Before we get started, I've been asked to direct your attention to important disclosures on the Morgan Stanley research disclosure website morganstanley.com/researchdisclosures website. If you have any questions, please reach out to your Morgan Stanley sales representative. Good morning, everyone, and welcome back to Morgan Stanley's Financials Conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers, and exchanges for Morgan Stanley Research. Welcome to our fireside chat with AllianceBernstein. We're excited to have with us today, Ali Dibadj, AllianceBernstein's Chief Financial Officer and Head of Strategy. AllianceBernstein, as many of you know, is a leading global investment management firm that offers research and diversified investment services. The firm has about $730 billions of client assets under management today. Ali, welcome. Thanks for joining us. Thanks, Michael. Thanks for having us. Great. Ali going to kick off with a quick overview of AllianceBernstein's investment opportunity, and then I'm going to jump in with some questions, and we'll see if we have time towards the end for any investor questions. You can feel free to submit that over the web portal. With that, over to you, Ali. Okay. Thanks, Michael. Again, thanks, everybody, for joining. Really appreciate you being here. I'll just start off with a brief overview of the firm, updating a few key points, and really talking about how we measure ourselves on behalf of investors. For those of you who have access to the viewer, there's a slide you can reference, which is effectively our summary slide, our measurement slide. If you don't have access to that directly, you can go to our AllianceBernstein Investor Relations webpage, and it's in the investor relations presentation that we have. A few things just to highlight for us, at least. First, we believe we can continue to drive sustained growth in our business. It's been a hallmark of our business. In the first quarter, we drove about 4% active annual growth. We realized average active organic growth of about 3% over the last three years on average, with active equities in particular being a strong suit, growing about 5% over that same time frame. That's, remember, in a relatively challenged industry backdrop. That organic growth comes from really being maniacally focused on delivering on what clients want. That takes two pieces. One is differentiated long-term investment performance coupled with unparalleled client service. It's as simple as that and as complicated as that in the same breath. It really is about being maniacally focused on delivering what our clients want. In our growth as well, we focus on inorganic capability building. That's our main thrust there. Again, to support our growth trajectories is the barter point number one. Second piece is that we continue to be focused on expanding our suite of alternative products. That's a key component of our strategic growth plan. We highlighted the private alternatives space in our last earnings call with a lot of great detail. If you haven't taken a look at it, please do. It'll walk through what we think about from a private alternatives perspective and our growth trajectory going forward. We do that as well with our partner owner, Equitable. Equitable Holdings, as you know, is a large life insurance company. They were just at this Conference a few days ago. We're focused together with the collective opportunity of building not just a private alternatives business, but of building a broader asset management business, even more diversified than we are today. If you think about it, Equitable Holdings is focused on accelerating and optimizing their general account, matching up durations, enhancing risk-adjusted returns. It's not lost on any of us that private alternatives is a way to do that. Thus we can build that together. It's what we and Equitable call building a virtuous cycle. In this virtuous cycle, we build a high multiple alternatives business, and we deliver on needs for Equitable, again, our largest client and our partner in this endeavor. Throughout all that growth that we want to build going for the future, we remain committed to driving strong incremental margins, improving our margins over time. 45%-50% is what our incremental margin targets are through leveraging scale, executing on some of our cost savings plans, whether that be our national headquarter relocation or ongoing plans as well, and we continue to want to deliver that. Our margins won't go up every single year and every single quarter. Over time, we want to improve our margins, t hat trajectory so far has continued to be quite sustainable. For example, in the first quarter, our operating margins expanded year-over-year several hundred basis points, and a lot of that was driven by our G&A growth being managed to roughly inflation levels. Call it in the low single-digit range. We also have an interesting structure that we think is beneficial to us. We are a partnership structure. We're a publicly traded partnership, so we continue to benefit from a durably low tax rate, less than 10%. We think that's attractive. Whether or not corporate tax rates go up to 21% or 28%, we do think that below 10% tax rate is something that's quite attractive, and we want to deliver for our investors. Last couple of points. Given our structure as well, we continue to deliver from a distribution perspective, a high single-digit distribution return, distribution yield. That's quite attractive, obviously, in a low-rate environment. That's because in our