Thank you for standing by and welcome to the AllianceBernstein First 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 you instructions 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 for this call, Head of Investor Relations for AB, Mr. Mark Griffin. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our first 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. With us today to discuss the company's results for the quarter are Seth Bernstein, our President and CEO; and Ali Dibadj, CFO; additionally, Matt Bass, Head of Private Alternatives will join us to discuss our Private Alternatives business; and Kate Burke, COO, 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'd 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 first quarter 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.

Good morning and thank you for joining us today. In the first quarter, we drove balanced growth across all three channels, geographic diversification and differentiated client focused offerings, specifically across ESG, active equities, alternatives and municipals led the way. Near-term investment performance rebounded strongly in fixed income, while solid long-term performance across other asset classes. And our institutional pipeline grew to a record annualized fee base led by alternatives. For the quarter we posted active organic growth of 4%, while expanding our operating margin to 31.7%. We delivered 27% growth in both earnings and distributions to unitholders. Let's get into the specifics. Starting with the firmwide overview on Slide 4. Gross sales were $33.3 billion, our second highest quarter since pre-financial crisis 14 years ago. Sales were up $1.7 billion or 5% from a year ago and up 6% from the prior quarter. Firmwide active net inflows were $6.5 billion, a 4% annualized organic growth rate. Quarter-end assets under management of $697 billion were the highest since pre-financial crisis, increasing 29% year-over-year and 2% from the prior quarter. And average AUM was $689 billion, increased 14% year-over-year and 6% sequentially. Slide 5 shows our quarterly flow trend by channel. First quarter net inflows were positive in each channel. Retail generated its second strongest gross sales ever with net inflows of $2.7 billion as strength in active equities and munis more than offset outflows in taxable fixed income, showing the balance we built in our retail business. Institutional sales of $4.9 billion led to net inflows of $800 million driven by growth in taxable fixed income. In private wealth, gross sales increased 54% year-over-year, and we're up 46% sequentially with continued advisor productivity gains. Net inflows of $1.7 billion reflected improved investment performance and heightened client risk appetite. Now let's turn…

Thanks, Seth, and good morning, everyone. I’m going to discuss our private alternatives business at AB. History, the current platform, our growth strategies and why we believe AB is well positioned to continue to attract great investment talent and meet our clients’ needs. Before we dive in, I want to provide some context behind the growth of alternatives at AB more broadly. Post financial crisis, we’ve invested significantly in diversifying the firm, growing our fixed income franchise, growing and diversifying our equity franchise, and building out our multi asset and alternative capabilities. We accomplish this through a combination of organic growth and product development, as well as targeted inorganic growth, acquisitions, team lift-outs and team build-outs. As you can see on Slide 13, since 2010, we’ve added 10 diversifying alternative investment capabilities to the firm, across both private and public markets. Turning to Slide 14, in private alternatives, our focus has been on credit oriented strategies. Core competency that aligns with the firm’s long tenure liquid credit business, [indiscernible] you know, is a key component of our DNA. I’m showing this to you, as many recover our alternative peers can appreciate on an apples-to-apples basis AB is built $125 billion credit business of which private alternatives represents approximately $20 billion. This sits alongside our private placement business, which manages nearly $12 billion in AUM and our CLO business, which was launched in 2020 with backing from equitable and it’s a direct extension of fully integrated with AB’s leveraged finance platform. Collectively, these strategies represent more than 25% of our total credit AUM. On Slide 15, I’ll review our current platform before we get into the growth strategy. Today, AB’s private alternatives business has scaled capabilities across private credit and real estate including U.S. direct lending, a business we call AB…

Thanks, Matt. A great look into a key part of our business and strategy. Let’s start with a GAAP income statement on Slide 19. First quarter GAAP net revenues of $1 billion increased 15% from the prior year period. Operating income of $260 million increased 46%, an operating margin of 25.9% increased by 260 basis points. GAAP EPU of $0.81 in the quarter increased by 29% year-over-year. As always, I’ll focus my 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 on our adjusted results, which we provide in addition to and not as a substitute for our GAAP results. Our standard GAAP reporting and reconciliation of GAAP to adjust results are in our presentation appendix, press release and 10-Q. Our adjusted financial highlights are shown on Slide 20, which I’ll touch on as we walk through the P&L show on Slide 21. On Slide 21, beginning with revenues, net revenues increased 10% for the first quarter versus the same prior year period. Base fees increased 11% for the first quarter versus the prior year period, reflecting 14%, higher average AUM, which grew across all three distribution channels partially offset by slightly lower fee rate. The first quarter fee rate of 38.6 basis points was essentially flat sequentially. We continue to believe that although our fee rate may be volatile from time-to-time, given large mandate in our pipelines that may skew averages the long-term trend should be grinding higher. First quarter performance fees of $16 million increased by $10 million versus the prior year period, due primarily to higher fees earned on our private middle market lending business. First quarter revenues for Bernstein Research Services decreased by 8% from…

