Ladies and gentlemen, thank you for standing by and welcome to the AllianceBernstein Third Quarter 2024 Earnings Review. At this time, all participants are in a listen-only mode. After the remarks, there will be a question-and-answer session, and I will give you instructions on how to ask questions at that time. As a reminder, this conference is being recorded and will be available for replay on our website shortly after the conclusion of this call. I would now like to turn the conference over to the host for this call, Vice President of Investor Relations for AB, Mr. [Ioannis Diorgalli]. Please go ahead.

Good morning, everyone and welcome to our Q3 2024 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website, www.alliancebernstein.com. With us today to discuss the Company's results are Seth Bernstein, President and CEO; and Jackie Marks, CFO; Onur Erzan, Head of Global Client Group and Private Wealth; and Matt Bass, Head of Private Alternatives will join us for questions after our prepared remarks. Some of the information we'll present today is forward looking and subject to certain SEC rules and regulations regarding disclosure, so I would like to point out the safe harbor language on Slide 2 of our presentation. You can also find our safe harbor language in the MD&A of our 10-Q, which we filed this morning. 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 GAAP to adjusted results are in our presentation appendix, press release and our 10-Q. Under Regulation FD, management may only address questions of material nature from the investment community in a public forum. So please ask all such questions during this call. Now, I'll turn it over to Seth.

Good morning and thank you for joining us today. Over the last several years, AllianceBernstein has been on a journey to redefine itself and emerge as a leader in asset and wealth management, and I'm pleased with the progress we're making. We've delivered positive net flows each quarter this year and surpassed $800 billion in assets under management as of quarter end. I want to take this opportunity to express my gratitude to our colleagues, clients and unitholders who have supported us throughout this journey. Today, AB is a stronger company with a distinctive stronger company with a distinctive value proposition, which is highlighted on Slide 3. We have a differentiated distribution platform, which includes our proprietary private wealth business. This gives us an edge in growing markets like Asia, U.S. high net worth, and global insurance. We can also deliver our clients' diversified investment capabilities across traditional and alternative asset classes. This includes our growing private markets platform, which is supported by our strategic relationship with Equitable. In addition, as Jackie will discuss in detail later, we have a clear path for margin improvement, which will reflect on our results as we move into 2025, assuming no market deterioration. Finally, AB has a tax-efficient partnership structure that prioritizes capital returns to shareholders and ensures a disciplined approach to growth investments. Moving to Slide 4, I'll review our third quarter business highlights. First, we delivered our third consecutive quarter of organic growth. Active fixed income inflows totaled $6 billion led by retail where taxable and tax exempt each grew 17% and 27% organically on an annualized rate. We've been among the first asset managers to benefit from reallocation since the fixed income, having registered nearly $20 billion in active fixed income inflows year-to-date, more than 50% higher than 2023's full-year…

Thank you, Seth, and good morning, everyone. We continued to deliver strong financial results in the Q3, reflecting solid growth in management fees and focused expense discipline. Third quarter adjusted earnings per unit of $0.77 were up 19% versus the prior year, benefiting from strong markets, sustained organic growth and durable fee rate and margin expansion. As a reminder, we distribute 100% of our adjusted earnings to unitholders. Turning to Slide 10, we show our adjusted results, which remove the effect of certain items not considered part of our core operating business. For a reconciliation of GAAP and adjusted financials, please refer to our presentation appendix or our 10-Q. Net revenues of $845 million were flat versus the prior year and up 12% on a like for like basis excluding Bernstein Research. Our third base fees increased 14% versus prior year in line with the growth in our firm wide average AUM. Q3 performance fees of $26 million declined by $2 million from the prior year period. For full year 2024, we now expect performance fees of $145 million to $155 million and I'll cover our outlook in more detail shortly. Dividend and interest revenue along with the broker dealer related interest expense declined, which reflects lower cash and margin balances within private wealth. Moving to our expenses. Our total Q3 adjusted operating expenses of $581 million declined by 5% year-over-year, reflecting the deconsolidation of Bernstein Research and a lower compensation ratio. Q3 total compensation and benefits expense was $414 million down 3% versus the prior year. We had a compensation ratio of 48% of adjusted net revenues in the quarter below the 49.5% ratio in the prior year period. We expect our Q4 2024 compensation to revenue ratio will remain at 48% assuming Q4 revenues come in as expected.…

Thank you. And we will now begin the question and answer session. [Operator Instructions] And your first question comes from the line of Ben Budish with Barclays.