structure, our publicly traded partnership structure, we return 100% of our adjusted income to our unit holders. All that together, we believe, creates a unique brand, a differentiated brand, not only for our employees and importantly our clients, but also for importance in this conference, our investors in AllianceBernstein. That's how we measure ourselves along those seven metrics, and again, happy to take any of your questions, Michael, about those things or anything else that's on your mind. Great. Thank you for that great overview. Very comprehensive. Why don't we dig into a number of those different themes that you mentioned, starting out on growth. Can you help maybe frame the growth investments that AB is currently making and how those relate to your growth strategy as you look out over the next 3-5 years? We'll dive into more detail on each of those points as we go through. Absolutely. Look, as you mentioned, Michael, as I mentioned at the outset, delivering growth to our investors is one of the most important things that we do. Let's, if you indulge me, look back first to look forward. To set the stage, I mentioned some of these early, but if you think about our growth for the past 3-5 years, we've really been pretty successful, knock on wood, at driving organic growth above peer group levels. Our average organic growth of 3% over the last 3 years is compared to down 4% for our publicly traded peer group. We've grown both in fixed income and the equities business, of course, as well in our alternatives business that we're growing in multi-asset. Our active equity business accelerated to about 5% average organic growth. Again, that compares quite favorably to what you've seen in public peers, which shrank 5%. That's again, driven by diversification and balance of our businesses. We have developed more businesses to offer to our clients, again, driven by what our clients want, and we do believe that's sustainable. All of this under the umbrella of delivering for our clients. We have delivered, we believe, differentiated performance, whether that be our traditional equity businesses, whether that be in our fixed income businesses. Again, our alternatives, our multi-asset businesses, our Portfolios with a Purpose more recently, which is a $20 billion business, from an AUM perspective, which was zero not that long ago. Again, trying to deliver differentiated services to our clients is what we've been very focused on, coupling that with incredible client service. Looking forward, Michael, to your question, where do we think we can step off? We mentioned alternatives. Alternatives is something, again, that we highlighted on our Q1 earnings call. It is a $20+ billion business from an AUM perspective right now. Again, that was zero not too long ago. We see no reason why that can't be doubled or more over a reasonable period of time here. Not overnight, but over a reasonable period of time here. Part of that is the permanent capital. Again, the permanent capital that we get from Equitable to grow that business, aligned with their strategies that they have in terms of improving their yield and risk-adjusted returns, and at the same time, building a business with us. Alternatives is one area we're investing in. We're investing in Asia as well. We also have a strong retail presence and brand there in fixed income and now even beyond that in Asia. We do see opportunities, for example, in China as well for us to invest there. We are committed to growing in China and leveraging some of our skill sets in broader Asia in that marketplace, again, over a number of years, not overnight, but we do think that there's real potential there. A few other things that we're excited about, I guess in order, ESG is something that we've continued to grow and think still have a lot of legs. We feel like our skill set there is very strong. As I mentioned before, it's over $20 billion in AUM right now. We think that can continue. We're clearly seeing requests and demand from our clients there. We also can't forget and certainly continuing to leverage our traditional active equities and fixed income businesses, our multi-asset portfolios. We're filling some holes to deliver for our clients. Then last, but certainly not least, we are investing in our distribution, whether that be our U.S. retail distribution, our Asia retail distribution, in Europe as well, or our institutional or private wealth channels. Again, to your question, there are many areas we're excited about. There are many areas we're investing in. That, again, bringing it back to what we want to do for investors, delivers both top-line and bottom-line growth, we believe, in a sustainable manner. On alternatives, you mentioned you think that can double, I guess, over the next couple of years from the $20 billion that you have today. You alluded to earlier more of a discussion you had on your first quarter call, but maybe you could just elaborate a little bit more around the growth strategy within alternatives and which particular strategies or products stand out where you're most optimistic about the growth side? Sure. Thanks, Michael. First, just to be clear, a couple of years is probably too little of a time to double it, but the next few years. 