Thank you, Ali. Turning to Slide 23. In the first quarter, we continue to make progress on the dimensions we previously outlined. We drove 4% active annualized organic growth with growth across channels, each channel led by active equities, alternatives, and municipals. We expanded our suite of higher fee alternatives of our strategic partner Equitable leading multiple offerings, as Matt discussed, our future offerings align with their strong mutual interest in growing our yield enhancing alternative strategies. Closely managing spending as well as continued COVID-19 related travel and meeting restrictions enabled us to leverage double-digit top line growth, driving strong incremental margins well above targeted levels. As a partnership, we have a durably low tax rate, and we will pay a distribution of $0.81 per unit for the first quarter, a robust annualized yield of 8%, and a low rate environment. With that, we are pleased to take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Dan Fannon [Keefe, Bruyette & Woods, Inc.]

Thanks. Good morning. My question is on, the pipeline and kind of the momentum in the business. It seems like there’s a bit of a shift more towards fixed income and alternatives versus equity that we’ve heard from you in the past. Can you maybe talk just a bit about the dynamics, and also in the context of what’s happening broadly in the market and the kind of growth the value rotation?

Thanks for the question, it’s Seth. Look the pipeline remains quite strong. As we indicated at $15.2 billion, there has been a change in the mix of our pipeline. Part of that is a function of the lumpiness. In some respects, it’s some big mandates in fixed income, and in CRS, which is our customized rock retirement solution. So those do have a way from a size perspective, but have much less of an impact from a revenue perspective. If you look within the pipeline, we had about $6 billion odd incremental. We had about $6 billion to $24 billion of incremental ads in the quarter, and the pipeline is about 15%, equities 20% fixed income 40% odds, and the rest is in our multi asset area, which would include our customized retirement solutions. The activity level, we are seeing with consultants some of a large institution hasn’t abated at all. But the mix is changing, we are seeing more interest in value as a general statement, but we’re still seeing a number of equity mandates. So I guess, I would say the size of the underlying mandates doesn’t necessarily reflect the actual amount of activity and revenue when and – the revenue and the average earnings rate that we see on the assets we’re actually winning.

Okay, that’s helpful. And then just as a follow up, just want to confirm or clarify on the normalization of kind of promotion and servicing is that, we are going back to 2019 are kind of what’s the right kind of framework, I understand the ramp could be is dependent on a lot of factors. But when you characterize kind of normal, what would that be?

Yes, thanks for the question. So, look, as you say, it’s hard to tell. It’ll depend on client needs, it’ll depend on what competitors do. We certainly would like to have some savings versus historical normalized levels. It will be higher than 2020. We all hope, given what’s going on right now. And we continue to believe in that. Probably not 2019 levels on a normalized basis, but it’s hard to tell how much we think we can save versus that. So 2021 should be higher than 2020 for sure. Maybe not as high as 2019 is how we think about it at this point.

Great, thank you.

[Operator Instructions] Our next question comes from the line of Mike Carrier [Bank of America].

Hi, guys, this is actually Shaun Calnan on for Mike. So you mentioned infrastructure and renewables as areas that you’re looking to grow and alternatives. Can you discuss your current offering, if any, and how quickly you can build that offering, given the increase interest in these products?

Sure, Shawn, happy to answer that. This is Matt. So, I mentioned – as I mentioned earlier, the growth strategy on the private wealth side is two pillars, organic growth, scaling core strategies, extending those teams in inorganic growth. On the inorganic side, we're certainly being led by our client demand, global client demand, notably equitable. And within that, the infrastructure and renewable space is an area of focus. So don't currently have an offering there, but that is one of the large scale win markets that we're looking at with equitable regarding potential expansion in the future.

Okay, thanks.

Our next question comes from the line of John Dunn [Evercore].

Thanks, guys. Could you maybe give us kind of a check-in on the temperature of what you're seeing as far as M&A and team lift-outs with the markets being a bunch, but secular pressures not going anywhere?