I appreciate the updated disclosure on the performance fees. I was wondering if you could talk a little bit more about ABPCI. It looks like, I would presume from in 2023, you had a big pickup in performance fees as rates rose generally. It looks like it's intended to be maybe flattish to up slightly in 2024. So can you talk a little bit more about that more about that strategy, what the kind of growth drivers are, what does that look like and how should we think about what that may look like in a in a declining rate environment? Should we see some compression of the fees as rates come down or what are the other factors to consider there?

This is Matt Bass, happy to take the question. First, I would kind of anchor back to what we did late last year in terms of the enhanced disclosure on ABPCI. I think it's a good kind of background to understand the growth and the drivers of the business. But as it relates to the performance fees, look, they are the most predictable out of the private markets platform. They represent the majority. I'd say there are a lot of drivers that you have to appreciate behind those performance fees. Obviously, it's volume in AUM that's going to have an impact. Base rates have an impact, so that has been a tailwind for us. That will be more of a headwind going forward. Spread has an impact. We've seen some spread compression this year as overall kind of public markets and private markets tightened. That's had an impact as well. There's mark-to-market of course and credit as well. So those are all the factors. All that said, we do see that as a consistent growth if you kind of strip out mark-to-market. We've seen a nice trend in line with revenue growth. I'd say going forward, obviously not all of our mandates in PCI have incentive fees. So that's going to vary based on channel and obviously where we're growing is going to impact the amount of AUM with performance fees going forward with that business.

And then maybe kind of following up on the same subject, what do you see as the largest --potential future drivers, especially private markets performance? Because I know you, in September announced the launch of a new kind of democratized credit vehicle. What else as we think farther out -- what else should we see as potential adders to that line?

Yes. I've kind of anchored back to our growth strategy more broadly for privates, which we've articulated. So we're scaling existing funds, existing evergreen funds. In the case of AB Private Credit Investors, we've got a stable of evergreen funds. Many of those generate performances. We're going to be launching -- we have launched products in existing and new channels. As we've mentioned our focus certainly on the retail side leveraging our experience and track record in Bernstein Private Wealth. There's a big focus on the insurance side. Obviously, there's going to be a mix across those two channels where you're able to generate performance fees less so in insurance given more of an investment grade nature, lower spread kind of target those strategies. And third, we're going to continue to kind of thoughtfully look to extend our teams. With 80 private credit investors, we talked about the addition of the NAV lending strategy last year. So a combination of those gives us comfort in the organic growth trajectory, and it's going to be a mix on performance fees. I think generally the more we grow in the insurance side, more investment grade private credit, your net debt. It's not going to have less of a performance fee profile. So it's going to be a mix and channel dependent.

And your next question comes from the line of Bill Katz with TD Cowen. Your line is open.

This is Robin Holby on for Bill Katz. I was wondering if we could just touch on the broader private market strategy. If you could provide an update on the timeline to $100 billion in private markets AUM? How you get there from the current $68 billion? Any update on where you think the best opportunities are? And I know you just touched on the contribution from Equitable. Maybe if you could quantify that at all and then maybe some of the organic growth there as well?

Sure. Look, we've shared our longer term target as part of Equitable's investor day last year. We remain confident in the target. I'd say it won't necessarily be linear, but we've got good support if it's the Equitable strategic partnership, if it's our business in private wealth. In terms of how we get there organically kind of we've laid out the three pillars that we continue to execute on in terms of scaling existing capabilities across those channels, launching new products to new and existing channels, right, as well as team extensions which we'll continue to evaluate. We'll look at M&A, but opportunistically we think the platform is largely complete. In terms of the best opportunities, look, we think that the private credit market has a lot of room to continue to grow. It's matured significantly over the past 15 years from what was an opportunistic credit market to a more diversified direct lending market. We see corporate direct lending continue to grow and mature for sure. And at the same time, the growth in other forms of private credit, asset asset-backed finance, commercial real estate, infrastructure, the latter being very diversifying to traditional corporate credit. So we see that as a very attractive longer-term growth opportunity. It's also one of the reasons behind the acquisition of CarVal two years ago and how complementary that business is in terms of end-market focus in those non-corporate credit asset classes.

