Thank you for standing by, and welcome to the AllianceBernstein Second Quarter 2021 Earnings Review. At this time, all participants are in a listen-only mode. After their remarks, there will be a question-and-answer session and I will give instructions to you on how to ask a question at that time. As a reminder, this conference is being recorded, and will be available for replay for one week. I would now like to turn the conference over to the host of this call, Head of Investor Relations for AB, Mr. Mark Griffin. Please go ahead, sir.

Thank you, Angie. Good morning, everyone, and welcome to our second quarter 2021 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website, www.alliancebernstein.com.

Thank you, Mark. Good morning and thank you for joining us today. In the second quarter, we continue to grow organically across all three channels for the third time in the last four quarters. Geographic diversification and differentiated client focused offering across active equities including ESG, multi-asset municipals and alternatives led the way. Our short and long-term investment performance improved across both equities and fixed income, while our record institutional pipeline maintained an annualized fee base above $50 million. For the quarter, we posted active organic growth of 4% while expanding our adjusted operating margin to 31.7%. We delivered 49% growth in both adjusted earnings per unit and distributions per unitholder. Let's get into the specifics. Starting with the firmwide overview on Slide 4. Gross sales were $45 billion or $36.3 billion net of sales associated with the Venerable transaction. Once again the quarter sales were second only to pre-financial crisis levels 14 years ago. AXA Venerable sales were up $4.5 billion or 14% from a year ago, and up 9% from the prior quarter. Firmwide active net flows were $6.7 billion, up 4% annualized organic growth rate and were up 5% excluding access redemptions, and the Venerable transaction. Quarter end assets under management of $738 billion rose 23% year-over-year and 6% from the prior quarter, and the average AUM of $723 billion increased 25% year-over-year and 5% sequentially. Slide 5 shows our quarterly flow trend by channel. Firmwide second quarter net inflows of $6.2 billion represented a 4% annualized organic growth rate. Net flows were positive in each channel for the third quarter of the last four. Retail generated second strongest growth sales ever with net inflows of $5.2 billion as growth in active equity annuities more than offset moderating sequential outflows in taxable fixed income, once again highlighting the balance in our retail business.

Thanks Seth. Let's start with the GAAP income statement on Slide 13. Second quarter GAAP net revenues of $1.1 billion increased 24% from the prior year period, operating income of $284 million increased 35% and operating margins of 26.0% increased by 430 basis points. GAAP EPU of $0.91 in the quarter increased by 54% year-over-year as always, I'll focus my remarks from here on are adjusted results, which remove the effect of certain items that are not considered part of our core operating business. We base our distribution to unitholders on our adjusted results, which we provide in addition to and not as a substitute for our GAAP results. Our standard GAAP reporting and a reconciliation of the GAAP to adjust results in our presentation appendix, press release and 10-Q. Our adjusted financial highlights are shown on Slide 14, which I'll touch on as we talk through the P&L shown on Slide 15. On Slide 15, beginning with revenues, net revenues of $881 million increased 26% for the second quarter versus the same prior year period. Base fees increased 26% in the second quarter, versus the prior year period, reflecting 25% higher average AUM, which grew across all three distribution channels, and a 1% higher fee rate. The second quarter fee rate of 38.7 basis points was marginally higher sequentially.

Thank you, Ali. Turning the Slide 23. In the first quarter, we continue to make progress on the dimensions we've previously outlined, namely, we drove a 4% active annualized growth rate, spanning across each channel led by active equities, multi-assets and municipals. We expanded our suite of higher fee alternatives with Equitable funding our Euro CRED platform and receiving a new merger arbitrage vehicle. As Ali just highlighted, Equitable's $10 billion commitment to private illiquid over the next three years will significantly accelerate our opportunity set in alliance of their strong mutual interest in growing our yield enhancing alternative strategy. We drove healthy incremental margins in the quarter in line with our long-term goal. As a partnership, we have a durably low tax rate. And we will pay a distribution of $0.91 per unit for the second quarter for a robust trailing 12 month yield to 7% in a low rate environment. With that, we're pleased to take your questions.

Your first question comes from the line of Bill Katz with Citigroup.

Okay. Thank you. And good morning, everybody. I appreciate the added disclosure. Super helpful this morning. Maybe we could start with that on the insurance side. Could you talk a little bit about just a little more detail on the underlying economics on the $10 billion, it sound like some that may be new, some may be replacement. But maybe you could help us with where you are today in terms of insurance related revenues coming off of Equitable, and then how you sort of see the $10 billion coming through the P&L. Thank you.

