2018
ANNUAL REPORT
Positioning AB
for the Future
2018 FINANCIAL HIGHLIGHTS
AB HOLDING (The Publicly Traded Partnership)
Adjusted1 Net Income (USD Thousands)
Adjusted1 Diluted Net Income per Unit
Distributions per Unit
AB (The Operating Partnership)
Assets Under Management (USD Millions)
Adjusted1 Revenues (USD Thousands)
Adjusted1 Operating Income (USD Thousands)
Employees
Years Ended December 31
2018
$259,700
$2.67
$2.68
2017
$218,979
$2.30
$2.30
2016
$184,218
$1.89
$1.92
Years Ended December 31
2018
$516,353
$2,925,604
$852,059
3,641
2017
$554,491
$2,712,899
$750,118
3,466
2016
$480,201
$2,477,318
$624,402
3,438
ASSETS UNDER MANAGEMENT (USD Billions)
By Investment Service
By Channel
By Client Location
Fixed Income Passive2
$9
Equity Passive2
$50
Other3
$59
Equity Active
$136
Fixed Income
Active
Private Wealth
17%
$89
$262
Retail
35%
$181
$246
Institutions
48%
Non-US
34%
$177
$339
US
66%
1 The adjusted financial measures are all non-GAAP financial measures. See pages 38–39 and pages 47–50 of the enclosed Form 10-K for reconciliations of GAAP
financial results to adjusted financial results and notes describing the adjustments.
2 Includes index and enhanced index services
3 Includes multi-asset solutions and services, and certain alternative investments
LETTER FROM THE CEO
AllianceBernstein made considerable progress in 2018 to position itself for the
future. We announced our future headquarters in Nashville, Tennessee, where AB
will be the anchor tenant of a state-of-the-art building in the heart of the city.
We’re excited to be a part of such a vibrant city and community, and this move rep-
resents the next step for AB and its future. The firm also continued executing its
long-term growth strategy and enjoyed considerable success in many areas in 2018.
As CEO of AB, I’d like to formally welcome our new Chairman, Ramon de Oliveira,
a valued independent board member over the past two years, and Jeff Hurd, Nick
Lane and Charles Stonehill, who recently joined the Board of Directors as well.
Together with Ramon, I’m looking forward to leading AB on a promising journey,
and I would like to thank Bob Zoellick, Denis Duverne and Anders Malmstrom for
their service and insights to the board.
MARKET ENVIRONMENT
Global equity markets were lower in 2018 following a year-end
sell-off driven by investor concerns over the pace of rising US
interest rates, a slowdown in European business confidence,
weaker Chinese growth and rising geopolitical uncertainty.
Global fixed income markets were mixed for the year, with
higher returns for less risky government bonds and negative
credit market returns.
In the US, the Federal Reserve implemented four interest-rate
increases in 2018, as expected, but revised its guidance on
the number of rate hikes to expect in 2019 from three to two.
More recently, however, the Fed indicated that there could be
only one or even no rate hikes this year. Tax legislation that
went into effect in 2018 helped spur growth and corporate
earnings, though the benefit is unlikely to continue throughout
2019. Investors are now turning their focus to the length of the
economic cycle.
Economic growth remains relatively strong around the world,
though signs of a slowdown have started to emerge. In
Europe, the European Union implemented MiFID II (Markets in
Financial Instruments Directive II) at the start of 2018, and the
European Central Bank followed through with its plan to end
asset purchases, despite a slowdown in growth and ongoing
uncertainty around Brexit negotiations. In China, monetary
policy started easing in response to slowing growth and
tariff headwinds.
ASSET FLOWS AND FINANCIALS
It was another challenging year for active fund managers; only
42% of managers beat their benchmarks for the year, despite
increased volatility, which typically bodes well for stock
pickers. Demand for passive persisted, albeit at a slower pace.
US industry-wide passive equity mutual fund inflows of $325
billion were down 30% in 2018, and US industry-wide active
equity mutual fund outflows of $259 billion in 2018 were
about one-third higher year over year.
In this challenging environment, AB had pockets of flow
success. AB’s total annual gross sales were $93.8 billion,
though the firm had net outflows of $8.1 billion due to some
lumpy low-fee redemptions and weakness in taxable fixed
income. Meanwhile, AB’s active equity net inflows of $10.8
billion translated to an organic growth rate of 7.7%. This was
AB’s second straight year with positive active equity organic
growth, and once again AB was one of just a few publicly
traded asset managers to achieve this.
The combination of revenue growth and continued expense
discipline, even as the firm incurred costs associated with the
Nashville relocation, produced strong financial results in 2018:
adjusted net revenues of $2.9 billion increased 8%, adjusted
operating income of $852 million was up 14% and AB’s
adjusted operating margin of 29.1% was up 140 basis points.
PROGRESS ON THE STRATEGY
Delivering differentiated returns to clients and focusing on
expense management have been pillars of AB’s long-term growth
strategy for many years. More recently, AB refined its long-term
strategy to better suit its next phase of growth: broadening the
distribution of the firm’s diverse investment services. Tremendous
progress was made across all three of these pillars in 2018.
+ Deliver Differentiated Return Streams to AB’s Clients
AB’s long-term investment performance remains highly
competitive. In fixed income, despite some near-term weakness
caused by emerging-market exposure across the portfolio, as
well as some early duration calls and FX moves, AB finished the
year with its exceptional long-term track records intact: 90%
and 89% of assets were invested in outperforming strategies for
the three- and five-year periods, respectively, through year-end
2018. For the one-year period, 31% of assets were invested in
outperforming strategies. While disappointing, one challenging
year is not cause for concern, and the team is comfortable with
how the overall portfolio is positioned. AB maintained solid
equity track records: 71%, 62% and 83% of active equity
assets were invested in outperforming strategies for the one-,
three- and five-year periods, respectively, through year-end.
+ Commercialize and Scale AB’s Suite of Services
AB has a competitive suite of services that delivers
differentiated return streams across asset classes, which
clients can’t reproduce themselves. AB’s efforts to engage
retail investors, institutional clients and consultants, and high-
net-worth individuals have garnered success.
In Retail, full-year gross sales were the highest since 2012—and
represented the channel’s second best year ever—with sales
increases in Japan, the US, Latin America and EMEA. Gross sales
in the Asia ex Japan region were down versus 2017, however, due
to weak sales in two large fixed-income funds: Global High Yield
and American Income Portfolio. The region is a volatile market
for high-yield mutual funds, but the improved diversity of AB’s
business in the region helped mitigate the impact of slower sales.
In an environment where passive still dominates, AB generated
impressive active equity gross sales growth of 72% in 2018.
Furthermore, active equity was net flow positive with $8 billion of
net new assets driven by 15 investment vehicles that attracted
at least $100 million of net inflows during the year. Ten additional
funds across Fixed Income, Multi-Asset and Alternatives
attracted $100 million or more in net inflows in 2018.