Onur here, let me add that three data points to support what Matt was highlighting. Number one on Equitable, as you know, we had a $20 billion commitment. We are only 11 out of the 20 right now. So that will definitely help in terms of achieving the 100. Number two, in private wealth, we raised $2.3 billion of alts in the first three quarters, a record levels in ‘24. So that gives us confidence in terms of our organic growth profile for alt in private wealth. And number three, in terms of new channels that Matt touched on, we are definitely seeing more traction on the insurance channel given we made all the investments to create more investment grade fixed income substitute products out of private credit. And then our new retail vehicles, like you highlighted, like the interval fund we launched and our interval fund is already in the market. We already onboarded to a third-party platform and we already have a couple of $100 million in that product already. So as a result, the new channels will definitely be part of the growth story and we see the pre pipeline activity with clients and some of the platforms and money coming in on the retail side.

And then maybe if I could just have a quick follow-up on the margin guidance for FY'25, assuming flat markets. Could you remind us of the incremental margin that we might be able to expect on market action and NAV?

Just on the margin in general, yes. As I said, we delivered 31.3% in the quarter. We've guided to 33% in 2025 assuming flat market. As you know, we do not model markets. And we also continue to grow and scale our business for the future. In terms of the specific NAV question, I think we'll have to follow-up afterwards. I have an estimate, but I don't want to over commit. So we'll take that one in the call afterwards if that's okay.

And your next question comes from the line of Craig Siegenthaler with Bank of America.

After a long wait, the reallocations are finally here. So, and then actually you guys are seeing in both fixed income in the alts, but sadly not as much in active equity. But my question here is, after we get through the election and some additional Fed cuts, do you think we could get another step up in reallocations and duration extension activity, especially if the yield curve steepens. It appears that you guys are still very well positioned for this just given your business mix and performance.

This is Onur. Let me take a first pass at it. I mean, number one, definitely we have seen great strength in fixed income and alternatives. Yes, you're right. We are one of the early beneficiaries of the rotation to fixed income with $20 billion of net active inflows. But also in equities, I wouldn't write them off. As you know, we had active net flows in our retail franchise in equities, and this was the Q2. So we're definitely seeing some channel strength at least in retail, hence our platform continues to be quite diversified. Going back to your question on the steepening of the curve, absolutely, we definitely are seeing institutional interest in terms of further allocations to fixed income and that will definitely help in terms of new mandates, and not to mention our, again, insurance franchise, and we started to see new client activity there as well. So all in all, stepping up the curve will definitely help us in terms of carrying out the momentum on fixed income and the broadening into other asset classes, starting with private credit, but also other adjacencies.

It's Seth, Craig. And I would just note that where we are seeing particularly strong demand is in the U.S. and in the muni SMA category, where we've really seen even stronger net flows as we take onboard new RIAs to our platform. And that is continuing now. And I do think that's where you'll see the particular duration extension as that's where it will play out. We also note that in Asia, our flows are as strong today as they've been in a few years and that continues. So I certainly think it's underway and fixed. And we're still seeing some positive active equity flows, as Onur had mentioned, albeit where we were seeing the issues was more on the institutional side of outflows.

My follow-up is another follow-up on expenses and the op margin. So we've seen some nice improvement already and the Bernstein deconsolidation was a big factor. But the big event we have been waiting for is really in December, when you stop paying rent on your former headquarters at 1345 6th Avenue. So how much of that $50 million run rate should we expect to drop to the bottom line as the lease expires in two months? And it sounds like from the math on the 100 basis points and 150 basis points of margin expansion target that you gave us in the prepared remarks. It sounds like most of that $50 million is dropping the bottom line.

That's absolutely correct. Our intention is to flow most of that, if not all of it through to the bottom line.

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

You guys have talked in the past about increasing your business with third party insurers. You mentioned highlighted investment grade product. Can you give us an update on this channel and the potential outlook and how do you go about making that sale?

