity) of $16.6 million, offset an increase in net activity of our consolidated investment funds of $174.2 million and an increase in cash provided by net income of $38.9$114.1 million.
During the first ninethree months of 2017,2023, net cash used in investing activities was $24.9$10.6 million, compared to $48.7$6.2 million net cash used during the corresponding 20162022 period. The change reflects the third quarter 2016 purchase of a business of $20.5 million and loweris due to higher purchases of furniture, equipment and leasehold improvements of $3.4$4.3 million.
During the first ninethree months of 2017,2023, net cash used in financing activities was $820.5$200.7 million, compared to $839.5$371.2 million during the corresponding 20162022 period. The change reflects an increase in overdrafts payable of $141.0 million,is primarily due to lower net redemptions of consolidated company-sponsored investment funds of $27.9 million and an increase in investment by AB Holding with proceeds from exercise of options to buy AB Holding Units of $15.3 million, offset by higher distributions to the General Partner and Unitholders of $88.6$155.9 million as a result of higher earnings (distributions on earnings are paid one quarter in arrears), higher distributions toand lower net contributions from non-controlling interests inof consolidated entitiescompany-sponsored investment funds during the first three months of $43.62023 as compared to the corresponding 2022 period of $56.0 million, higherpartially offset by lower net repaymentsborrowings of commercial paperdebt of $23.3 million and higher repurchases of AB Holding Units of $5.4$50.0 million.
As of September 30, 2017,March 31, 2023, AB had $802.2 million$1.1 billion of cash and cash equivalents (excluding(including cash and cash equivalents of consolidated company-sponsored investment funds)funds and cash held-for-sale), all of which areis available for liquidity but consist primarily of cash on deposit for our broker-dealers related to comply with various customer clearing activities, and cash held by foreign subsidiaries of $513.4$544.0 million. Taxes are provided on foreign cash repatriated to the U.S.
Debt and Credit Facilities
As of September 30, 2017 and December 31, 2016, AB had $297.4 million and $513.0 million, respectively,See Note 16 to AB’s condensed consolidated financial statements contained in commercial paper outstanding with weighted average interest rates of approximately 1.4% and 0.9%, respectively. The commercial paper is short term in nature, and as such, recorded value is estimated to approximate fair value (and considered a Level 2 security in the fair value hierarchy). Average daily borrowings of commercial paper during the first nine months of 2017 and the full year 2016 were $449.6 million and $422.9 million, respectively, with weighted average interest rates of approximately 1.3% and 0.6%, respectively.
AB has a $1.0 billion committed, unsecured senior revolving credit facility (the “Credit Facility”) with a group of commercial banks and other lenders, which matures on October 22, 2019. The Credit Facility providesItem 1, for possible increases in the principal
amount by up to an aggregate incremental amount of $250.0 million; any such increase is subject to the consent of the affected lenders. The Credit Facility is available for AB and Sanford C. Bernstein & Co., LLC ("SCB LLC") business purposes, including the support of AB’s $1.0 billion commercial paper program. Both AB and SCB LLC can draw directly under the Credit Facility and management may draw on the Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Credit Facility.
The Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of September 30, 2017, we were in compliance with these covenants. The Credit Facility also includes customary events of default (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the Credit Facility would automatically become immediately due and payable, and the lender’s commitments would automatically terminate.
Amounts under the Credit Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. Voluntary prepayments and commitment reductions requested by us are permitted at any time without fee (other than customary breakage costsdisclosures relating to the prepayment of any drawn loans) upon proper noticeour debt and subject to a minimum dollar requirement. Borrowings under the Credit Facility bear interest at a rate per annum, which will be, at our option, a rate equal to an applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indexes: London Interbank Offered Rate; a floating base rate; or the Federal Funds rate.facilities.
As of September 30, 2017 and December 31, 2016, we had no amounts outstanding under the Credit Facility. During the first nine months of 2017 and the full year 2016, we did not draw upon the Credit Facility.