Sure. So thanks for the question. We think this is a meaningful step for AllianceBernstein and Equitable. This type of thing should not be unfamiliar to people like yourself, who covered some of the private alternative firms as well. And you've seen the news flow, it is $10 billion. And you're right, that it is some incremental, some reallocation, but all to our illiquid suite. So private placements and private alternatives, which as you know are generally not always but generally higher fees areas to manage, but the benefit that we get on top of that is we have a track record of taking that AUM and multiplying it by about four. We hope that track record continues. And in doing that and thinking about that we certainly have a glide path that we've developed together with Equitable. We also dimensionalize much further about exactly what we're going to do with the $10 billion, how we're going to grow it, it's a little bit of a freedom to build new businesses together for Equitable and for AB, serving their needs, improve their yields and our desire on behalf of unitholders, and employees and other stakeholders to grow our private alternatives business. But it could be organic or inorganic growth prospects, as we mentioned in the prepared remarks, we managed about $121 billion for Equitable, and we have about 75% of background, that's 75 insurance clients that we serve as well, and we think that what we're building conservative more insurance clients given more growth for us exactly a subset in insurance as well.

Okay, that's helpful. And then just my follow-up question, thanks for taking both questions this morning. Just to unpack maybe the expense discussion a little bit. If I look at your G&A, it was up pretty measurably, and there is a whole bunch of things that sort of fall into that. So sort of wondering like what's the exit pacing on that? And then in line with your commentary around sort of the normalization whatever that might mean for the second half of the year. How should we be thinking about just sort of the pace of growth in the promo line, and is 2019 still the right baseline to be sort of modeling back to or are there other offsets along the way that can maybe temper some of that normalization? Thank you.

Sure, let's segregate that question into two buckets. One about G&A and one about T&E in particular, given that incremental servicing. From a G&A perspective, as you can tell, G&A has grown 8% on a year-over-year basis. That includes a relocation expense from Nashville, if we were to take that out, the Nashville relocation you'd be talking about something like 6-ish percent type growth in G&A, and that was driven by a few things, right. Some of them are very much along the plans that we had in terms of growth, higher portfolio costs for launching new products, for example, our European commercial real estate debt platform, which also is in partnership with Equitable. There are some high professional fees in there, some trading errors, FX, those types of things are in that number. And we expect that to continue as the year goes on. Now, what I'd say is, we also continue our guidance previously to stick which is that excluding the Nashville relocation costs, we would expect that G&A would grow with inflation. Now as we've said in our prepared remarks, we think inflation is probably a little bit higher now than it was before. But that guidance really doesn't change it. And by the way, just by way of interest, we are seeing in the G&A line some real inflation coming from market data costs from professional services fees. So our eyes wide open about managing that, but that will continue. So that's kind of the G&A part. Now, you mentioned promo and servicing and obviously the big driver of that for us is watching T&E, watching for meetings, and look there to be fair go we're - it's hard to say right, it's hard to say what is going to come out over the next little while here. We're all watching delta and being very careful. But I will say that in some of those T&E expenses, for example, so the firm meetings, we've year-on-year doubled, and sometimes triple the cost of those i.e. things are ramping back up. Think about what we're doing in Asia as an example. Those are ramping back up. So those costs have doubled or tripled so far. But still they're significantly to your run rate question. They're significantly lower than what we saw in 2019. Call it we're below 20% kind of numbers of our 2019 run rate. So there's a lot more room to run here from an upside perspective. And what we'll watch that I don't have a great answer for you. What I do know is for all of our stakes, I'd certainly like to see some savings relatives to 2019 numbers, but for all of our stakes I sure hope that we get to e-clients, e-quality, e-partners and yes even to you Bill live over the course of the next few months here. So we’re just watching carefully

Your next question comes from the line of John Dunn with Evercore ISI.

Just thinking about framing the puts and takes and flows in the private world channel. You mentioned fund launches, tax harvesting and seasonality. But can you maybe talk about some of the other drivers in or out?

Sure, I can take that one. Thanks for the question. So not only did we continue to see strength in our cast campaign from earlier in the year where we were having clients move out of cash and back into the more active market. We also launched a new tax aware campaign, which we think is highly relevant in today's environment. And so there you're seeing the wealth advice continue to drive a lot of our client’s engagement with us. We will see additional product launches in the back half of the year in alternative, ESG and the SMA platform to continue to invest in that space and to provide what we think are good additions to our core offering and for particular complex and high value clients, which continue to grow nicely and are substantial portion of our net inflows year-to-date.

And then U.S. growth equities continues to do really well. Can you kind of give us a regional breakdown of where that demand is coming from?

Sure. The demand has been principally in the United States and in Japan, and Japan has been particularly prominent for us this year. But it's been a pretty strong performer for us globally.

Your next question comes from the line of Alex Blostein with Goldman Sachs.