In Institutional, AB’s active equity and alternative offerings
continued to gain momentum. Gross sales of both equity and
alternative offerings were up significantly in 2018, and AB
finished the year with a diverse pipeline of new and unfunded
business by both asset class and region. At year-end, 60% of
AB’s $9.7 billion pipeline was in equity and alternative services,
including mandates in Eurozone Equity, US Core Opportunities,
Global Core Equity, Commercial Real Estate Debt, Global
Diversified Value, US SMID Blend and AB Arya Partners (multi-
manager hedge funds). Due to higher fee additions, the pipeline’s
annualized fee base was more than $30 million each quarter in
2018—a positive sign for future revenues.
In Private Wealth, AB’s 2018 results added to the firm’s multiyear
momentum and showcased great success in penetrating
the highest-net-worth segment. Both gross sales and net
flows were the best in 10 years. AB’s success with unique,
research-based Alternatives and Focused Equities continues
to reinvigorate this business. Private clients committed $2.4
billion to these services in 2018, bringing total deployed and
committed assets to more than $9 billion. Advisor productivity
continues to improve as well, and the average size of a new
relationship increased 6% versus 2017. Finally, a new Nashville
Private Wealth office will open this spring and represents
another attractive growth opportunity for the business.
Bernstein Research Services (BRS) faced a challenging
environment in 2018 as MiFID II went into effect at the
beginning of the year. While US market volumes and volatility
increased, particularly in the fourth quarter, activity continued
to shift to lower-fee electronic trading. Total BRS revenues
of $439 million declined 2% in 2018—satisfactory results
given such significant headwinds. True to form, however, BRS
maintained top rankings in nearly every global independent
research and trading survey. The recently completed
Autonomous Research acquisition will add a preeminent
financial-services and fintech research platform to BRS’s
already strong lineup.
+ Maintain Continuous and Rigorous Focus on Expense
Management
AB’s revenue growth outpaced expense growth in 2018,
which led to a seventh straight year of margin expansion—a
post-financial crisis high of 29.1%.
In the second half of 2018, AB began executing its headquarters
relocation to Nashville. Early results are encouraging: at year-end,
160 AB employees—125 new hires and 35 transplants—were on
the ground in Nashville. Moreover, AB now expects the majority of
those working in Nashville to be there by the end of 2020, which
is earlier than initially expected. With the early success of the
relocation, the firm increased its anticipated annualized savings
estimates beginning in 2025 from $70 million to a range of
$70 million–$75 million. While this move will significantly reduce
expenses over time, AB is unlikely to achieve any meaningful
margin impact from it until after 2020. Until then, AB will seek to
grow assets profitably and manage overall expenses to generate
higher earnings and returns for unitholders.
PEOPLE AND CULTURE
AB’s greatest competitive advantage is its people, and we are
persistent in our efforts to provide better outcomes for our
clients. We foster a culture of relentless ingenuity, built upon
tenacity, creative thinking, teamwork and accountability, and
everyone at AB has a unique voice that deserves to be heard,
creating diversity of thought. AB’s 17 Employee Resource
Groups around the world cultivate a dynamic, diverse and
inclusive environment. In 2018, AB joined the CEO Action for
Diversity & Inclusion to further advance these efforts, and
the firm earned its fourth consecutive perfect score on the
Human Rights Campaign Foundation’s Corporate Equality
Index for 2019, ranking AB as one of the best places to work
for LGBTQ equality in the US.
AB constantly strives to make the firm an even better place
for talented people to build successful careers. The Associate
Leadership Council provides associates worldwide with
opportunities for networking, exposure to senior leadership,
career mobility and skill development. The firm’s Well Ahead
initiative offers employees a wide range of wellness-related
opportunities, and 14 Employee Wellness Groups globally
sponsor a variety of activities to support a healthy lifestyle.
AB is also committed to serving the communities where its
employees live and work. About 1,450 employees participated
in the 2018 global Day of Service initiative, which included 87
volunteer events in support of 81 global organizations.
LOOKING FORWARD
It was a pivotal year for AB as the firm established new roots
in Nashville. AB produced impressive operating results
throughout the year that reflect hard work and ingenuity
on the part of everyone. Even with the late-year rout in the
markets, which depressed our asset base, the underlying
strength of AB’s business is alive and well. The firm continued
to make progress in building strong competitive advantages
and prospects for long-term growth. It’s an honor to be a part
of AB’s progress and success. Thank you for your trust in us.
Seth P. Bernstein,
President and Chief Executive Officer
AB DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS1
EXECUTIVE OFFICERS
Ramon de Oliveira3, 5
Chairman of the Board
Seth P. Bernstein4, 5
President and Chief
Executive Officer
Paul L. Audet2, 3
Independent Director
Barbara Fallon-Walsh3, 4
Independent Director
Jeffrey Hurd
Chief Operating Officer,
AXA Equitable Holdings
Daniel G. Kaye2, 3
Independent Director
Nick Lane
President, AXA Equitable Life
Shelley B. Leibowitz2
Independent Director
Das Narayandas4
Independent Director
Mark Pearson3, 4, 5
Director, President and
Chief Executive Officer,
AXA Equitable Holdings
Charles Stonehill2
Independent Director
Seth P. Bernstein
President and Chief
Executive Officer
James A. Gingrich
Chief Operating Officer
Kate C. Burke
Head of Human Capital and
Chief Talent Officer
Laurence E. Cranch
General Counsel
John C. Weisenseel
Chief Financial Officer
1 AB Directors as of April 1, 2019. Mr. Pearson was elected to the Corporate Governance Committee and Mr. Stonehill was elected to the Audit and Risk Committee on
April 10, 2019.
2 Member of the Audit and Risk Committee
3 Member of the Compensation and Workplace Practices Committee
4 Member of the Corporate Governance Committee
5 Member of the Executive Committee
AllianceBernstein Holding L.P.
Form 10-K 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
FORM 10-K
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 001-09818
ALLIANCEBERNSTEIN HOLDING L.P.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1345 Avenue of the Americas, New York, N.Y.
(Address of principal executive offices)
13-3434400
(I.R.S. Employer
Identification No.)
10105
(Zip Code)
Registrant’s telephone number, including area code: (212) 969-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
units representing assignments of beneficial ownership
of limited partnership interests
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting
company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Accelerated filer ‘
Large accelerated filer È
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the units representing assignments of beneficial ownership of limited partnership interests held
Smaller reporting company ‘
Non-accelerated filer ‘
by non-affiliates computed by reference to the price at which such units were last sold on the New York Stock Exchange as of
June 30, 2018 was approximately $2.6 billion.
The number of units representing assignments of beneficial ownership of limited partnership interests outstanding as of
December 31, 2018 was 96,658,278. (This figure includes 100,000 general partnership units having economic interests equivalent to
the economic interests of the units representing assignments of beneficial ownership of limited partnership interests.)
DOCUMENTS INCORPORATED BY REFERENCE
This Form 10-K does not incorporate any document by reference.
Table of Contents
Glossary of Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ii
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Properties
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 7.
Item 6.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
AB Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 35
Executive Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
AB Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
AB Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
AB Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . .126
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
Item 9A.
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
Item 8.
Item 9.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Signatures
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . .157
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . .162
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168
Glossary of Certain Defined Terms
“AB” – AllianceBernstein L.P. (Delaware limited partnership formerly known as Alliance Capital Management L.P., “Alliance
Capital”), the operating partnership, and its subsidiaries and, where appropriate, its predecessors, AB Holding and ACMC, Inc. and
their respective subsidiaries.