5-ish years, 7-ish years, think about it that way, is what we're targeting from growing quite substantially from where we are today. Really it's driven, as I said this a couple of times, I'll say it a couple of times more probably, because the clients are demanding it. Clients want alternatives. As you pointed out, Matthew Bass, who's done a phenomenal job leading our business in the private alternatives side, did a great job summarizing our position in alternatives on the first quarter earnings call. Again, it's an appealing set of categories because as clients are looking for idiosyncratic returns, they're looking more and more in the private markets. Clients are wanting it, and so what you're seeing is the private market strategies from an industry perspective are growing 2x- 4x what you're seeing in traditional public market strategies. Again, clients are demanding it and we're delivering for them. One of our most important clients, again, our partner owner, is Equitable. They're invaluable in terms of support they give us in building this private alternatives business. They want to improve their yield with long-dated alternative strategies. That's what we're building. By the way, other clients want it too, and so we can actually grow that. We can deliver for our biggest client in Equitable and deliver this virtuous cycle to other clients as we build a high multiple business for us. Where we are right now is we're quite strong in the middle market lending business. That is still growing, but in the double-digit of AUM in billions. Real estate debt as well is quite strong, and global multi-strat that we have as well. What we plan to do effectively with those businesses and with alternatives plans going forward is, again, not just delivering for our clients for today, but delivering what they might look for for the future. We look at expanding from a geographic perspective, number one. For example, we took our U.S. commercial real estate debt business and bolted on top of that a European commercial real estate debt business, and that's something that we expect to grow. In middle market direct lending, we're in one kind of sleeve of the cash flow backed business. There are other areas we can get into within cash flow as the collateral. There are other areas as well we can get into in terms of the private lending and private credit area for us. There's a geographic and there is a skill set growth that we want to do. Again, as you mentioned, our growth aspiration. It's ambitious, to be clear. We feel like we have the history and certainly the focus to deliver on the strategy is to be known as one of the global leaders in alternatives. Again, more than doubling the business in a reasonable amount of time. Not just through skill sets, not just through geographies, in delivering to our clients, whether it be Equitable, whether it be institutional, whether it be retail, whether it be our private wealth channels. Certainly, that is our plan going forward, and we'd like to do that for investors. Asia is another growth zone that you mentioned earlier. Certainly represents a very large growth market for the overall asset management industry. Can you talk about AB's current positioning and growth plans for expansion in Asia? If you could also touch upon any sort of views and perspectives on China as well. On China. Okay, sure. Asia is for us at AllianceBernstein, one of the best-kept secrets we don't want to be a secret, effectively. We're over $100 billion in AUM in Asia, well over $100 billion in AUM in Asia right now. It's been growing in the high single digits from a CAGR perspective very consistently. It's about 25% of our fee base. It's quite an enviable position. It's an enviable position that the great team that is there has built up over decades. We've been ahead of the pack in many ways. It's so enviable. Again, I'm trying to make this not the best-kept secret. It's so enviable that if you look at many of the surveys out there from a brand perspective, whether you look at Ignites Asia or Broadridge Fund Brand 50, we end up being fourth from a brand perspective in all of APAC, right? Not to tap some of our competitors, but that's behind a BlackRock, a Fidelity, a JPMorgan. We're fourth. We're clearly punching above our weight there from a brand view. We're strong across Japan, Taiwan, Hong Kong. We're growing still in Singapore, Korea, and Australia, and we think each of those regions continue to have enormous opportunity for us. You mentioned China. We believe China can offer us good growth over the long term. Again, that's not going to be overnight, as we all know from that region or any growth trajectory in asset management, but over the long term. We are committed to China for the long term. That's not only because we see enormous opportunity to serve 1 billion potential clients or trillions of dollars in terms of financial assets that are out there to try to deliver to our clients and try to get them to reach their financial goals. That's our mission is try to get our clients to reach their financial goals. It's not just that market opportunity. It's that we believe we have the right to win there. I mentioned our brand in overall Asia. That's not in China yet, but we certainly think that we can learn from other areas in Asia where we've built businesses and bring that to bear in China in particular with enormous amounts of opportunity. It's also not just the brand itself. We're investing significantly in China. We're investing in teams. We're investing in understanding that ecosystem even more so than we do now. We've been there for quite some time. We've been in Shanghai office for a very long time now. We believe that a coupling of what we've learned elsewhere, not that everything's the same, but what we've learned elsewhere, the investment in that marketplace, and our brand