This is filling in for Alex. My question is on retail. We have seen some strengths lately here across the industry. So what's driving the inflows at AllianceBernstein? And how sustainable are these flows? And then on the fixed income side, I mean, flows have been pretty strong, if you kind of exclude the AXA redemption. So under the current like given the outlook for the interest rates going forward, what's your outlook for the fixed income flows to keep sustaining these levels of inflows ? Thank you.

Thank you for the question. Look, we have - and I think we said in our opening comments, we've had remarkably sustained net inflows particularly in equities over a pretty extended period of time. And it comes from the fact that we have a pretty diverse group of services that have been selling we've mentioned large cap growth, but we've also had continuing strong interest in our portfolios with purpose, our sustainable strategies, which really have begun to see strong demand, both in U.S. and in Europe. And those are taking an increasing share. We've even seen interest in value, which is picked up pretty nicely from a performance perspective in the shorter term. And we've seen with the maturation of our private ops business, it's still early days as Ali was alluding to. But we're continuing to see strong takeoff in new efforts to raise money for our U.S. commercial real estate debt business for our middle market lending business and so forth. So it's been pretty diversified in those areas. But I would also add that we've seen more activity in our multi-asset group, now that can be quite lumpy as we indicated in our comments, specifically, our target date - I'm sorry, our customized retirement solutions tend to be very large, although the fees are lower there and in LIS so that diversity has played to our strength. In fixed income look, we think rates have a likelihood of going higher from here. But remember, we've seen quite a rally in rates that have taken us back down again, over the last month. And we don't necessarily think that's sustainable. In fact, we do think rates will rise while most of the inflationary impacts we've seen are transitional in our in our view. There are some expectations,…

Your next question comes from the line of Dan Fannon with Jefferies.

This is actually Ritwik Roy filling in for Dan, thanks for taking my question. I guess think its morning. So appreciate the previous detail given on the G&A run rate. And just as a quick follow-up on that. How should we think about the contribution from some of the Moore's sort of seemingly idiosyncratic items that were detailed in the presentation? Kind of like, for example, the trading errors and is that incorporated in the guidance you guys mentioned earlier? And then, as a follow-up kind of more broadly, as you guys think about the eventual normalization of expenses, and knowing that you guys mentioned the timing around that as well uncertain? How much would you guys say your understanding relative to pre-pandemic levels and to what degree would you say these savings will be sticky and if you can provide any numbers around this? Yes, thank you.

Thanks, Rick. So two parts of that question, right one is, on some of the kind of one-off things in our G&A. You mentioned trading errors in particular, we tackle that head on look, no one wants trading errors in - ever as part of the business, right? Sometimes these things happen, sometimes they are bigger than others everybody has them, right. So you don't model for it, you don't plan for it. But what we've seen in our rearview mirror in terms of errors and all the other is product impacts to our G&A is in our guidance. So as we look for the full year, we expect it to be in line with inflation, if you take away the Nashville relocation costs, and we stick to that and believe in that, again, we'll manage these idiosyncratic events as we go along. But that is our guidance, and we believe even what we've delivered so far, we've just very well to get to that point by the end of year. So hopefully that covers that - and it's not just you know, there's foreign exchange in there. There's new product launches in there, et cetera but we still believe that that is the right guidance. On a broader savings, I guess the way we've articulated before is that if you think of last year, we would have “under spend” by about $50 million, a little bit north of $50 million. It's an imprecise science it is what it is. But we think about $50 million is what we “saved” last year versus the 2019 numbers. Do we think we'll see all of that come back this year? I mean look, it's halfway through the year, and I gave you a sense of the numbers before, probably not. Our hope is that we can find savings relative to the 2019 number. We haven't articulated exactly how much, but certainly something that that we think clients will want to see us differently. And colleagues might travel interoffice differently. And so, we'll find some savings there. But it's tough to say exactly what level it will be at. There will be some savings however in travel and all the other costs relative to that $50 million that we saved in 2020 versus 2019.

Your next question comes from a line of Robert Lee with KBW.

Thanks for taking my questions. I mean, first one they be on no private on wealth management kind of curious if you could update us and some of the growth initiatives there and I guess particularly interested just given the war for talent out there, particularly, you know, experienced financial advisors, I mean if you're seeing any kind of pressure on retention or and I know you don't go unless go out and recruit new advisors, maybe train them yourself. But you're seeing any issues with kind of growing the advisor forces as you would like?

So thanks for the question. So in terms of our growth initiatives, we are on plan with our advisor headcount, it's up 3%, year-to-date. And we're on track to hit our 5% growth target for new advisors in 2021. So we continue to have success in finding and attracting great new talent to our advisor force. And then as you said, we do grow our advisors, we put them through, like you know, I think the best-in-class training program here. So that when they are out with clients they are able to really represent the best of Bernstein's investment and wealth strategy advice. We certainly do know that there is compensation pressure out there in the industry, as we continue to pay competitively and are pleased with and our existing for us. And in terms of the turnover we've seen today, that's pretty much in on average with previous years. And so, we continue to watch that and invest back into doing business and into our people to continue to keep what we think as a great competitive advantage, both in our advisor force, as well as with our investment teams. And well strategy and advice teams that are - that have been with us for a long period of time.