“AB Holding” – AllianceBernstein Holding L.P. (Delaware limited partnership).
“AB Holding Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB Holding, dated as
of October 29, 1999 and as amended February 24, 2006.
“AB Holding Units” – units representing assignments of beneficial ownership of limited partnership interests in AB Holding.
“AB Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB, dated as of October 29,
1999 and as amended February 24, 2006.
“AB Units” – units of limited partnership interest in AB.
“AUM” – AB’s assets under management.
“AXA” – AXA (société anonyme organized under the laws of France) is the holding company for the AXA Group, a worldwide
leader in financial protection. AXA operates primarily in Europe, North America, the Asia/Pacific regions and, to a lesser extent, in
other regions, including the Middle East, Africa and Latin America. AXA has five operating business segments: Life and Savings,
Property and Casualty, International Insurance, Asset Management and Banking.
“AXA Equitable” – AXA Equitable Life Insurance Company (New York stock life insurance company), a subsidiary of AXA
Equitable Holdings, and its subsidiaries other than AB and its subsidiaries.
“AXA Equitable Holdings” or “EQH” – AXA Equitable Holdings, Inc. (Delaware corporation), a 59.2%-owned subsidiary of
AXA S.A., and its subsidiaries other than AB and its subsidiaries.
“Bernstein Transaction” – AB’s acquisition of the business and assets of SCB Inc., formerly known as Sanford C. Bernstein Inc.,
and the related assumption of the liabilities of that business, completed on October 2, 2000.
“Exchange Act” – the Securities Exchange Act of 1934, as amended.
“ERISA” – the Employee Retirement Income Security Act of 1974, as amended.
“GAAP” – U.S. Generally Accepted Accounting Principles
“General Partner” – AllianceBernstein Corporation (Delaware corporation), the general partner of AB and AB Holding and a sub-
sidiary of AXA Equitable Holdings, and, where appropriate, ACMC, LLC, its predecessor.
“Investment Advisers Act” – the Investment Advisers Act of 1940, as amended.
“Investment Company Act” – the Investment Company Act of 1940, as amended.
“NYSE” – the New York Stock Exchange, Inc.
“Partnerships” – AB and AB Holding together.
“SEC” – the United States Securities and Exchange Commission.
“Securities Act” – the Securities Act of 1933, as amended.
ii
PART I
Item 1.
Business
The words “we” and “our” in this Form 10-K refer collectively to AB Holding and AB and its subsidiaries, or to their officers and employees.
Similarly, the words “company” and “firm” refer to both AB Holding and AB. Where the context requires distinguishing between AB Holding
and AB, we identify which company is being discussed. Cross-references are in italics.
We use “global” in this Form 10-K to refer to all nations, including the United States; we use “international” or “non-U.S.” to refer to nations
other than the United States.
We use “emerging markets” in this Form 10-K to refer to countries included in the Morgan Stanley Capital International (“MSCI”) emerging
markets index, which are, as of December 31, 2018, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India,
Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the
United Arab Emirates.
Clients
We provide research, diversified investment management and related services globally to a broad range of clients through our three
buy-side distribution channels: Institutions, Retail and Private Wealth Management, and our sell-side business, Bernstein Research
Services. See “Distribution Channels” in this Item 1 for additional information.
As of December 31, 2018, 2017 and 2016, our AUM were approximately $516 billion, $554 billion and $480 billion, respectively,
and our net revenues as of December 31, 2018, 2017 and 2016 were approximately $3.4 billion, $3.3 billion and $3.0 billion,
respectively. AXA, EQH (our parent company) and their respective subsidiaries, whose AUM consist primarily of fixed income
investments, together constitute our largest client. Our affiliates represented approximately 24%, 23% and 24% of our AUM as of
December 31, 2018, 2017 and 2016, and we earned approximately 5% of our net revenues from services we provided to our affili-
ates in each of those years. See “Distribution Channels” below and “Assets Under Management” and “Net Revenues” in Item 7 for addi-
tional information regarding our AUM and net revenues.
Generally, we are compensated for our investment services on the basis of investment advisory and services fees calculated as a per-
centage of AUM. For additional information about our investment advisory and services fees, including performance-based fees, see
“Risk Factors” in Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.
Research
Our high-quality, in-depth research is the foundation of our business. We believe that our global team of research professionals,
whose disciplines include economic, fundamental equity, fixed income and quantitative research, gives us a competitive advantage
in achieving investment success for our clients. We also have experts focused on multi-asset strategies, wealth management and
alternative investments.
Investment Services
Our broad range of investment services includes:
• Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and
investment strategies, including value, growth and core equities;
• Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;
• Passive management, including index and enhanced index strategies;
• Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct lending); and
• Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds.
Annual Report 2018
1
Our services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term
(e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging
markets, regional and local), in major markets around the world.
Our AUM by client domicile and investment service as of December 31, 2018, 2017 and 2016 were as follows:
By Client Domicile ($ in billions):
U.S.
Non-U.S.
$177
34%
$339
66%
$200
36%
$354
64%
$169
35%
$311
65%
December 31, 2018
December 31, 2017
December 31, 2016
By Investment Service ($ in billions):
U.S.
Non-U.S.
$285
55%
$231
45%
$291
53%
$263
47%
$265
55%
$215
45%
December 31, 2018
December 31, 2017
December 31, 2016
Distribution Channels
Institutions
We offer to our institutional clients, which include private and public pension plans, foundations and endowments, insurance
companies, central banks and governments worldwide, and affiliates such as AXA, EQH and their respective subsidiaries, separately-
managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other
investment vehicles (“Institutional Services”).
We manage the assets of our institutional clients pursuant to written investment management agreements or other arrangements,
which generally are terminable at any time or upon relatively short notice by either party. In general, our written investment man-
agement agreements may not be assigned without the client’s consent. For information about our institutional investment advisory
and services fees, including performance-based fees, see “Risk Factors” in Item 1A and “Net Revenues – Investment Advisory and Services
Fees” in Item 7.
AXA, EQH and their respective subsidiaries together constitute our largest institutional client. Their combined AUM accounted for
approximately 37%, 34% and 35% of our institutional AUM as of December 31, 2018, 2017 and 2016, respectively, and approx-
imately 27%, 25% and 28% of our institutional revenues for 2018, 2017 and 2016, respectively. No single institutional client other
than AXA or EQH and their subsidiaries accounted for more than approximately 1% of our net revenues for the year ended
December 31, 2018.
2
AB
As of December 31, 2018, 2017 and 2016, Institutional Services represented approximately 48%, 48% and 50%, respectively, of our
AUM, and the fees we earned from providing these services represented approximately 14% of our net revenues for each of those
years. Our AUM and revenues are as follows:
Institutional Services Assets Under Management
(by Investment Service)
2018
December 31,
2017
(in millions)
2016
2018-17
2017-16
% Change
Equity Actively Managed:
U.S.
Global & Non-US
Total
Equity Passively Managed(1):
U.S.
Global & Non-US
Total
Total Equity
Fixed Income Taxable:
U.S.