Sure. The good news is, again we are seeing accelerated commercial momentum, whether it's through the traditional third-party channel as well as in new cap formation in the insurance industry through our engagement with different reinsurance and sidecar opportunities. In terms of the activity, we recently for instance won a competitive process for a large reinsurance company on the property and casualty side to add to their asset management roster in investment grade. So that's an example of the competitive strength we are building in this channel on back of the investments we made into building that channel, right? What have we done? We basically created insurance dedicated resources front to back. We expanded our portfolio management capabilities dedicated to insurance companies on the multi-sector side. And then on top of that, we created very capital efficient insurance wrappers and IG oriented private credit strategies, whether it's the rated feeders for the middle market lending, raise the mortgage kind of strategies as well as net finance type of new extensions out of our middle market lending platform. So we remain quite confident that we'll see more new third-party insurance money coming into these products in this quarter or spanning into 25%. Furthermore, obviously Equitable strength in the [RILA] market registered in either market helps us with the general account growth in addition to some of the expansion in the lifetime income space, where again we benefit directly and indirectly from that new product channel. So all in all, those are the drivers of the expected continued growth in the insurance channel for us, equitable as well as third party.

And it's not just here in the United States either. We're seeing that interest amongst insurers both in Europe and in Asia as well.

100% like for instance in Asia, they have been the early investors in our growing systematic fixed income franchise. And that is a really nice thing to see both from expansion in fixed income, which plays into the duration and skipping of the yield curve story and then obviously the international franchise we have including core markets like Japan.

And then maybe one on private wealth, you guys expressed confidence that the outlook for flows in that channel. Maybe you could just talk about stuff that you expect to start inflowing beyond what's already working right now?

Yes, sure. John, thanks for the question. Like first of all, as the rates come down, it helps with the flows and we have seen that playing into our numbers on a gradual basis in 2024. Why does rates coming down help us? Number one, the risk appetite goes higher in terms of moving away from cash, which we have seen. And then we have seen also an increase in the M&A activity. And M&A activity matters for us because we have a very strong franchise with business owners. And when there is more monetization, liquidation kind of events, it turns into net flow for our private wealth channel. And as we have discussed, our ultra network channel is a faster growing segment of our business. That's basically the story that will play. So as a result, I remain optimistic about our flow trajectory moving into October and beyond. And now furthermore, I want to clarify something. At the end, in terms of our flow reporting, we tend to take a conservative approach. We don't take credit for dividends or interest, while some of the wealth managers in their net flow calculations take credit for that. And in certain cases, it might add to couple of percentage net flows. So hence, our conservative net flow methodology sometimes makes it harder to make apples to apples comparisons.

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

This is Rick Roy on for Dan Fannon. And two sets of questions, one focused on the alts and then, one elsewhere. So on CarVal, now close to three years since the close, How do you view, I guess, the current alternatives offering, especially considering the current market dynamic with what's going on with CLOs? And separately, do you have appetite to do additional M&A beyond CarVal now given the timeline since close?

It's Matt. I'll take this. So in terms of CarVal, little over two years post-closing and I'd say, look, we first of all, we got what we thought in terms of the people, the investment capabilities, the culture. We got strong conviction in the business in the long-term growth opportunity, specifically the markets that CarVal operates in. If it's private asset backed finance broadly, the energy transition space, their opportunistic investing capabilities, so all kind of growth vectors, the channels we're looking to penetrate if it's insurance and retail as well. And again very complementary to our overall existing platform. So, look, we're starting to see some traction here based on the products that we've been developing over the past two years. We mentioned the credit opportunity fund, the interval fund, some traction on the insurance side, asset-backed finance more broadly. So remain very convicted and kind of a long-term growth opportunity. It's a key driver for the overall business.

And on CLOs, the third quarter was very strong. We had $1.3 billion in CLOs. We priced multiple CLOs, both in the U.S. and overseas. So that speaks to the global nature of our CLO platform. And the good thing about CLOs is CLOs don't flow through our pipeline. So that flows through sales typically. So that's a bit of an incremental bonus that you don't typically follow in the pipeline.

And if I could switch gears maybe talking about the APAC strategy. And then kind of separating out into two regions. Obviously, Japan, retail especially has been a source of pretty solid organic growth for you guys. But then also on the other end of the spectrum, talking to obtaining a license in China earlier on here. If you could kind of expand upon these strategies, is there a plan perhaps to expand AUM in the Japan region, perhaps expand into different channels? And then also what is -- has there been any changes to the go-forward strategy for China as well?

