AB - Earnings call transcript Q3 2019 | AllianceBernstein Holding L.P.

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Operator

Thank you for standing by, and welcome to the AllianceBernstein Third Quarter 2019 Earnings Review. At this time all participants are in a listen-only mode. After the remarks there will be a question-and-answer session and I will give you instructions on how to ask questions at that time.

As a reminder, this conference is being recorded and will be available for replay for one week.

I would now like to turn the conference over to your host for this call, Corporate Secretary for AB, Mr. Lesser. David sir. ahead, go Please

David Lesser

posted you, Jessa. third is welcome our presentation everyone, webcast of Relations our website Good XXXX earnings morning, www.alliancebernstein.com. that’s slide quarter a call accompanied and the review. Investor and section to by Thank in This being conference

and results our questions and President CFO; after John COO, our our Weisenseel, CEO; Bernstein, Gingrich, will remarks. take Seth our prepared and Jim present our

regulations we information certain present today disclosure. and forward-looking to and the is SEC subject rules of regarding Some

So our safe X I’d out language harbor the like to presentation. point on Slide of

You the in may XXXX management can our community forum. public investment morning. also XX-Q, find MD&A quarter FD, from our regulation only safe in a address this harbor third earlier Under the language questions which of filed we nature of material

all So during questions this such please ask call.

I’ll over Now Seth. it to turn

Seth Bernstein

you you. joining for us and today. morning Thank Good thank

the active growth success declining active on retail which business. a in Our portfolio positive $X.X year-to-date third in more ongoing driven of by to equities. than active continue fee areas fee of be continued active rates, rebound translates continues our quarter AB’s an our fixed-income in quarter, results key reflect flows rate organic and decades. $XX.X annualized billion, were environment several Flows X.X% inflows And in to the best were with overall stable. in third bringing Firmwide rate, to momentum billion net year-to-date

specifics. Starting into firmwide the X. let’s Now on get with overview Slide

And end year-on-year X% $XXX.X year AUM making Total average period prior billion X% of crisis. billion year billion the increased were prior period and was $X.X slightly Total flows sequentially. since AUM at $XX.X the management Third sequentially, positive of net quarter inflows second quarter. the down gross $X.X versus X% firmwide up sales the XX% increased $X.X and financial year-on-year under were billion in versus and of billion X% quarter our highest sequentially. and net assets in

flows see history shows by by sales channel. to ago Firmwide inflows billion net both And X quarter. remain compared were the clients’ of institutional $X.X due In inflows for and flat. were and wealth, of $X.X a reached can softening quarterly gross In while of in private from highest gross Slide our down sales increased and the the to flow period sales million. wealth $XXX In trend modest quarter bottom trends to $X.X negative billion retail driven private record second net while our institutional, $XX.X billion, this and periods. inflows of chart, inflows left redemptions in were higher outflows caused $X.X sentiment resulted year versus the prior prior period leading the sales sequentially. you retail versus retail, year’s gross in institutional year net billion. This were billion by net cautious of market

Our remains annualized average despite volatile below XX the outflow year rate markets.

percentage of beginning but remained period Now from for to outperforming results. quarter. Slide relative In the has year assets investment of to three last percentage outperforming period improved to fixed-income, our increased our In one year let’s turn for flat X. performance XX% assets sequentially, recent the on XX%

noteworthy of can the see high global you rebound our which for conviction year. outperforming. will that have three for we outperforming year of assets In with approach of performance the time, assets for diversified our five to XX% with over record the was and outperforming, the assets the XX% year, in the returns produce With XX% one equities, risk investment XX% continue percentage our in adjusted five track year best

the Mortgage one basis is top been on three performance. remain to period. Slide fixed-income track for three for both benchmark and that year beat for periods top compelling. decile is by year remains in European and has year five period for income periods. retail the quartile quartile and and AB period. Income three table for five fixed-income decile X The top strong. the investment year points for points periods. X five for the records its our XXX and top provide and basis Performance one XXX And top Income Income five American year and the our portfolios and on three Slide top reflects the more Income decile one X year insight periods one, equity quartile long-term particularly year and the