Global & Non-US
Total
Fixed Income Tax-Exempt:
U.S.
Global & Non-US
Total
Fixed Income Passively Managed(1):
U.S.
Global & Non-US
Total
Total Fixed Income
Other(2):
U.S.
Global & Non-US
Total
Total:
U.S.
Global & Non-US
Total
Affiliated
Non-affiliated
Total
$
9,629
$ 10,521
$
8,792
23,335
32,964
17,481
3,174
20,655
53,619
96,913
51,156
148,069
1,046
—
1,046
73
15
88
22,577
33,098
18,515
3,521
22,036
55,134
103,073
60,233
163,306
1,051
—
1,051
66
20
86
18,215
27,007
16,135
3,467
19,602
46,609
97,610
52,598
150,208
1,819
—
1,819
1,305
15
1,320
149,203
164,443
153,347
5,024
38,433
43,457
130,166
116,113
$246,279
$ 90,395
155,884
$246,279
5,258
44,442
49,700
138,484
130,793
$269,277
$ 91,903
177,374
$269,277
3,831
35,477
39,308
129,492
109,772
$239,264
$ 82,721
156,543
$239,264
(8.5)%
3.4
(0.4)
19.7%
23.9
22.6
(5.6)
(9.9)
(6.3)
(2.7)
(6.0)
(15.1)
(9.3)
(0.5)
—
(0.5)
10.6
(25.0)
2.3
(9.3)
(4.5)
(13.5)
(12.6)
(6.0)
(11.2)
(8.5)
(1.6)
(12.1)
(8.5)
14.8
1.6
12.4
18.3
5.6
14.5
8.7
(42.2)
—
(42.2)
(94.9)
33.3
(93.5)
7.2
37.2
25.3
26.4
6.9
19.1
12.5
11.1
13.3
12.5
(1)
Includes index and enhanced index services.
(2)
Includes certain multi-asset solutions and services and certain alternative investments.
Annual Report 2018
3
Revenues from Institutional Services
(by Investment Service)
Years Ended December 31,
2017
2018
2016
% Change
2018-17
2017-16
(in thousands)
$ 60,465
103,763
164,228
$ 53,352
88,676
142,028
$ 49,369
75,815
125,184
13.3%
17.0
15.6
3,713
1,880
5,593
169,821
102,356
106,314
208,670
1,217
—
1,217
49
28
77
12,708
—
12,708
222,672
52,131
33,530
85,661
232,639
245,515
(372)
477,782
757
529
$479,068
$ 130,766
348,302
$479,068
3,721
1,882
5,603
147,631
107,262
112,294
219,556
1,989
—
1,989
202
16
218
13,597
(14)
13,583
235,346
63,192
38,153
101,345
243,315
241,007
(8,717)
475,605
1,047
488
$477,140
$ 120,925
356,215
$477,140
2,964
2,345
5,309
130,493
101,874
111,602
213,476
2,591
—
2,591
322
1
323
12,718
1,530
14,248
230,638
34,577
25,162
59,739
204,415
216,455
27
420,897
684
479
$422,060
$ 116,392
305,668
$422,060
(0.2)
(0.1)
(0.2)
15.0
(4.6)
(5.3)
(5.0)
(38.8)
—
(38.8)
(75.7)
75.0
(64.7)
(6.5)
(100.0)
(6.4)
(5.4)
(17.5)
(12.1)
(15.5)
(4.4)
1.9
n/m
0.5
(27.7)
8.4
0.4
8.1
(2.2)
0.4
8.1%
17.0
13.5
25.5
(19.7)
5.5
13.1
5.3
0.6
2.8
(23.2)
—
(23.2)
(37.3)
1,500.0
(32.5)
6.9
(100.9)
(4.7)
2.0
82.8
51.6
69.6
19.0
11.3
n/m
13.0
53.1
1.9
13.1
3.9
16.5
13.1
Equity Actively Managed:
U.S.
Global & Non-US
Total
Equity Passively Managed(1):
U.S.
Global & Non-US
Total
Total Equity
Fixed Income Taxable:
U.S.
Global & Non-US
Total
Fixed Income Tax-Exempt:
U.S.
Global & Non-US
Total
Fixed Income Passively Managed(1):
U.S.
Global & Non-US
Total
Fixed Income Servicing(2):
U.S.
Global & Non-US
Total
Total Fixed Income
Other(3):
U.S.
Global & Non-US
Total
Total Investment Advisory and Services Fees:
U.S.
Global & Non-US
Consolidated company-sponsored investment funds
Distribution Revenues
Shareholder Servicing Fees
Total
Affiliated
Non-affiliated
Total
(1)
Includes index and enhanced index services.
(2) Fixed Income Servicing includes advisory-related services fees that are not based on AUM, including derivative transaction fees, capital purchase program-related
advisory services and other fixed income advisory services.
(3)
Includes certain multi-asset solutions and services and certain alternative services.
4
AB
Retail
We provide investment management and related services to a wide variety of individual retail investors, both in the U.S. and inter-
nationally, through retail mutual funds we sponsor, mutual fund sub-advisory relationships, separately-managed account programs
(see below), and other investment vehicles (“Retail Products and Services”).
We distribute our Retail Products and Services through financial intermediaries, including broker-dealers, insurance sales representa-
tives, banks, registered investment advisers and financial planners. These products and services include open-end and closed-end
funds that are either (i) registered as investment companies under the Investment Company Act (“U.S. Funds”), or (ii) not regis-
tered under the Investment Company Act and generally not offered to U.S. persons (“Non-U.S. Funds” and, collectively with the
U.S. Funds, “AB Funds”). They also include separately-managed account programs, which are sponsored by financial inter-
mediaries and generally charge an all-inclusive fee covering investment management, trade execution, asset allocation, and custodial
and administrative services. In addition, we provide distribution, shareholder servicing, transfer agency services and administrative
services for our Retail Products and Services. See “Net Revenues – Investment Advisory and Services Fees” in Item 7 for information
about our retail investment advisory and services fees. See Note 2 to AB’s consolidated financial statements in Item 8 for a discussion of
the commissions we pay to financial intermediaries in connection with the sale of open-end AB Funds.
Fees paid by the U.S. Funds are reflected in the applicable investment management agreement, which generally must be approved
annually by the boards of directors or trustees of those funds, including by a majority of the independent directors or trustees.
Increases in these fees must be approved by fund shareholders; decreases need not be, including any decreases implemented by a
fund’s directors or trustees. In general, each investment management agreement with the U.S. Funds provides for termination by
either party at any time upon 60 days’ notice.
Fees paid by Non-U.S. Funds are reflected in management agreements that continue until they are terminated. Increases in these
fees generally must be approved by the relevant regulatory authority, depending on the domicile and structure of the fund, and
Non-U.S. Fund shareholders must be given advance notice of any fee increases.
The mutual funds we sub-advise for AXA, EQH and their respective subsidiaries together constitute our largest retail client. They
accounted for approximately 19%, 19% and 21% of our retail AUM as of December 31, 2018, 2017 and 2016, respectively, and
approximately 4% of our retail net revenues in each of those years.