will allow us to expand Asia even further, and again, China as being a backbone for that for the long term. ESG, that's a topic that's getting a lot more attention these days. Can you update us on AllianceBernstein's ESG offerings and future plans as it relates to a growth opportunity that you see there, and how is ESG represented today from a channel perspective? From a channel perspective. I guess I'd say three things on ESG for us. The first one is ESG integration, we call it, and folks call it that I think as well. ESG has been integrated in about 80% of our assets under management on a global basis. What does that really mean? ESG integration, perhaps although people use the same term, has different definitions for people. We are the most conservative with definitions in some ways. Most of the things we do are most conservative in terms of our definitions. What that means for us is that the analysts and portfolio managers actually use ESG data to make their investment decisions, to build their models, to figure out what the discount rate is, to figure out what the risk is, positive or negative impact of ESG on their portfolio companies, on their portfolio more broadly. We really when we say ESG integrated into the investment process, it is indeed integrated into 80% of our AUM, and we expect that to continue to grow. We'll never get to 100% for things that are passive, for example, that we have a little bit about that won't be fully integrated. Certainly, that's one leg of the stool from us from an ESG perspective. That's just the bare minimum in our mind, right? We encourage you to ask those types of questions of other companies as well. The second piece for us is what we call Portfolios with a Purpose. That's a strategy that we built from scratch, a set of strategies, I guess I should say, that we built from scratch. It's now $21 billion of AUM, as I mentioned before, and that's when a portfolio has a particular set of metrics that they're looking for, targets and goals from an ESG perspective. That's part of the mandate. Sustainable Thematic is one of the strategies that you'll hear about us talking about growth. That will continue for us, and we're seeing, again, demand from the clients. The third element of ESG for us is around corporate responsibility. We believe to be good at ESG, you don't just integrate, you don't just have Portfolios with a Purpose that are focused on ESG, but also we have to be good corporate stewards, have good corporate responsibility. That's something we've had that has always been part of our culture. We've always conducted our business with the maniacal focus, as I mentioned, on client and other stakeholders. That's been in our culture. It's taken a little bit of different form. For example, signing on to different pledges like CEO Action for Diversity & Inclusion or other pledges that are out there. We continue to focus on that as another leg of our three-pronged stool on ESG in terms of corporate responsibility. We continue to see research searches from clients increasing. It's important that we believe that that continues. It's certainly a place I mentioned earlier and that you underlined that we are investing in. You mentioned from a channel perspective. I guess couple of things I'd say there. One is it depends on the geography and depends on the channel, right? Think about in Europe. Europe is, and has been for a very long time, all over the ESG landscape. We have, because we're global, have been lucky enough to see that evolve first and have then been able to apply that to what's happening in the U.S. right now, which has impacted Private wealth from a retail perspective, from an ESG perspective for sure, as well as retail and institutional growing. We're so focused on ESG. Our Portfolios with Purpose is disproportionately in the retail channel, and we find that that's probably going to continue to be successful. Then you mentioned Asia in the last question. That is just starting to be a focus for us from an ESG perspective. We're getting great success on some of those Portfolios with Purposes there, and we expect that to continue. I don't have a great holistic answer on channels. It'll depend on geographies, but we are seeing growth everywhere in something that we're investing in, which is a fortuitous situation to be in. Well, speaking of channels and geographies, maybe you could talk a little bit about some of your distribution initiatives and the investments that you're making in distribution in the U.S. and other key markets of yours? I think less about the term distribution, to be fair, Michael, and this is not to change your question, but I think more about it from a client service mentality. That's what we focus on. Yes, distribution is kind of the almost logistical way to get a product to somebody, but we really think about it from a client service perspective. We are focused on the client. In that context, in terms of our client service channels, you mentioned that retail is a very, very big focus for us, certainly in the U.S. and in Asia. Japan is a good example of where we're really kind of beefing up our retail chops there, investing in people, investing in relationships, and trying to continue to grow that business. We continue to see growth potential in our diversified offerings. Active equity offerings for sure continue to grow. We believe that there is a lot of untapped opportunity there. We see things in fixed income and multi-asset as well. Global High Yield continues to do well. We think the municipal business has a lot