to Moving Slide X. on equities on

Growth Our Concentrated strategies Global, Global Low Core significant Large-Cap are and outperformers. Global Vol,

each is one and Large-Cap for even year in to decile the values top impressive Low Global Core five for Global, U.S. Concentrated the decile quartile year see for These are top top Growth the and three and quartile is across year. and as continue all and Global under-performance Concentrated one decile for fact, In top year emerging Vol market top Growth three strategies. rankings, time periods. we the are our

on move with client to our on beginning Slide Let’s retail X. channels

seeing the investing results spent years We’re we’ve our platform. retail remarkable from in

year-over-year quarter XX%. were Our as up $XX.X history highest retail sales of overall sales and last surpasses in the by XX% billion quarter

Asia saw regions except and Latin during all ex-Japan, U.S. strengthen quarter, across the across sales including regions increases EMEA and also sales growth America. retail, year-on-year We sequential in EMEA

chart industry-wide month left sales for the retail shows period. in XX the ex-Japan top bond Asia pickup The fund

for gross region years, represent quarter more, sales $X the our quarter higher third straight of the the XX% fee consecutive and billion. in $X.X our than our a $XX.X billion overall on history, is average third Net billion the exceeding the fifth of in in sales average. were inflows quarter were highest in rate quarter XX channel positive what’s Our highest

funds high. them more as and under sources million flows at end. $XXX under assets hit AB And in diverse. and we of retail our year-to-date. the of with time an equity flows at again six asset And seventh U.S. retail of attracted billion the rank offerings and in net And quarter well. inflows multi-asset. managers all during quarter seven for of have a equity AB billion assets one $X $XXX a the six or milestones at than XX net at quarter number quarter quarter management XXX active more XX end are management retail fixed-income, in is

discuss net growth $X.X for limited and institutional outflows. inflows turned XX. on I’ll $X pipeline Now billion reaching substantial year and with positive saw sales Slide at the We billion gross client

year-on-year. $X.X That’s institutional grew billion billion. the second and the quarter $XX.X from Our XX% pipeline end of at up XX% sequentially to

was pipelines million left in Our strong chart. equity which top we fee a the straight eighth $XX of high and than illustrated reached with in new also alternative divisions more base annualized our quarter it $XX as exceeded million and

of the in consultant $X.X $X than included also channel to are in additions of equities the support quarter the is more third the at highest New This average. than notable the average contraction. contributing active the having. is fee billion billion years The industry-wide success considering rate twice more two we’re fee in

reported revenues. income This steady have and beyond of seeing solutions, New it’s alternatives, note the including areas, future direct adds middle see stream resulted and custom we’re RFP strategies, multi-asset we that quarter to other activity. alternative to quarter ratings in for success third lending. And a our second continue in bodes well lifetime in three pipeline equities, market important

Slide wealth management Client to high on remains Moving trends. face the in engagement of sales XX. private softening

million. the outflow are outflows and year year-on-year our markets despite $XXX flows $X.X were sales of XX% gross quarter below the average. sequentially negative with of down and XX volatile remains But billion Third annualized

as We’re seeing and volatility includes client strategic strategies. long-term to engagement in alternative their due allocations they tools maintain that advice

added bottom an up to deployed more resonate the $XX in We in platform high investment Opportunity head continue advice left our base assets more closed our targeted our $XX.X equity the of with quarter. at and fourth year-to-date. That’s inflows alternative $X.X as year Our total than count for advisor We’ve our Zone X% and for first focused remains us additional to model a end. Growing adviser priority committed billion billion with operating reached and end affluent chart. broader base. commitments top and million bringing and client net year-to-date, well. transaction We’ve to quarter a services suite complexity plan

to remained most as I’ll difficult flat near finish sell with down business Research sequentially. Slide in side $XXX and a overview geographies. the Revenues were of activity of environment year-on-year XX. continues feel Bernstein X% million our customer depressed the on effects