Certain subsidiaries of AXA and EQH, including AXA Advisors, LLC (“AXA Advisors”), were responsible for approximately 1%,
1% and 2% of total sales of shares of open-end AB Funds in 2018, 2017 and 2016, respectively. Our affiliates are not under any
obligation to sell a specific amount of AB Fund shares and also sell shares of mutual funds that they sponsor and that are sponsored
by unaffiliated organizations. No entity accounted for 10% or more of our open-end AB Fund sales in 2018.
Most open-end U.S. Funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out
of assets of the fund, distribution and service fees for the distribution and sale of its shares (“Rule 12b-1 Fees”). The open-end U.S.
Funds have entered into such agreements with us, and we have entered into selling and distribution agreements pursuant to which
we pay sales commissions to the financial intermediaries that distribute our open-end U.S. Funds. These agreements are terminable
by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund
shares.
As of December 31, 2018, retail U.S. Fund AUM were approximately $43 billion, or 24% of retail AUM, as compared to
$47 billion, or 25%, as of December 31, 2017, and $41 billion, or 26%, as of December 31, 2016. Non-U.S. Fund AUM, as of
December 31, 2018, totaled $71 billion, or 39% of retail AUM, as compared to $76 billion, or 40%, as of December 31, 2017, and
$59 billion, or 37%, as of December 31, 2016.
Annual Report 2018
5
Our Retail Services represented approximately 35%, 35% and 33% of our AUM as of December 31, 2018, 2017 and 2016,
respectively, and the fees we earned from providing these services represented approximately 44%, 43% and 42% of our net rev-
enues for the years ended December 31, 2018, 2017 and 2016, respectively. Our AUM and revenues are as follows:
Retail Services Assets Under Management
(by Investment Service)
Equity Actively Managed:
U.S.
Global & Non-US
Total
Equity Passively Managed(1):
U.S.
Global & Non-US
Total
Total Equity
Fixed Income Taxable:
U.S.
Global & Non-US
Total
Fixed Income Tax-Exempt:
U.S.
Global & Non-US
Total
Fixed Income Passively Managed(1):
U.S.
Global & Non-US
Total
Total Fixed Income
Other(2):
U.S.
Global & Non-US
Total
Total:
U.S.
Global & Non-US
Total
Affiliated
Non-affiliated
Total
2018
December 31,
2017
(in millions)
2016
2018-17
2017-16
% Change
$ 41,450
19,475
60,925
$ 37,720
20,274
57,994
$ 31,717
12,514
44,231
9.9%
(3.9)
5.1
18.9%
62.0
31.1
22,658
6,697
29,355
90,280
7,029
53,413
60,442
16,403
42
16,445
4,965
3,964
8,929
85,816
2,476
2,197
4,673
23,294
8,758
32,052
90,046
7,699
65,963
73,662
15,654
53
15,707
5,173
4,250
9,423
98,792
2,799
1,311
4,110
94,981
85,788
$180,769
$ 34,677
146,092
$180,769
92,339
100,609
$192,948
$ 36,965
155,983
$192,948
20,997
7,025
28,022
72,253
6,175
54,328
60,503
13,579
10
13,589
5,216
4,041
9,257
(2.7)
(23.5)
(8.4)
0.3
(8.7)
(19.0)
(17.9)
4.8
(20.8)
4.7
(4.0)
(6.7)
(5.2)
83,349
(13.1)
3,229
1,339
4,568
80,913
79,257
$160,170
$ 33,774
126,396
$160,170
(11.5)
67.6
13.7
2.9
(14.7)
(6.3)
(6.2)
(6.3)
(6.3)
10.9
24.7
14.4
24.6
24.7
21.4
21.7
15.3
430.0
15.6
(0.8)
5.2
1.8
18.5
(13.3)
(2.1)
(10.0)
14.1
26.9
20.5
9.4
23.4
20.5
(1)
Includes index and enhanced index services.
(2)
Includes certain multi-asset solutions and services and certain alternative investments.
6
AB
Revenues from Retail Services
(by Investment Service)
Years Ended December 31,
2017
2018
(in thousands)
2016
2018-17
2017-16
% Change
$
235,611
$
204,363
$
186,442
149,995
385,606
8,901
7,861
16,762
114,277
318,640
8,508
6,636
15,144
92,953
279,395
7,670
5,267
12,937
402,368
333,784
292,332
25,194
438,048
463,242
58,824
132
58,956
6,086
6,809
12,895
535,093
63,232
8,575
71,807
397,848
611,420
1,047
1,010,315
411,996
72,134
$1,494,445
$
52,760
1,441,685
23,142
454,613
477,755
54,106
120
54,226
6,055
7,567
13,622
545,603
59,751
6,583
66,334
355,925
589,796
1,005
946,726
405,939
71,225
16,993
373,997
390,990
52,847
63
52,910
6,105
7,815
13,920
457,820
52,025
6,672
58,697
322,082
486,767
105
808,954
379,881
73,072
$1,423,890
$
50,162
1,373,728
$1,261,907
$
46,045
1,215,862
$1,494,445
$1,423,890
$1,261,907
15.3%
31.3
21.0
9.6%
22.9
14.0
4.6
18.5
10.7
20.5
8.9
(3.6)
(3.0)
8.7
10.0
8.7
0.5
(10.0)
(5.3)
(1.9)
5.8
30.3
8.3
11.8
3.7
4.2
6.7
1.5
1.3
5.0
5.2
4.9
5.0
10.9
26.0
17.1
14.2
36.2
21.6
22.2
2.4
90.5
2.5
(0.8)
(3.2)
(2.1)
19.2
14.9
(1.3)
13.0
10.5
21.2
857.1
17.0
6.9
(2.5)
12.8
8.9
13.0
12.8
Equity Actively Managed:
U.S.
Global & Non-US
Total
Equity Passively Managed(1):
U.S.
Global & Non-US
Total
Total Equity
Fixed Income Taxable:
U.S.
Global & Non-US
Total
Fixed Income Tax-Exempt:
U.S.
Global & Non-US
Total
Fixed Income Passively Managed(1):
U.S.
Global & Non-US
Total
Total Fixed Income
Other(2):
U.S.
Global & Non-US
Total
Total Investment Advisory and Services Fees:
U.S.
Global & Non-US
Consolidated company-sponsored investment funds
Distribution Revenues
Shareholder Servicing Fees
Total
Affiliated
Non-affiliated
Total
(1)
Includes index and enhanced index services.
(2)
Includes certain multi-asset solutions and services and certain alternative investments.
Annual Report 2018
7
Private Wealth Management
We offer to our private wealth clients, which include high-net-worth individuals and families, trusts and estates, charitable founda-
tions, partnerships, private and family corporations, and other entities, separately-managed accounts, hedge funds, mutual funds and
other investment vehicles (“Private Wealth Services”).
We manage these accounts pursuant to written investment advisory agreements, which generally are terminable at any time or upon
relatively short notice by any party and may not be assigned without the client’s consent. For information about our investment
advisory and services fees, including performance-based fees, see “Risk Factors” in Item 1A and “Net Revenues – Investment Advisory
and Services Fees” in Item 7.