of legs as well. One of the things in retail that's worth mentioning for us, it might be a little bit different than others, but certainly for us, is that we're seeing quite strong growth in our SMA platform. SMA vehicles now are tens of billions of dollars in AUM. Think about our muni offering, for example, or strategic research balance that we have out there. These SMA offerings continue to grow, and that's allowed us to really think about our retail offerings on a much more, I guess, vehicle-agnostic manner. Again, being focused maniacally on the client, whether that be the CITs or the SMAs or C or ITMs, and importantly on ETFs as well. We are already active in the ETF market, perhaps with less hullabaloo than others, but we're already active in the ETF market, for example, and this idea of being quite agnostic and trying to deliver for our clients most effectively, it does suggest that we could go into ETFs and deliver that for our retail clients and private wealth clients as well. Two other client service elements that might be worth mentioning. One is on institutional. We continue to invest there as well, both in channels and geographies. We mentioned Asia as a big place. We're investing there, certainly, but globally, we are for sure in different channels, of course, as well. We're benefiting from that across the board. You've seen that kind of quarter-on-quarter how we grow that business, whether it be in alternatives, whether it be customized retirement solutions, and we hope more opportunities for us to grow institutional. We'd be remiss in not mentioning the private wealth business that we have, the kind of north of $100 billion AUM business that continues to be one of our crown jewels in the company. We invest there in terms of hiring. We invest there in terms of training. We invest there in terms of just our pure research, which supports our brand, technology, other ways. We very much value our client service, as you call it, right, distribution. We think it's a key foundation, right? A manufacturer's a manufacturer, but you have to have client service to deliver those to benefit our clients. Again, to your point, we're investing in distribution, and we believe areas to get the best return. Maybe just shifting over to the product side, you mentioned active equities as an area of strength at AB. Despite some of the headwinds that the industry has seen, AB has posted some very impressive organic growth across your active equity platform. Can you talk about what you think has driven that strength and performance there, and how is AB positioned, would you say, going forward here, if the markets continue to rotate towards value? Look, you're right to point out there, active equities business has been quite strong. I mentioned some of these figures before, we've had six consecutive quarters now of active equity inflows. Overall at the firm, we've had, I think the number is 16 quarters of organic growth from our retail business and active equity inflows. We believe that is something that is sustainable, and we continue to deliver on. Why, why we think it's sustainable? Again, there are effectively two aspects to it. One is that we've diversified our offerings. We used to just be effectively two offerings, a value and a growth offering. Well, we have many more global teams. We have many more global teams to offer to our clients with differentiated returns. Of course, we want to couple that with client service. Client service to our partners, third-party partners from a distribution perspective, as well as institutional and private wealth partners as well. Coupling those two things. Again, it's as easy or as hard to say that we're maniacally focused on our clients. We have enablers for that. What we've done is we've very much focused on idiosyncratic differentiated returns. We have analytics to look at our current teams. We really started this 10 years ago. We've become more sophisticated. We really started this 10 years ago to look at our current teams and look at who is really delivering idiosyncratic returns, encouraging them incentive-wise and otherwise to deliver idiosyncratic returns for our clients. The non-systematic, non-beta portion of returns that clients actually want. We've done that internally, developing new teams and improving teams that weren't delivering it, as well as looking at M&A. Whether we buy a team, buy a company, do a team lift-out on the inorganic side as well. We've really leveraged that view that clients want idiosyncratic returns, and that's what we want to deliver. I guess one other aspect which is important to us from an active equities' perspective, because call it 85% of all institutional decisions are made with the help of consultants, we've really spent a lot of time on consultant advocacy. We see consultants not just as this gatekeeper that people are potentially fearful of. We really see them as value partners, value partners and value people in the ecosystem. We do our best to deliver for clients as consultants do as well. Consultant advocacy remains quite strong. For example, we got seven upgrades during 2020, which all won't be delivering in the short term, but it does suggest that we're very focused with the ecosystem to deliver for, again, our clients. Just on value Just a note on value. Yeah. Sure. Look, on value, we have done quite well recently in terms of performing our overall global value franchise, outperformed benchmarks for the most part over the first quarter. A lot of that was because of idiosyncratic returns. Stock selection