On December 1, 2016, AB entered into a $200.0 million, unsecured 364-day senior revolving credit facility (the "Revolver") with a leading international bank and the other lending institutions that may be party thereto. The Revolver is available for AB's and SCB LLC's business purposes, including the provision of additional liquidity to meet funding requirements primarily related to SCB LLC's operations. Both AB and SCB LLC can draw directly under the Revolver and management expects to draw on the Revolver from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Revolver. The Revolver contains affirmative, negative and financial covenants that are identical to those of the Credit Facility. As of September 30, 2017 and December 31, 2016, we had no amounts outstanding under the Revolver. Average daily borrowing of the Revolver during the first nine months of 2017 and full year 2016 were $22.7 million and $7.3 million, respectively, with weighted average interest rates of approximately 1.9% and 1.6%, respectively.
In addition, SCB LLC has four uncommitted lines of credit with four financial institutions. Three of these lines of credit permit us to borrow up to an aggregate of approximately $225.0 million, with AB named as an additional borrower, while one line has no stated limit. As of September 30, 2017 and December 31, 2016, SCB LLC had no bank loans outstanding. Average daily borrowings of bank loans during the first nine months of 2017 and full year 2016 were $4.3 million and $4.4 million, respectively, with weighted average interest rates of approximately 1.3% and 1.1%, respectively.
Our financial condition and access to public and private debt markets should provide adequate liquidity for our general business needs. Management believes that cash flow from operations and the issuance of debt and AB Units or AB Holding Units will provide us with the resources we need to meet our financial obligations. See “Cautions Regarding Forward-Looking Statements”. for a discussion of credit markets and our ability to renew our credit facilities at expiration.
COMMITMENTS AND CONTINGENCIES
AB’s capital commitments, which consist primarily of operating leases for office space, generally are funded from future operating cash flows.
We entered into a subscription agreement, under which we committed to invest up to $35.0 million in a venture capital fund. As of September 30, 2017, we had funded $34.2 million of this commitment.
As general partner of AllianceBernstein U.S. Real Estate L.P. (“Real Estate Fund”), we committed to invest $25.0 million in the Real Estate Fund. As of September 30, 2017, we had funded $21.6 million of this commitment. As general partner of AllianceBernstein U.S. Real Estate II L.P. (“Real Estate Fund II”), we committed to invest $28.0 million in Real Estate Fund II. As of September 30, 2017, we had funded $9.6 million of this commitment.
We entered into an investment agreement under which we committed to invest up to $8.0 million in an oil and gas fund. As of September 30, 2017, we had funded $6.2 million of this commitment.
See Note 1213 for discussion of contingencies.lease commitments.
See Note 12 for discussion of commitments and contingencies.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the condensed consolidated financial statements and notes to condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
There have been no updates to our critical accounting estimates from those disclosed in “Management’s Discussion and Analysis of Financial Condition”Condition” in our Form 10-K for the fiscal year ended December 31, 2016.2022.
ACCOUNTING PRONOUNCEMENTS
See Note 2 to AB’s condensed consolidated financial statements contained in Item 1.
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements provided by management in this report and in the portion of AB’s Form 10-Q attached hereto as Exhibit 99.1 are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately-managedseparately managed accounts, general economic conditions, industry trends, future acquisitions, integration of acquired companies, competitive conditions and government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. We caution readers to carefully consider such factors. Further, these forward-looking statements speak only as of the date on which such statements are made; we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ,see “Risk Factors” in Part I, Item 1A of our Form 10-K for the year ended December 31, 2016 2022 and Part II, Item 1Ain this Form 10-Q. Any or all of the forward-looking statements that we make in our Form 10-K, this Form 10-Q, other documents we file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in “Risk Factors” and those listed below could also could affect adversely impact our revenues, financial condition, results of operations and business prospects.