However, excluding year-on-year. our X April XX% acquisition of Research, revenues Autonomous declined

clients. believe differentiated will and our a potential continue that than client integration ultimately of ramping offering XXX to more While The going new disappointing, is drive up are of activity. cross-selling we well Autonomous efforts

categories trading liquidity AART Greenwich strong another we Research another institutional number in top-ranked dark sectors Associates showing in had one five European all the were investor, year. and to algos for Bernstein finalists survey. XX respected with survey in last compared the best We electronic ranked annual survey pool XX in

Markets was built A We Emerging research was this operation research financial and product our continue and new trading to launched our sales India. globalize research in capabilities. and Global July past out

While year-to-date to managing below to and thoughtfully tough we’re trends navigating our our a continue operations expectations, be environment.

Slide by close I’ll third on some XX. quarter accomplishments our highlighting of

a clients scaled continued and pickup retail income. offerings delivering and fixed products. further for with active continued commercialized returns in franchise We we differentiated diverse our of our equity success And our with

in expense plan executing and market our which yield And infrastructure and to on completed on – our loan our annual CLO direct which business annual the middle XXXX. of expense management platform. a established recently savings and target lending business, high Nashville, once We focused resources our leverage management remain to is the existing transition relocation in credit we will ongoing achieve is

climate great quarter, Columbia we and to Institute, Responsible create and I’ll this Earth made In also that first-of-its-kind corporate home broader add performance. on investment platform curriculum the collaboration Investing strides efforts. intensive announced responsibility Observatory, focused a to our past University’s we’ve Earth the with Lamont-Doherty our risk with

presence we’ve I’m challenges. quarter of what the despite achieved proud some of the during very

Now to financials. will review our I John over turn to

John Weisenseel

Seth. you, Thank

on a statement with Slide GAAP start income Let’s XX.

net GAAP X% of quarter GAAP year compared period. X% decreased XXXX. Operating basis to $XXX increased from quarter points. by the third margin decreased revenues – prior operating $X.XX of income increased and XXX XX.X% $XXX the EPU million in $X.XX of million Third of the

GAAP here focus from for, results. unitholders results, results, items the distribution remarks base of our our part not operating on certain We addition substitutes business. our remove which not adjusted our As provide considered to adjusted and upon are our our in effect we always, to, of that as which I’ll core

to GAAP reconciliation GAAP release press presentation’s Our and of appendix, and standard XX-Q. reporting are in adjusted results our a

XX. adjusted on highlights financial included Our are Slide

income of and million operating to our $X.XX Third were all XX.X% for the earned decreased quarter. per year and to $XXX year, prior distribute unitholders We will last flat quarter to our while compared $X.XX of $XXX per year-on-year. million unit third revenues of year’s margin

quarter, second compensation base primarily due with Revenues, primarily and the G&A and servicing combined promotion expenses. all higher from fees income expenses drove results. lower operating and performance G&A the higher margin fees to Lower investment increased weaker

We income revenues. items delve Beginning into these adjusted in statement on detail with our on XX. more Slide

million quarter flat Third were $XXX year-on-year. of net revenues

the increased quarter X.X%. portfolio same third higher year-on-year points XX across distribution fees sequentially. increased all period rate Third average quarter prior relatively total of AUM and due X% average has channels. XXXX, stable base AUM from Compared the of been basis both to three The fee to

the Third in prior million performance $X of quarter period. fees year million to $XX compared same

and As X, discussed been Fund $XX Equity mostly Services performance year’s liquidated or Fund third included our either on to have which call, earnings two Real related funds X million previous last Financial fees liquidated. quarter Opportunity Estate

declined third quarter generate year’s these performance the the and did prior versus funds any year not expected, two fees As drivers period. current other in

year-on-year Bernstein include from closed Research revenues quarter which the April acquisition relatively flat X. $XXX and of Third million were Autonomous revenues services on