Sure, happy to do that, John. So, look, there's a lot of M&A activity in the sector, large and small. And our view is that it will likely continue precisely to the pressures you've seen that you're describing. Look, we see all the flow, we remain quite selective and shrewd our strategy, we're not going to become enticed by the next shiny object. And look, we believe and the markets have spoken things that we said before which is that M&A mainly to cut costs has a very low probability of success, no matter the size. The probability is much higher for M&A. It's not perfect, right, but it's much higher for M&A, if you can bring together complimentary traits, whether that be product, channels, skills, geographies, some combination of those ideally. And that's where we continue to look, and again, are in the flow. We are – we believe coming from position of strength, hopefully the past few quarters suggest that and so we’ll stay on top of the M&A activities out there. We'll be in the mix, but we're only going to do anything that again, fits our criteria of bringing together complementary skill sets of our firm. Of course, as you heard from Matt, alternatives, is a big part of that focus for us. And so that's where we're going to be very, very focused. And that's our strategy and our growth trajectory. And so in particular, that's where we're going to be looking.

Make sense. And then as my follow-up, maybe just looking at your update on the main investment areas on the distribution side, maybe different parts of the channels and geographically.

Sure, it's Seth. Let me start with institutional. I mentioned it a bit earlier, the ramp we’re seeing around our backlog. We are seeing pretty strong activity in both Europe and U.S. And a lot of that interest is around what we call responsible investing or portfolios with purpose, where we're seeing real interest particularly in Europe, but also growing interest here in the U.S. and that crosses equities and fixed income. As Matt was alluding to, there's continuing appetite for private credit. So as we have new capabilities to launch, we see pretty receptive audiences for it. Moving into retail, in Asia, we're seeing which is, you know, is a very important market for us. There's continuing concern about interest rates and rising interest rates and inflation there. So that has impacted us from the perspective of our American income and global high-yield products. On the other hand, frankly, given the extreme moves in treasury yields over the quarter and over the last sort of four or five months, I would say they’re actually rather muted relative to historical experiences that we’ve had. Conversely, we’re seeing quite a lot of demand for equities and multi asset in Asia, equities, notably in Japan. And so we’ve seen a much better mix at least for ourselves in the Asian marketplace in retail. In the United States, big demand from munis, muni SMAs have really been driving, a lot of interest for us and equities continue to be pretty strong here, as you can see, and in Europe, slower from our perspective, but equities certainly there and fixed income to a lesser degree. And finally, private client had a very robust first quarter. And demand is really, I think, a function of people taking cash and investing we had a significant cash build-up over the course of the year with our clients and putting it to work both in alternatives and elsewhere. So, I see continuing interest on more appetite than we’ve seen in a while.

Got it. Thanks very much.

Our next question comes from line of Kareem Afifi [Credit Suisse].

Good morning, everyone. This is Kareem filling in for Craig. My first question is on the private wealth channel. So there was a 23% sequential improvement in redemptions? Could you talk a little bit about what the drivers behind this improvement? And if we should expect decelerating redemption activity in this channel in the future? Thank you.

Hi, thanks for the question. It’s Kate Burke here. Yes, we did have a strong quarter with the net flows of the $1.7 billion. Look, I think that’s attributable to a number of factors over the course of the pandemic, and really the commitment of putting clients at the front and center of everything we do. Whether it’s through the investment offerings that we’ve added to the platform, and the thought leaving wealth advices as well as the strength of the overall trusted advisor and service team really putting the clients at the forefront, but based on the wealth model and allocation advice, we did begin as Seth just mentioned at the beginning of the year, encouraging clients to redeploy cash to a higher earning asset classes. And the success of this campaign did move cash from the sidelines, with both federated cash and holding cash down about $300 million each. So, we continue – we do continue to see movement there. We’re also planning significant product launches in 2021 in alternatives, again, as well as around ESG and as Seth also mentioned the strength of the SMA platform to meet the evolving client preferences, again, while always focused on their outcomes. So, we can’t predict flows, but we’re pleased with the success we’ve seen so far this year, and are very focused on continuing to grow the business in the coming quarters.

Thank you.

I would just add – I guess I would just add to that, I think we also had improved investment performance, which helps private bank with respect to retention. And I think that’s continuing.

Thank you.

[Operator Instructions] There are no further questions at this time. Mr. Griffin, I turn the call back over to you.

Okay, thank you, operator. Thank you, everyone for participating in our conference call today. Feel free to reach out to Investor Relations with any further questions. And have a great day. Thank you.