The forward-looking statements referred to in the preceding paragraph, most of which directly affect AB but also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB, include statements regarding:
•Our belief that the cash flow AB Holding realizes from its investment in AB will provide AB Holding with the resources it needs to meet its financial obligations: AB Holding’s cash flow is dependent on the quarterly cash distributions it receives from AB. Accordingly, AB Holding’s ability to meet its financial obligations is dependent on AB’s cash flow from its operations, which is subject to the performance of the capital markets and other factors beyond our control.
•Our financial condition and ability to access the public and private capital markets providing adequate liquidity for our general business needs: Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to access public and private capital markets on reasonable terms may be limited by adverse market conditions, our firm’s credit ratings, our profitability and changes in government regulations, including tax rates and interest rates.
•The outcome of litigation: Litigation is inherently unpredictable, and excessive damage awards do occur. Though we have stated that we do not expect any pending legal proceedings to have a material adverse effect on our results of operations, financial condition or liquidity, any settlement or judgment with respect to a pending or future legal proceeding could be significant and could have such an effect.
•The possibility that we will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases.
•Our determination that adjusted employee compensation expense, excluding the impact of performance-based fees, generally should not exceed 50% of our adjusted net revenues:revenues on an annual basis: Aggregate employee compensation reflects employee performance and competitive compensation levels. Fluctuations in our revenues and/or changes in competitive compensation levels could result in adjusted employee compensation expense exceeding 50% of our adjusted net revenues.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in AB’s market risk from the information provided under “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of AB's Form 10-K for the year ended December 31, 2016.2022.
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Item 4. | Controls and Procedures |
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Each of AB Holding and AB maintains a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our reports under the Exchange Act is (i) recorded, processed, summarized and reported in a timely manner, and (ii) accumulated and communicated to management, including the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), to permit timely decisions regarding our disclosure.
As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the CEO and the CFO, of the effectiveness of the design and operation of the disclosure controls and procedures. Based on this evaluation, the CEO and the CFO concluded that the disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the thirdfirst quarter of 20172023 that materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12 to the condensed consolidated financial statements contained in Part I, Item 1.
Item 1A. Risk Factors
There have been no material changes in ourto the risk factors from those disclosedappearing in AB'sour Annual Report on Form 10-K ("AB 10-K") for the fiscal year ended December 31, 2016.2022.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no AB Units sold by AB in the period covered by this report that were not registered under the Securities Act.
The following table provides information relating to any AB Units bought by AB inus or one of our affiliates during the first quarter covered by this report:of 2023 are as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
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Period | | Total Number of AB Units Purchased | | Average Price Paid Per AB Unit, net of Commissions | | Total Number of AB Units Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of AB Units that May Yet Be Purchased Under the Plans or Programs |
1/1/23 - 1/31/23 | | — | | | $ | — | | | — | | | — | |
2/1/23 - 2/28/23 | | — | | | — | | | — | | | — | |
3/1/23 - 3/31/23(1) | | 600 | | | 38.62 | | | — | | | — | |
Total | | 600 | | | $ | 38.62 | | | — | | | — | |
(1)During March 2022, AB purchased 600 AB Units in private transactions and retired them.
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Period | | Total Number of AB Holding Units Purchased | | Average Price Paid Per AB Holding Unit, net of Commissions | | Total Number of AB Holding Units Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of AB Holding Units that May Yet Be Purchased Under the Plans or Programs |
7/1/17 - 7/31/17 | | — |
| | $ | — |
| | — |
| | — |
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8/1/17 - 8/31/17 | | — |
| | — |
| | — |
| | — |
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9/1/17 - 9/30/17(1) | | 13,200 |
| | 23.41 |
| | — |
| | — |
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Total | | 13,200 |
| | $ | 23.41 |
| | — |
| | — |
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(1)
| During September 2017, AB purchased 13,200 AB Units in private transactions. |
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Item 3. | Defaults Upon Senior Securities |
Item 3. Defaults Upon Senior Securities
None.