Our Private Wealth Services represented approximately 17% of our AUM as of December 31, 2018, 2017 and 2016, and the fees
we earned from providing these services represented approximately 26%, 24% and 23% of our net revenues for 2018, 2017 and
2016, respectively. Our AUM and revenues are as follows:
Private Wealth Services Assets Under Management
(by Investment Service)
Equity Actively Managed:
U.S.
Global & Non-US
Total
Equity Passively Managed(1):
U.S.
Global & Non-US
Total
Total Equity
Fixed Income Taxable:
U.S.
Global & Non-US
Total
Fixed Income Tax-Exempt:
U.S.
Global & Non-US
Total
Fixed Income Passively Managed(1):
U.S.
Global & Non-US
Total
Total Fixed Income
Other(2):
U.S.
Global & Non-US
Total
Total:
U.S.
Global & Non-US
Total
Includes index and enhanced index services.
Includes certain multi-asset solutions and services and certain alternative investments.
(1)
(2)
8
December 31,
2017
(in millions)
2016
2018-17
2017-16
% Change
$ 26,492
21,880
48,372
$ 23,857
16,851
40,708
(15.1)%
(9.5)
(12.5)
11.0%
29.8
18.8
2018
$ 22,504
19,809
42,313
113
42
155
42,468
7,022
4,154
11,176
24,129
15
24,144
11
404
415
35,735
5,762
5,340
11,102
130
51
181
48,553
6,772
4,141
10,913
23,636
18
23,654
—
401
401
34,968
3,606
5,139
8,745
193
208
401
41,109
6,674
3,528
10,202
21,501
3
21,504
18
468
486
32,192
2,650
4,816
7,466
59,541
29,764
$89,305
60,636
31,630
$92,266
54,893
25,874
$80,767
(13.1)
(17.6)
(14.4)
(12.5)
3.7
0.3
2.4
2.1
(16.7)
2.1
100.0
0.7
3.5
2.2
59.8
3.9
27.0
(1.8)
(5.9)
(3.2)
(32.6)
(75.5)
(54.9)
18.1
1.5
17.4
7.0
9.9
500.0
10.0
(100.0)
(14.3)
(17.5)
8.6
36.1
6.7
17.1
10.5
22.2
14.2
AB
Revenues From Private Wealth Services
(by Investment Service)
Years Ended December 31,
2017
2018
2016
% Change
2018-17
2017-16
(in thousands)
$ 274,320
$ 272,577
$ 255,902
240,332
514,652
212,021
484,598
176,169
432,071
0.6%
13.4
6.2
6.5%
20.4
12.2
117
254
371
206
510
716
423
1,053
1,476
515,023
485,314
433,547
33,034
28,358
61,392
118,811
109
118,920
156
5,312
5,468
34,173
26,425
60,598
114,974
88
115,062
58
4,059
4,117
35,756
23,384
59,140
111,304
31
111,335
38
3,336
3,374
185,780
179,777
173,849
122,686
51,839
174,525
549,124
326,204
(1,214)
874,114
5,809
3,311
67,019
49,365
116,384
489,007
292,468
(2,501)
778,974
5,077
3,311
41,595
54,629
96,224
445,018
258,602
—
703,620
3,840
4,139
$883,234
$787,362
$711,599
(43.2)
(50.2)
(48.2)
6.1
(3.3)
7.3
1.3
3.3
23.9
3.4
169.0
30.9
32.8
3.3
83.1
5.0
50.0
12.3
11.5
n/m
12.2
14.4
—
12.2
(51.3)
(51.6)
(51.5)
11.9
(4.4)
13.0
2.5
3.3
183.9
3.3
52.6
21.7
22.0
3.4
61.1
(9.6)
21.0
9.9
13.1
n/m
10.7
32.2
(20.0)
10.6
Equity Actively Managed:
U.S.
Global & Non-US
Total
Equity Passively Managed(1):
U.S.
Global & Non-US
Total
Total Equity
Fixed Income Taxable:
U.S.
Global & Non-US
Total
Fixed Income Tax-Exempt:
U.S.
Global & Non-US
Total
Fixed Income Passively Managed(1):
U.S.
Global & Non-US
Total
Total Fixed Income
Other(2):
U.S.
Global & Non-US
Total
Total Investment Advisory and Services Fees:
U.S.
Global & Non-US
Consolidated company-sponsored investment funds
Total
Distribution Revenues
Shareholder Servicing Fees
Total
(1)
Includes index and enhanced index services.
(2)
Includes certain multi-asset solutions and services and certain alternative investments.
Annual Report 2018
9
Bernstein Research Services
We offer high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options to
institutional investors, such as pension fund, hedge fund and mutual fund managers, and other institutional investors (“Bernstein
Research Services”). We serve our clients, which are based in the United States and in other major markets around the world,
through our trading professionals, who primarily are based in New York, London and Hong Kong, and our sell-side analysts, who
provide fundamental company and industry research along with quantitative research into securities valuation and factors affecting
stock-price movements.
We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients
compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to
a lesser, but increasing, extent by paying us directly for research through commission sharing agreements or cash payments. Bern-
stein Research Services accounted for approximately 13%, 14% and 16% of our net revenues as of December 31, 2018, 2017 and
2016, respectively.
For information regarding trends in fee rates charged for brokerage transactions, see “Risk Factors” in Item 1A.
Our Bernstein Research Services revenues are as follows:
Revenues From Bernstein Research Services
Years Ended December 31,
2017
2018
% Change
2016
2018-17
2017-16
(in thousands)
Bernstein Research Services
$439,432
$449,919
$479,875
(2.3)%
(6.2)%
Custody
Our U.S.-based broker-dealer subsidiary acts as custodian for the majority of our Private Wealth Management AUM and some of
our Institutions AUM. Other custodial arrangements are maintained by client-designated banks, trust companies, brokerage firms or
custodians.
Employees
As of December 31, 2018, our firm had 3,641 full-time employees, representing a 5.0% increase compared to the end of 2017.
New York state law requires that private sector businesses with 50 or more full-time employees in the state give early warning of
plant closings, layoffs, relocations and other covered reductions in work hours. This notification, known as the Worker Adjustment
and Retraining Notification (“WARN”) notice, must be provided to affected employees and their representatives, the New York
State Department of Labor and the Local Workforce Investment Board, for relocations that affect 25 or more employees. In con-
nection with the ongoing relocation of 1,050 roles from our White Plains and New York City locations to Nashville, Tennessee,
we are required to file a series of WARN notices throughout the process, which began in the second half of 2018. We will con-
tinue to file these notices as these qualifying events occur, with the majority expected in 2019 and 2020.
10
AB
Service Marks
We have registered a number of service marks with the U.S. Patent and Trademark Office and various foreign trademark offices,
including the mark “AllianceBernstein.” The logo set forth below and “Ahead of Tomorrow” are service marks of AB:
In January 2015, we established a new brand identity by prominently incorporating “AB” into our brand architecture, while maintain-
ing the legal names of our corporate entities. With this and other related refinements, our company, and our Institutional and Retail
businesses, now are referred to “AllianceBernstein (AB)” or simply “AB.” Private Wealth Management and Bernstein Research Serv-
ices now are referred to as “AB Bernstein.” Also, we adopted the logo and “Ahead of Tomorrow” service marks described above.