Okay thanks. And maybe as a follow-up, you didn't touch on in the prepared remarks these you know the tax arms being the product and I mean, clearly you've seen competitors, make acquisitions invest in kind of direct indexing, in a similar space you can talk about. Do you have any current plans to take that capability and roll it out through third-party advisors - or the current intention kind of keep that proprietary in half?

I'll start with I can start with the first part of the answer. And then Ali you can join me, I think when it comes to how we think about M&A. We're very pleased with our current closed architecture approach. We leverage AB products primarily, though you do see us partner occasionally with an outside firm in an alternative space that we have not yet gone into. But we do primarily and do primarily plan to continue to grow via AB vehicles. We have launched, for example, and we're in the midst of launching several purpose driven offerings in 2021 around sustainable SMA, that's also in conjunction with our retail team, sustainable product portfolio in partnership as well. And then ESG improvers, and then we continue to look as we said in broadening out the alternatives platform. I’ll turn it over to Ali to talk about where we think about that in terms of M&A in that construct.

Robert thanks for the question. Just to build on what Kate said you know, for us it all about the client right. It’s all about what the client needs are in delivering for the client, it’s exactly as Kate mentioned once we understand what we - the clients wants and what we, we think we should be delivering to the client. It then becomes the question of buy, build or partner, right. And we have success in all three, right. We have success in terms of building things. You mentioned, for example, the past product that we have, the tax harvesting product that we have crossed over a $1 billion in very, very quick, said, we want to continue that growth there. And as we look at even in that sleeve, other custom indexing that is out there, we should certainly look at partnering with other folks, if there is a need that's not fulfilled there. But we've built something that's actually quite robust and quite successful. Then there's a - there's a buy option, which we look at quite carefully as everyone on the phone, I think knows, and we believe there's a lot more activity out there. And we've had a pretty good track record I'd say, an accelerating track record as well of acquiring or acqui-hiring, investment processes, tools that can support exactly as you said at the outset what our clients want. And also I'd say, as Kate mentioned, there's a partnership track. It's not just buy or build, we really thought long and hard about partnering. We are an integrated architecture and our private wealth business in particular, because we believe that holistic view delivers better for the clients. But there are areas where we won't be offering to everyone, and we certainly want only investment team, so we can partner to bring those trips. So we're looking at all three dimensions, and it's all under the same umbrella of being maniacally client centric and clients.

Our final question comes from the line of Bill Katz with Citigroup.

Just a follow-up, two part follow-up, so thanks taking this question. Can you just sort of flesh out a little bit what you're doing on the LIS portfolio, it sounds instinct to me. And then just a conceptual question, just given a lot of the headline risks that we're seeing in the Asia-Pac, particularly in the China Mainland area, which I think is more of a sort of a direct equity issue. But does that have any spillover effect to commingled accounts, either in terms of absolute level or maybe the mix of what might be coming in the door? Thank you.

Bill, the LIS is a structure we created some years back in partnership with one of our key institutional clients to build an annuity option in the fine contribution plans for 403(b) and 401(k) plans. We have - what we think is an interesting option where we can give the plan sponsor access to a number of different insurers for those participants who want an annuity option in their portfolios, you, I think, know better the most. There is a fundamental public policy issue facing America today, which is many people who are facing - moving forward for retirement are under saved for their post-retirement period. And the security of having an annuity structure psychologically is very important to a subset of that population. The Secure Act last year, I think has reshuffled the deck and has made this a much more important initiative for plan sponsors then it was before, it can become the default option now. And so we are seeing real interest there. But these are very long process decisions that take considerable amount of time through VRP stage, and ultimately through award and execution. So it's a slow moving train, but we're optimistic there will be opportunities that fall out of that for AB's. Switching over to China, look the executive orders have come out of Washington do impact how we manage commingled vehicles in the United States with Chinese equities in them, and like other money managers we've been responsive to adjusting our portfolios accordingly. It doesn't, as I understand the impact us how we manage those portfolios outside the United States. And so for example, in our Chinese portfolio, Mainland portfolios we manage for onshore clients or an A Shares we can in fact - it hasn't really impacted us in the way that we've managed the portfolios.

There are no further questions at this time. Mr. Griffin, I'll turn the call back to you.

Thank you, Angie. Thanks, everyone, for participating in our conference call this morning. Feel free to contact Investor Relations with any further questions. And have a great day. Good-bye.

This concludes today's conference call. You may now disconnect.