X% client revenues global and due year-on-year Research Autonomous, Excluding from commissions. Bernstein primarily to activity sequentially XX% year’s services quarter, lower second and this trading decreased

period the broker Other investments. seed of versus increased million sales by Third investment distribution $X higher compared of fund period, $X dividends the our seed prior increased gains due quarter because result dealer AUM. retail increased same interest to a Investment $X earned year-on-year, and higher net on same to of and prior higher as revenues gains. million million Asia and expenses million $X

operating expenses. adjusted million total year-on-year. our to third expenses X% increased of All-in, quarter Moving $XXX

a occupancy transition to corporate million third in related about income quarter, resulting costs in $X is Nashville $X included ratio $X Of million savings million reduction net operating remaining related the net the substantially compensation $X a approximately compared all in to calculation, and relocation in estimated net million, For headquarters totaled the EPU. with increased million representing our reduction $X and expense the $X of million, comp $X.XX costs.

operating in ratio savings XXXX million, related resulting $XX income. net a million remaining to all calculation and reduction Of nine-month million, the with million For in year-to-date costs included the $X occupancy $XX totaled substantially million period, the transition costs. increased the $XX comp $X approximately in is estimated compared of $XX expense representing compensation million net

increased base incentive X% by revenues of compensation. on Total benefits, XX.X% compensation this year, offset for for quarter We to expense lower partially the year, the fringe this at higher adjusted year-on-year and first net the quarter compensation were third third of accrued and benefits XXXX. salaries for which of a and XX.X% half compared XX.X%

our We compensation plan costs comp requirements the as as and gained transition the full year’s to headquarters business relating revisit and corporate our further accordingly to ratio adjust relocation. clarity for revenue we our to

quarter not conditions, expect fourth market XX.X%. to the do current we ratio Given comp exceed

meetings the from T&E expenses, X% and digital spend. increased client from timing versus same Third due and our marketing prior the resulting higher marketing quarter sequential X% expected period promotion marketing came and and of lower year seasonal decrease to initiatives, and T&E the servicing

G&A relating relocation quarter the to expenses to higher to year-on-year, our our X% primarily related higher and Third due technology increased business occupancy initiatives. Nashville

Excluding increase year-on-year. have G&A in the occupancy, increased X% would

year-to-date X% versus prior than nine-month the million combined G&A increased servicing expenses promotion, and of less Our $XXX year.

relocation portion X% than increase management. the less expenses, was the reflecting our on focus occupancy of Excluding continued Nashville the expense

increase million a $XXX higher the of income moderate expenses XX% while increased prior expenses. The operating on quarter is decline revenues base year X% sequential Third and decreased to fees modestly. primarily in due from flat

basis margin points basis Of basis to year-on-year XXX quarter the point operating XXX ratio. XXX an increased of attributed sequentially. decline, Third basis comp decreased is points XXX year-on-year, points higher the XX.X%

business which operating of have may our our part was our third This EPU, due is noticed higher following GAAP You not from income. EPU was adjusted $X.XX income to while that GAAP $X million quarter results, operating our than our two operations. exclusion items than primarily of adjusted adjusted lower core the the are our

First, expenses $XXX,XXX to approximately we acquisition excluded of Autonomous Research. relating

adjusted EPU. reporting. Second, consolidated increased we million, that we or operating results not deconsolidated GAAP net certain seed $X by investments affect income investments in these for did our but income Consolidating

effective quarter AllianceBernstein tax as third expected. X.X% for The about rate LP was

Finally, roles the to savings to due headquarters in $XXX compensation our to to for the over million to of relocation to relocation the cost our transition from to expected is of of the million realized XXXX related previously $XXX corporate now XXXX range delay savings. million and the period $XXX range forecasted be range compared to $XXX million certain Nashville

guidance possibly All $X.XX annual unchanged, slight in for XXXX. beginning $XX remain $XX other of our the to including and million of of XXXX, EPU by expense largest impact a in components an reduction estimated XXXX, ongoing savings or EPU breakeven million increase

with pleased your that, And are questions. I and Jim answer to Seth,

Operator

Please question Instructions] Mike [Operator of Bank line Carrier from go ahead. Your you. America first Thank from comes Merrill Lynch. of the

Mike Carrier

thanks for morning the and good Hi, taking questions.