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Item 4. | Mine Safety Disclosures |
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Submission of Matters to a Vote of Security Holders
A special meeting (“Special Meeting”) of Unitholders of AB Holding was held at 9:30 a.m. (NY time) on September 29, 2017 pursuant to due notice. At the Special Meeting, AB Holding Unitholders voted to adopt the AB 2017 Long Term Incentive Plan, which was the sole proposal considered at the Special Meeting. The final voting results from the Special Meeting are as follows:None.
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For | Against/Withheld | Abstain | Broker Non-Votes |
41,451,543 | 15,286,131 | 997,100 | 0 |
Iran Threat Reduction and Syria Human Rights Act
AB Holding, AB and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act, nor were they involved in the AXA Group matters described immediately below.
The non-U.S.-based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions in which they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see Note 1 to the condensed financial statements in Part 1, Item 1.
AXA has informed us that AXA Konzern AG, an AXA insurance subsidiary organized under the laws of Germany, provides car, accident and health insurance to diplomats based at the Iranian Embassy in Berlin, Germany. The total annual premium of these policies is approximately $176,000 before tax and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $26,400. These policies were underwritten by a broker who specializes in providing insurance coverage for diplomats. Provision of motor vehicle insurance is mandatory in Germany and cannot be cancelled until the policy expires.
In addition, AXA has informed us that AXA Insurance Ireland, an AXA insurance subsidiary, provides statutorily required car insurance under four separate policies to the Iranian Embassy in Dublin, Ireland. AXA has informed us that compliance with the Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to assume the coverage. The total annual premium for these policies is approximately $6,094 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $914.
Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of Turkey, provides car insurance coverage for vehicle pools of the Iranian General Consulate and the Iranian Embassy in Istanbul, Turkey. Motor liability insurance coverage is mandatory in Turkey and cannot be cancelled unilaterally. The total annual premium in respect of these policies is approximately $3,150 and the annual net profit, which is difficult to calculate with precision, is estimated to be $473.
Additionally, AXA has informed us that AXA Ukraine, an AXA insurance subsidiary, provides car insurance for the Attaché of the Iranian Embassy in Ukraine. Motor liability insurance coverage cannot be cancelled under Ukrainian law. The total annual premium in respect of this policy is approximately $1,000 and the annual net profit, which is difficult to calculate with precision, is estimated to be $150.
Lastly, AXA has informed us that AXA Winterthur, an AXA insurance subsidiary organized under the laws of Switzerland, provides Naftiran Intertrade, a wholly-owned subsidiary of the Iranian state-owned National Iranian Oil Company, with life, disability and accident coverage for its employees. The provision of these forms of coverage is mandatory for employees in Switzerland. The total annual premium of these policies is approximately $373,668 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $56,000.
The aggregate annual premium for the above-referenced insurance policies is approximately $559,912, representing approximately 0.0004% of AXA’s 2016 consolidated revenues, which exceed $100 billion. The related net profit, which is difficult to calculate with precision, is estimated to be $83,937, representing approximately 0.0008% of AXA’s 2016 aggregate net profit.
Item 6. Exhibits
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31.2 |
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32.1 |
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32.2 |
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101.INS | XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | XBRL Taxonomy Extension Schema. |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase. |
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101.LAB | XBRL Taxonomy Extension Label Linkbase. |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase. |
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104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL (included in Exhibit 101). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: | April 26, 2023 | ALLIANCEBERNSTEINL.P. |
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| | By: | /s/ Kate Burke | |
| | | Kate Burke | |
Date: October 25, 2017 | ALLIANCEBERNSTEINL.P.
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| By: | /s/ John C. Weisenseel | |
| | John C. Weisenseel | |
| | Chief Operating Officer & Chief Financial Officer |
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| By: | By: | /s/ Edward J. FarrellBill Siemers | |
| | Edward J. Farrell | Bill Siemers | |
| | | Controller & Chief Accounting Officer |