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. David Lesser. Please go ahead, sir.

Thank you, Jessa. Good morning, everyone, and welcome to our third quarter 2019 earnings review. This conference call is being webcast and accompanied by a slide presentation that’s posted in the Investor Relations section of our website www.alliancebernstein.com. Seth Bernstein, our President and CEO; John Weisenseel, our CFO; and Jim Gingrich, our COO, will present our results and take questions after our prepared remarks. Some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So I’d like to point out the safe harbor language on Slide 1 of our presentation. You can also find our safe harbor language in the MD&A of our third quarter 2019 10-Q, which we filed earlier this morning. Under regulation FD, management may only address questions of material nature from the investment community in a public forum. So please ask all such questions during this call. Now I’ll turn it over to Seth.

Thank you. Good morning and thank you for joining us today. Our third quarter results reflect momentum in several key areas of our business. Firmwide active flows were positive $9.3 billion in the third quarter, bringing year-to-date active net inflows to $21.6 billion, which translates to a 6.3% active annualized organic growth rate, continue on our best year-to-date in more than the decades. Flows were driven by continued rebound in fixed-income and ongoing success with retail active equities. And in an environment of declining fee rates, AB’s overall portfolio fee rate continues to be stable. Now let’s get into the specifics. Starting with firmwide overview on Slide 4. Third quarter gross sales of $26.3 billion increased 36% year-on-year and were down slightly sequentially. Total firmwide net flows were positive $8.1 billion versus $1.3 billion in the prior year period and net inflows of $9.5 billion in the second quarter. Total assets under management of $592.4 billion at quarter end increased 8% year-on-year and 2% sequentially, making our highest AUM since the financial crisis. And average AUM was up 7% versus the prior year period and 4% sequentially. Slide 5 shows our quarterly flow trend by channel. Firmwide net inflows were driven by retail and institutional, while private wealth flows remain negative for the quarter. In retail, gross sales reached a record $21.1 billion the highest in our retail history and increased versus both prior periods. And net inflows of $7.4 billion compared to modest inflows in the year ago period and were higher sequentially. In the bottom left chart, you can see institutional gross sales of $2.9 billion, while redemptions were flat. This resulted in institutional net inflows of $1.5 billion. In private wealth, gross sales of $2.3 billion were down versus the prior year period and from this year’s…

Thank you, Seth. Let’s start with a GAAP income statement on Slide 15. Third quarter GAAP net revenues of $878 million increased 3% from the prior year period. Operating income of $203 million increased – decreased 5% and the 22.6% operating margin decreased by 250 basis points. GAAP EPU of $0.62 compared to $0.68 in the third quarter of 2018. As always, I’ll focus our remarks from here on our 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 upon our adjusted results, which we provide in addition to, and not as substitutes for, our GAAP results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results are in our presentation’s appendix, press release and 10-Q. Our adjusted financial highlights are included on Slide 16. Third quarter revenues of $727 million were flat to the prior year, while operating income of $200 million and our margin of 27.5% all decreased year-on-year. We earned and will distribute to our unitholders $0.63 per year per unit compared to $0.69 for last year’s third quarter. Lower performance fees combined with higher compensation and G&A expenses primarily drove the weaker results. Revenues, operating income and margin all increased from the second quarter, primarily due to higher base investment fees and lower promotion servicing G&A expenses. We delve into these items in more detail on our adjusted income statement on Slide 17. Beginning with revenues. Third quarter net revenues of $727 million were flat year-on-year. Third quarter base fees increased 6% from the same prior period due to higher average AUM across all three distribution channels. Compared to the third quarter of 2018, total average AUM increased 7.2%. The portfolio fee rate of 41 basis points has…

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

Hi, good morning and thanks for taking the questions. Let me first – just retail sales and net flows, we’re impressed. You’ve just given the environment yet the Private Wealth, it was muted. It seems maybe a little bit odd obviously like the client base is different but still – it’s still in like the retail-like category. So maybe if you can provide some color around the mix and drivers for that difference and then what do you think could turn the net flows around on the Private Wealth side?

Mike, that’s a good observation. Because you’re correct that if you look at our U.S. retail business was actually quite strong. And as you point out, the big issue with flows in our wealth management business this quarter was our overall production level. All I can say is that in our wealth management business, we continue to be thrilled with the level of engagement that we’re having with the types of clients that we want to have conversations with. We are seeing exactly what we said, which is some delays in transactions and other liquidity events given some of the turbulence in the market. And also I think some caution on the part of our clients, that’s leaving some of their money in cash. But our overall momentum and excitement in that business remains robust then we continue to do the right things as we move the business in the right direction. So we’re feeling good about how that business is trending.

Okay. No, that’s helpful. And then given the announcement on the syndicated loan in the CLO strategy, I guess I want to hear and make some sense just given the demand that we’re seeing in that area and then maybe like fixed income strains. But it also seems like fairly competitive and maybe later cycle. So just – look, why now and how do you think AB will try to differentiate from a lot of the players out there?