– first we’re me and sales flows, Let just net retail impressed.

but base was You’ve muted. a Wealth, just is like it the client the obviously different the still in environment like given Private retail-like It odd – still bit category. little maybe the yet seems it’s

difference Private color turn provide flows drivers then the and So around for mix net think side? you that you the Wealth do what could and maybe can on around if the some

Jim Gingrich

can be management our types is we’re conversations of thrilled say observation. wealth good big you this have clients Because I a was our point wealth U.S. All overall that flows was the quite level. quarter level we that’s you’re strong. issue at to our that having that engagement continue business, And business with look want correct to Mike, production our management in the we actually as that the with. retail of out, in with you business with if

direction. and leaving liquidity think business the We delays the in do some excitement in said, of in the right right events some business money seeing some turbulence But clients, that and we given on transactions of also other the move caution their which remains in continue is And market. as cash. momentum to what the some of I we robust that’s exactly are overall then in our things the our we part

business So we’re is how feeling about good that trending.

Mike Carrier

loan CLO Okay. demand on it that strains. I we’re given want and also later And the given to helpful. like in just fairly income make then guess and some that syndicated the strategy, No, area and maybe announcement hear the maybe like cycle. But then sense in the that’s fixed seems I seeing competitive

So – just look, to now how you why do will differentiate players and lot think from try a AB there? the out of

Seth Bernstein

found that our middle I Seth. been cycle. some looking we It’s right have think in time us very recognize, a the I develop yield been who that we going in. It’s our we hey, people cycle. But extension we and business. – capabilities. have to business credit for direct – class. it’s have are in the confidence it talent. And a strong fills really we our we’re right of do where We’ve for our market group, because in fits take credit Mike, own for good looking skills think asset both the it lending And to embedded it the high long gap

more are we product. that think our enough conditions what managing and I assets bottled feel portfolios And spread be we manage experienced other we through could for in CLOs securitized on well that can market own in

it timing in our but the I with we’re long a growth this ultimately, doing of think, perspective it’s its business very lineup. and talent. the issue, finding of really about in So this was terms And place right

Mike Carrier

lot. a Thanks Okay.

Operator

comes Please from from go ahead. of the question Jefferies. line next Fannon Your Dan

James Steele

actually Yes, Dan. James for This good is morning. in Steele filling

to fees, higher which of just kind rate, different to you declining in Just business mentioned continue that environment to doing obviously, of curious fee driving disconnect? industry of kind So what is might the elsewhere and on from see the your what be of at business very we’re fee as my connected be existing the in a come so? book questions to by different institutional what seeing kind that, seems

Seth Bernstein

Sure. pipeline he John, James, is talked that a about as this. the it’s Seth. example of great

pipeline billion pipeline rates we So that to roughly the added obviously had of the the institutional are where higher equities, between fee alternatives we pipeline was over than, it’s composition well of income. this and and half $X fixed past the maybe and the income of to multi-asset quarter a which in when pipeline. And now, at the diversified and very fixed equities look lot in right

entire will into In fact the future. well And $XX.X weighted fold pipeline that the the alternatives strategies. for highest equities and are billion

as having For about, annual with rate, had, with $XX is fee it, talked base we which associated highest that million. ever pipeline the that fee over we’ve

Jim Gingrich

But I speaks to think others. to relative fixed-income, I heavy much relative that’s And from just to it our just think We a reflection. a where book really came to of had peers. add, it business we more institutional

the same the the as rest seeing We’re industry. effects of

John Weisenseel

Absolutely.

on doubt. stable In that particularly business, That’s terms of entire to XX without at mandates on and on basis strength higher to products, also fee we’re rates. – overall fee it rate the there also Asia high keeping points. seeing a retail be. continue definitely our But the in other we retail the slightly There’s pressure to institutional the the fixed-income the in factor and portfolio carry which expect impacting