Yes, sure. Let me address that. In Japan, our organic growth continues and despite some of the change with elections, et cetera in Japan, we did not lose any major momentum. So that's great news, and it helps a lot with our retail equity picture. And then we have a strong institutional presence in Japan as well as I touched on before. For instance, it has been an early adapter of our systematic fixed-income strategies in institutional as an example. So I expect Japan to continue to be a growth geography for us with very healthy fees and margin. In terms of the rest of Asia, as you know Asia as Japan also is hard to ignore for us, given it is a very sizable region and that has been a big driver of our taxable fixed income growth. And we continue to look for extensions as we have accomplished in Taiwan, looking at ETFs, looking at private credit as additional building blocks for accelerating our growth in that region. China, as we laid out in the past is a long-term play for us like many of our peers. As you remember, it's a start up business. We just got the license in December 2023, and we launched our first fund only in April, which was probably one of the worst times in the equity markets. Very pleased with the performance of that IPO. I think at that time, it was a tough decile asset gatherer, albeit very low capital raise levels at that point. And we continue to evaluate our strategy in China to see what are the ways to accelerate the time to breakeven. It's not an outsized investment for us, and it's a long-term play. So no major changes in our strategy. It's not going to be accretive to our revenue or earnings in the very short term, but it has a sizable long-term potential.

And perhaps one quick one on CarVal. The updated tax guidance related to the CarVal contingent liability. Is that an expression on perhaps accounting for future carried interest relative to when certain obligations remain at the time of the deal? Or if you could just expand on how that impacted tax status, if I'm incorrect there?

Sure. And I'll let Jackie chime in on the tax specifics, but this was related to contingent consideration at the time of the acquisition to the earn out. So we look at this on a quarterly basis and certainly with some of the growth being pushed out, capital raising cycles longer, net deployment slower initially, although that's certainly kind of picking up. That was behind the contingent liability change. So all that considered we still have real conviction as I mentioned in the business and particularly where we're set up to grow in terms of asset classes, if it's private asset backspace, energy transition and the channels we're growing in. So again all really consistent with our thesis behind the acquisition which was to kind of leverage the existing team's investment capabilities, origination capabilities into lower cost of capital strategies, new channels as well.

And just to add to that on the tax piece, yes, the tax doesn't have anything to do with the with carry. It's really solely because of the write down and therefore it's one time in nature this quarter.

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

This is actually Aditya filling in for Alex. Just a broad question. How do you view the active ETF opportunity set from here? What are the type of dialogues that you are having with clients and intermediary channels to assess the appetite for this product?

Sure. Let me take that. We are roughly two years into our active ETF journey. We had our second anniversary actually in September ‘24. Very pleased with the success out of the gate. Two years in, $5 plus billion of AUM across 15 products. This is all U.S. at this point, given active ETFs have been more widely adopted in the U.S. given tax and other differences. Our product innovation continues. We continue to look at both thematic as well as buffered ETF type of risk managed strategies, and we continue to explore the timing to take our capabilities to overseas markets, whether it's Taiwan or Korea, as examples. The good news about our trajectory is for the ETF product to be added to some of the large broker dealers like warehouses, think about Merrill Morgan, UBS, et cetera, there are typically minimum time in market and AUM thresholds. So the longer you are in the market, the more AUM you build up in other channels, whether it's our own private wealth channel, RAA channel, direct channels, then your ability to grow in the large broker dealer channel goes up. Given we are strong partners in that channel with our other products like SMAs, ETFs remains as a great cross sell opportunity for us, and you will see more of our ETFs making to that shelf as the time passes with the duration of the product and AUM thresholds clearing at the minimums. So overall, we remain bullish and that will be a net flow story for us moving forward.

I think it's worth just noting that 70% of that $5 billion is new money and not conversions from existing strategies. To just owner's point, it's enabled us to take some of our newer ideas and apply them in a new space. And so it's worked, and we continue to want to push on that.

And there are no further questions at this time. Mr. [Diorgalli], I will turn the call back over to you.

Thank you all for joining today. Please follow-up if you have any questions with IR. Have a great day.