I think that – hey, Mike, it’s Seth. It’s been long credit cycle. I do think that we have very strong credit skills embedded in both our high yield business and our middle market lending business. We’ve been looking for the right group, looking for the right talent. And we have found some really good people who we have confidence in. And we’re going to take our time to develop it because we recognize, where we are in the cycle. But it fits – it fills a gap for us in the asset class. It’s a direct extension of our own capabilities. And I think we feel that we are experienced enough in managing CLOs in our own portfolios and other securitized assets that we can manage well through what could be more bottled on market conditions for spread product. So I think, it’s a timing issue, but ultimately, we’re doing this with very long perspective in terms of the growth of this business and its place in our lineup. And it was really about finding the right talent.

Okay. Thanks a lot.

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

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

Sure. James, it’s Seth. John, as he talked about that the pipeline is a great example of this. So over $6 billion added to the pipeline this quarter to the institutional pipeline and roughly half of that was equities, which are obviously higher fee rates than, in the past where maybe we had a lot of fixed income in the pipeline. And when we look at the composition of the pipeline right now, it’s very well diversified between equities and alternatives and multi-asset and fixed income. In fact equities and alternatives for the entire $11.6 billion pipeline are the highest weighted strategies. And that will fold well into the future. For fee rate, as we talked about, with that pipeline having the highest annual fee base associated with it, that we’ve ever had, which is over $40 million.

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

Absolutely. In terms of – definitely we’re seeing pressure on institutional on the fixed-income mandates without a doubt. That’s there and we expect that to continue to be. But the other factor also impacting the overall fee rate on the entire portfolio and keeping it stable to slightly higher at 41 basis points. There’s also the strength in our retail business, particularly in the Asia retail products, which carry high fee rates.

Got it. Thank you. And then secondly, just on American Income, I know that that’s been a huge driver of influence for you guys year-to-date. Knowing that that is sort of been a cyclical product in terms of asset gathering. Just if there is a way for us to think about where we are in the cycle?

Yes. Look, I think Asian investors, which is where we sell the predominant amount of that service have just very strong demand for yield. They just started income oriented, market set for us, but it’s a very volatile part of the world. And we’ve seen it, we’ve seen it in our flows, we saw it last year where it was negative. And so it’s hard for us to forecast where those flows are going to go. But, it’s clear that the appetite for fixed-income flows globally demand has been much stronger as policy makers have been cutting rates. But I mean, frankly, populations which are focused more on retirement income is the product that they really want. They want security around that. So we’re very positive about our income suite globally and the performance of that income suite. It’s not just American Income, I think has warranted the interest it’s received.

Great. Thank you.

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

Okay. Thank you very much for taking the questions and good morning. So a couple of big picture questions. I guess the first one is a two-part, so bear with me. So there’s been a fair amount of, what I would call, commoditization and democratization of the retail system over the last few weeks or so. So the question is, you’ve seen the migration of free training from some of the online brokers. And then secondly, one of your peers, so U.S. Wealth Management has sort of shifted their strategy around their proprietary SMA platform and then using third-party SMAs. Can you talk a little bit about how either these might impact your business just from an earnings perspective tactically? And then the broader picture is how you’re thinking about your captive strategy in the private client business and is there any risk to that as a result of these changes?

Bill, I think if I look at our wealth management strategy as we’ve indicated, we are focusing on higher wealth, higher complexity clients, which for some of the anticipating some of the trends that you just called out. And if you look at, for example, some of the attach rates on alternatives with those clients, it just speaks to the types of differentiated return sources that we’re seeking to provide that set of clients. In addition to all the other things that those clients need in terms of generational wealth planning, tax issues and the like. So, we feel good about where we’re going because we think that that serves that the sink needs in the client and the marketplace, that helps insulate us against some of the commoditization issues that I think you’re speaking to.

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

Yes, Bill, it’s John. Again, I think the story is still the same for us and I think maybe what differentiates us against some of the other folks who have converted is that, we still have the large ownership of AXA over 65% of the firm. And so, I think some of the other folks have converted, their play is to get included in an index and hope that will help drive increased trading and multiple expansion in their stock. And with us, I don’t see us being able to get included in an index with that large ownership of AXA. So, that and for the reason that our effective tax rate is so low compared to the others. There’s so much tax leakage that if we did convert, and again, we’d require a multiple expansion of well over 12% just to keep folks hold. We currently pay out, we have a pay out ratio that’s over 100%. We’re paying out all of our earnings, we’re buying back the equity that we issue for stock-based comp. So I really don’t see that benefit to our unitholder, if you look at it to them on an after tax basis through the conversion. So, we’re still – we’ll still monitor it, we’ll still continue to look at it. But right now we’re saying an MLP.

And Bill, it’s Seth. Just to clarify AXA is AXA Equitable.

Okay. Thank you very much.

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

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

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