In connection with the Bernstein Transaction, we acquired all of the rights in, and title to, the Bernstein service marks, including
the mark “Bernstein.”
In connection an acquisition we completed in 2013, we acquired all of the rights in, and title to, the W.P. Stewart & Co. service
marks, including the logo “WPSTEWART.”
Regulation
Virtually all aspects of our business are subject to various federal and state laws and regulations, rules of various securities regulators
and exchanges, and laws in the foreign countries in which our subsidiaries conduct business. These laws and regulations primarily
are intended to protect clients and fund shareholders and generally grant supervisory agencies broad administrative powers, includ-
ing the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. Possible sanctions
that may be imposed on us include the suspension of individual employees, limitations on engaging in business for specific periods,
the revocation of the registration as an investment adviser or broker-dealer, censures and fines.
AB, AB Holding, the General Partner and six of our subsidiaries (Sanford C. Bernstein & Co., LLC (“SCB LLC”), AllianceBern-
stein Global Derivatives Corporation, AB Custom Alternative Solutions LLC, AB Private Credit Investors LLC, W.P. Stewart &
Co., LLC and W.P. Stewart Asset Management LLC) are registered with the SEC as investment advisers under the Investment
Advisers Act. Additionally, AB Holding is an NYSE-listed company and, accordingly, is subject to applicable regulations promul-
gated by the NYSE. Also, AB, SCB LLC and AB Custom Alternative Solutions LLC are registered with the Commodity Futures
Trading Commission (“CFTC”) as commodity pool operators and commodity trading advisers; SCB LLC also is registered with the
CFTC as a commodities introducing broker.
Each U.S. Fund is registered with the SEC under the Investment Company Act and each Non-U.S. Fund is subject to the laws in the
jurisdiction in which the fund is registered. For example, our platform of Luxembourg-based funds operates pursuant to Luxembourg
laws and regulations, including Undertakings for the Collective Investment in Transferable Securities Directives, and is authorized and
supervised by the Commission de Surveillance du Secteur Financier (“CSSF”), the primary regulator in Luxembourg. AllianceBern-
stein Investor Services, Inc., one of our subsidiaries, is registered with the SEC as a transfer and servicing agent.
SCB LLC and another of our subsidiaries, AllianceBernstein Investments, Inc., are registered with the SEC as broker-dealers, and
both are members of the Financial Industry Regulatory Authority. In addition, SCB LLC is a member of the NYSE and other
principal U.S. exchanges.
Many of our subsidiaries are subject to the oversight of regulatory authorities in the jurisdictions outside the United States in which
they operate, including the European Securities and Markets Authority, the Financial Conduct Authority in the U.K., the CSSF in
Luxembourg, the Financial Services Agency in Japan, the Securities & Futures Commission in Hong Kong, the Monetary Authority
of Singapore, the Financial Services Commission in South Korea and the Financial Supervisory Commission in Taiwan. While
these regulatory requirements often may be comparable to the requirements of the SEC and other U.S. regulators, they are some-
times more restrictive and may cause us to incur substantial expenditures of time and money related to our compliance efforts. For
additional information relating to the regulations that impact our business, please refer to “Risk Factors” in Item 1A.
Annual Report 2018
11
Iran Threat Reduction and Syria Human Rights Act
AB, AB Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction
and Syria Human Rights Act, nor were they involved in the AXA Group matters described immediately below.
The non-U.S. based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions in which
they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group compa-
nies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place poli-
cies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often
impose requirements that go well beyond local law. For additional information regarding AXA, see “Principal Security Holders” in Item 12.
AXA has informed us that AXA Konzern AG, an AXA insurance subsidiary organized under the laws of Germany, provides car,
accident and health insurance to diplomats based at the Iranian Embassy in Berlin, Germany. The total annual premium of these
policies is approximately $139,700 and the annual net profit arising from these policies, which is difficult to calculate with precision,
is estimated to be $24,272.
AXA also has informed us that AXA Belgium, an AXA insurance subsidiary organized under the laws of Belgium, has two policies
providing for car insurance for Global Trading NV, which was designated on May 17, 2018 under (E.O.) 13224 and subsequently
changed its name to Energy Engineers & Construction on August 20, 2018. The total annual premium of these policies is approx-
imately $6,559 before tax and the annual net profit arising from these policies, which is difficult to calculate with precision, is esti-
mated to be $983.
In addition, AXA has informed us that AXA Insurance Ireland, an AXA insurance subsidiary, provides statutorily required car
insurance under four separate policies to the Iranian Embassy in Dublin, Ireland. AXA has informed us that compliance with the
Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to
assume the coverage. The total annual premium for these policies is approximately $7,115 and the annual net profit arising from
these policies, which is difficult to calculate with precision, is estimated to be $853.
Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of the Republic of Turkey, provides car
insurance coverage for vehicle pools of the Iranian General Consulate and the Iranian Embassy in Istanbul, Turkey. Motor liability
insurance coverage is compulsory in Turkey and cannot be canceled unilaterally. The total annual premium in respect of these policies
is approximately $3,150 and the annual net profit, which is difficult to calculate with precision, is estimated to be $473.
Additionally, AXA has informed us that AXA Winterthur, an AXA insurance subsidiary organized under the laws of Switzerland,
provides Naftiran Intertrade, a wholly-owned subsidiary of the Iranian state-owned National Iranian Oil Company, with life, dis-
ability and accident coverage for its employees. In addition, AXA Winterthur also provides car and property insurance coverage for
the Iranian Embassy in Bern. The provision of these forms of coverage is mandatory in Switzerland. The total annual premium of
these policies is approximately $396,597 and the annual net profit arising from these policies, which is difficult to calculate with
precision, is estimated to be $59,489.
Also, AXA has informed us that AXA Egypt, an AXA insurance subsidiary organized under the laws of Egypt, provides the Iranian
state-owned Iran Development Bank, two life insurance contracts, covering individuals who have loans with the bank. The total
annual premium of these policies is approximately $19,839 and annual net profit arising from these policies, which is difficult to
calculate with precision, is estimated to be $2,000.
Furthermore, AXA has informed us that AXA XL, which AXA acquired during the third quarter of 2018, through various
non-U.S. subsidiaries, provides insurance to marine policyholders located outside of the U.S. or reinsurance coverage to non-U.S.
insurers of marine risks as well as mutual associations of ship owners that provide their members with protection and liability cover-
age. The provision of these coverages may involve entities or activities related to Iran, including transporting crude oil, petrochem-
icals and refined petroleum products. AXA XL’s non-U.S. subsidiaries insure or reinsure multiple voyages and fleets containing
multiple ships, so they are unable to attribute gross revenues and net profits from such marine policies to activities with Iran. As the
activities of these insureds and re-insureds are permitted under applicable laws and regulations, AXA XL intends for its non-U.S.
subsidiaries to continue providing such coverage to its insureds and re-insureds to the extent permitted by applicable law.