was positive. That's particularly the case in our small cap and mid cap value products where we do believe there's a differentiation that we can bring to bear. The environment also benefits us because there just aren't that many value investors out there. We believe that that's an opportunity for us to continue to grow our active equities is to supporting our value franchises. Again, we think we have something special to add there. Great. Maybe just shifting gears over to fixed income. Can we talk about your fixed income platform today, and particularly given the potential for inflation and rising interest rates, how would you say that bodes for fixed income offerings that AB has? Look, there's generally a knee-jerk reaction given inflation, given rates rising for outflows from fixed income. We've not been immune to that, as you've seen in some of our numbers, and there's no question about that. Of course, that's going to happen for us. We are in a little bit, I guess, a better position than the average bear on this, given many of our products are a little bit more risk-on centric, so our exposure to credit, for example, think about Global High Yield, think about American Income, which are our two flagship products. A little bit more risk on, so that should help. Look, there will be a knee-jerk reaction. We're seeing the knee-jerk reaction, and it'll continue with some people who have less quick reflexes and pulling money out of fixed income. That's going to be the case. However, w hat I'd say is that there are really three things to think about in the fixed income landscape, two of which we can control, one of which we can't. We can control what type of products we have and our performances. Performance has been quite strong. For example, we have 91% of our assets outperforming for the one-year period ending, I guess, last quarter, so it would've been March 31st or whatever it is. That continues to be quite strong. We do believe that that will continue to deliver from us from a performance perspective because the performing managers stuck by their guns, even though a year ago, with what happened in March of 2020. There's a big dislocation. We can control that. Hopefully we can continue. We can also control what strategies we lay out for our clients. Income continues to be one of the biggest drivers of our growth strategies and the businesses that we have right now in fixed income. Clearly, over time, when rates go up, we'd be expecting that to benefit, again, over time, income strategies, and we have a lot of those, particularly for our Asian investors who look for yield. There's a third thing that we can't really control, and I kind of mentioned that a little bit, but it's the reasons you invest in fixed income. Right? Look, rates are a little bit lower than they were many years ago, for sure, and so you have lower returns. Diversification used to be why you're in fixed income. You need less fixed income to really be diversified given other opportunities out there. By the way, that's part of the reason we're going to private credit. I'd argue regulatory things haven't really changed. The reasons people invest in fixed income, we can't really control, but we can try to control what products we have to offer and our performance for our clients. Great. Well, we're almost out on time. This is probably our final question here. Just a bigger picture question around M&A. The industry landscape continues to evolve here. How does M&A fit into your plans? Should we expect AB to be an active participant given the industry consolidation trends? Yeah. A few things I'd say about M&A. One is, we are clearly in the flow. All these deals that you might hear about and see, et cetera, we are very active in looking at things. At the same time, as you've seen in our track record, and we will continue that track record, we've been quite selective. Right. We've been quite selective in terms of what we get involved in. The reason for that is we strongly believe, and I think the market is right to having discussed this and laid this out, in terms of how they value things. We think M&A, whose major vector of value creation is cost savings, is very low probability M&A. On the flip side, we think M&A, where there's complementariness, and there's some big deals that are complementary and some that aren't that have happened. We think M&A, where there's complementariness, complementary channels, geographies, investment skill set, technology skill set. Those aren't shoo-ins for sure from an M&A perspective, but they certainly have higher probability, and that's where we're focused. That's what our track record has been. 14 lift-outs or acquisitions in the past 10 years. That's something we want to continue to do. I'm a little bit more size-agnostic. I'm really looking for complementary opportunities, and we've accelerated some of those. We did 4 lift-outs or acquisitions in 2020. We hadn't done a big one in the buy side since 2016. We have to remain disciplined, but we do see, Michael, to your point, some really interesting opportunities to find teams with great track records, a great cultural fit, good financial terms as well, and most importantly, something that we can grow for our clients, whether they be Equitable, private wealth, retail, or institutional. We are active in the market, and we look for opportunities that will benefit unitholders ultimately. Great. Awesome. I'm afraid we'll have to leave it there, Ali. We're out of time. Thank you so much for joining us today. Thank you. Thanks, everybody.