James Steele

been huge gathering. Income, terms And been driver I on then that of cyclical Got secondly, sort is of a Thank product asset year-to-date. of it. American in that you Knowing you. guys a that influence for know just that’s

we in Just cycle? are if way to about the a is there think where us for

John Weisenseel

I negative. world. think our very predominant but we set saw market is last Asian it part a investors, we’ve just started Look, seen it for us, flows, in which very year for income just we’ve have the seen oriented, They And yield. it’s of where of service the was demand strong that it volatile where we Yes. sell it, amount

rates. hard And have clear flows stronger it’s so been makers those to fixed-income appetite forecast that policy for us has the are where as for globally it’s been going demand to But, go. cutting flows much

They more is income frankly, retirement want But around that want. security are which populations I on they focused really the mean, that. product

suite. warranted positive and our not the performance income just interest American it’s that I It’s of suite Income, income we’re think received. has very So about the globally

James Steele

you. Great. Thank

Operator

[Operator from Bill the go ahead. question Your next Please Instructions] of line comes from Katz Citi.

Bill Katz

Okay. Thank morning. you very much questions for good taking and the

the questions. picture so So of a couple is with guess I a bear one first me. big two-part,

few I So the there’s the retail weeks a fair call, so. of democratization or what system commoditization been of, would amount and over last

migration of from question some free brokers. the seen the of the you’ve So is, training online

risk earnings from proprietary business SMAs. just result in the of their third-party And picture then business one SMA your how secondly, Management you has these is any the strategy of how perspective strategy tactically? shifted sort talk of U.S. an peers, your client thinking these then and their private might there And broader either a about so that about your Wealth is bit impact as little and then Can platform around you’re changes? captive to a using

Seth Bernstein

if Bill, some at, as wealth, which look attach speaks I I types look it our provide indicated, out. higher with of for complexity clients, some called differentiated clients, of that you the to strategy higher those example, of the just rates of on alternatives some that are seeking we’re clients. the set sources we we’ve the at that return you if anticipating just of to trends think management for wealth focusing on And

other the all and the in clients generational that of those terms need like. issues to addition planning, In things tax wealth

going insulate the about the in So, think we commoditization feel we you’re that we’re some needs I the speaking where of issues to. that us that client sink serves against good and the helps think that that because marketplace,

Bill Katz

bulk the updated multiple staying you expansion. converted to some give of have multiple, cons not on you’ve thinking now changes curious, know given of exclusion Okay. thoughts MLP To and terms fact looking in but enjoyed managers have some C-Corp? of arbitrage to and C-Corp, at around follow-up, at structure in strong alternative here arguably your you’re the MLP converting there us and a the C-Corp – Can the as the and had looking pros that I’m versus earning very – I

John Weisenseel

think over us some the I and story the ownership against Bill, differentiates for us is folks AXA who XX% that, Yes, of have the the I what have of still think John. of other is we maybe same firm. converted Again, still the large it’s

And that think with in expansion index multiple included will drive able the folks play and of included to that so, of help to their an other in I an get index increased And us, don’t large see their and with stock. have us in is I some converted, hope trading being ownership AXA. get

that that so effective and require just out, reason So, a well for to if we tax folks rate of multiple that is compared leakage pay over over ratio to others. the our we’d pay low we the XXX%. and out There’s a so have again, tax currently much convert, XX% hold. expansion did that’s We keep

We’re issue comp. we all earnings, that stock-based paying of for buying we’re out the back our equity

really I basis you look So conversion. at if an that unitholder, benefit them see on don’t it through our to to after tax the

it. an But still saying look at still to still we’re it, we’ll now we’re right we’ll So, continue MLP. monitor –

Seth Bernstein

it’s Bill, Seth. And

to Just clarify is AXA AXA Equitable.

Bill Katz

much. very Okay. you Thank

Operator

questions are There back Mr. further over this time. no call to turn you. the at Lesser, I

David Lesser

Feel Thank for our Have you free Relations to any with today. Investor great participating a further everyone questions. contact day. call in

Operator

Ladies call. for you Thank you. this today’s conference and gentlemen, concludes Thank participating.

disconnect. now You may

AllianceBernstein Holding (AB) 24 Oct 192019 Q3 Earnings call transcript