12
AB
Lastly, a non-U.S. subsidiary of AXA XL provided accident & health insurance coverage to the diplomatic personnel of the Embassy of
Iran in Brussels, Belgium during the third quarter of 2018. AXA XL’s non-U.S. subsidiary received aggregate payments for this
insurance from inception through December 31, 2018 of approximately $73,451. Benefits of approximately $2,994 were paid to benefi-
ciaries during 2018. These activities are permitted pursuant to applicable law. The policy has been canceled and is no longer in force.
The aggregate annual premium for the above-referenced insurance policies is approximately $646,411, representing approximately
0.0007% of AXA’s 2018 consolidated revenues, which we expect will exceed $100 billion. The related net profit, which is difficult to
calculate with precision, is estimated to be $88,070, representing approximately 0.002% of AXA’s expected 2018 aggregate net profit.
History and Structure
We have been in the investment research and management business for more than 50 years. Bernstein was founded in 1967;
Alliance Capital was founded in 1971 when the investment management department of Donaldson, Lufkin & Jenrette, Inc. (since
November 2000, a part of Credit Suisse Group) merged with the investment advisory business of Moody’s Investors Service, Inc.
In April 1988, AB Holding “went public” as a master limited partnership. AB Holding Units, which trade under the ticker symbol
“AB,” have been listed on the NYSE since that time.
In October 1999, AB Holding reorganized by transferring its business and assets to AB, a newly-formed operating partnership, in
exchange for all of the AB Units (“Reorganization”). Since the date of the Reorganization, AB has conducted the business for-
merly conducted by AB Holding and AB Holding’s activities have consisted of owning AB Units and engaging in related activities.
Unlike AB Holding Units, AB Units do not trade publicly and are subject to significant restrictions on transfer. The General Partner
is the general partner of both AB and AB Holding.
In October 2000, our two legacy firms, Alliance Capital and Bernstein, combined, bringing together Alliance Capital’s expertise in
growth equity and corporate fixed income investing and its family of retail mutual funds, with Bernstein’s expertise in value equity
investing, tax-exempt fixed income management, and its Private Wealth Management and Bernstein Research Services businesses.
As of December 31, 2018, the condensed ownership structure of AB is as follows (for a more complete description of our owner-
ship structure, see “Principal Security Holders” in Item 12):
Public
Directors,
Officers,
Employees
EQH
59.9%
35.8%
4.2%
100%
95.7%
AB Holding
0.1%
62.6%
General
Partner
Unaffiliated
Holders
35.6%
1.0%
0.8%
AB
The General Partner owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB. Including
these general partnership interests, EQH, directly and through certain of its subsidiaries (see “Principal Security Holders” in Item 12),
had an approximate 65.2% economic interest in AB as of December 31, 2018.
Annual Report 2018
13
Competition
We compete in all aspects of our business with numerous investment management firms, mutual fund sponsors, brokerage and
investment banking firms, insurance companies, banks, savings and loan associations, and other financial institutions that often pro-
vide investment products that have similar features and objectives as those we offer. Our competitors offer a wide range of financial
services to the same customers that we seek to serve. Some of our competitors are larger, have a broader range of product choices
and investment capabilities, conduct business in more markets, and have substantially greater resources than we do. These factors
may place us at a competitive disadvantage, and we can give no assurance that our strategies and efforts to maintain and enhance our
current client relationships, and create new ones, will be successful.
In addition, AXA, EQH and their respective subsidiaries provide financial services, some of which compete with those we offer.
The AB Partnership Agreement specifically allows AXA and its subsidiaries (other than the General Partner) to compete with AB
and to pursue opportunities that may be available to us. AXA, EQH and certain of their respective subsidiaries have substantially
greater financial resources than we do and are not obligated to provide resources to us.
To grow our business, we believe we must be able to compete effectively for AUM. Key competitive factors include:
• our investment performance for clients;
• our commitment to place the interests of our clients first;
•
the quality of our research;
• our ability to attract, motivate and retain highly skilled, and often highly specialized, personnel;
•
•
the array of investment products we offer;
the fees we charge;
• Morningstar/Lipper rankings for the AB Funds;
• our ability to sell our actively-managed investment services despite the fact that many investors favor passive services;
• our operational effectiveness;
• our ability to further develop and market our brand; and
• our global presence.
Competition is an important risk that our business faces and should be considered along with the other factors we discuss in “Risk
Factors” in Item 1A.
Available Information
AB and AB Holding file or furnish annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
amendments to such reports, and other reports (and amendments thereto) required to comply with federal securities laws, including
Section 16 beneficial ownership reports on Forms 3, 4 and 5, registration statements and proxy statements. We maintain an Internet
site (http://www.alliancebernstein.com) where the public can view these reports, free of charge, as soon as reasonably practicable after
each report is filed with, or furnished to, the SEC. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
14
AB
Item 1A. Risk Factors
Please consider this section along with the description of our business in Item 1, the competition section immediately above and AB’s
financial information contained in Items 6, 7 and 8. The majority of the risk factors discussed below directly affect AB. These risk
factors also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in
AB. See also “Cautions Regarding Forward-Looking Statements” in Item 7.
Business-related Risks
Our revenues and results of operations depend on the market value and composition of our AUM, which can fluctuate
significantly based on various factors, including many factors outside of our control.
We derive most of our revenues from investment advisory and services fees, which typically are calculated as a percentage of the
value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and vary with
the type of investment service, the size of the account and the total amount of assets we manage for a particular client. The value
and composition of our AUM can be adversely affected by several factors, including:
• Market Factors. Global equity markets were quite strong throughout 2018 before finishing the year dramatically lower. Markets
sold off in the fourth quarter due to investor concerns over rising U.S. interest rates, a slowdown in European business con-
fidence, weaker Chinese growth and rising geopolitical uncertainty, including Brexit implementation and ongoing trade ten-
sions between the U.S. and China. Global fixed income markets were mixed for the year, with higher returns for less-risky
government bonds and negative credit market returns. In the U.S., while tax cuts enacted at the end of 2017 helped spur
growth and corporate earnings in 2018, the benefit is unlikely to continue in 2019, and investors are focused on the length of
the economic cycle. The U.S. Federal Reserve announced its fourth interest rate increase in December, as expected, but revised
its guidance on the number of rate increases in 2019 from three to two. Oil prices fell sharply in the fourth quarter which,
when combined with higher U.S. interest rates and slowing growth, could impact the economies of some emerging markets. In
Europe, the Central Bank ended its quantitative easing program in December despite the slowdown in growth, and ongoing
uncertainty around Brexit negotiations weighed on business and consumer confidence in the U.K. In China, monetary policy is
easing in response to slowing growth and U.S. trade tariff headwinds. These factors, and the market volatility they cause, may
adversely affect our AUM and revenues.
• Client Preferences. Generally, our clients may withdraw their assets at any time and on short notice. Also, changing market
dynamics and investment trends, particularly with respect to sponsors of defined benefit plans choosing to invest in less risky
investments and the ongoing shift to lower-fee passive services described below, may continue to reduce interest in some of the
investment products we offer, and/or clients and prospects may continue to seek investment products that we may not cur-
rently offer. Loss of, or decreases in, AUM reduces our investment advisory and services fees and revenues.
• Our Investment Performance. Our ability to achieve investment returns for clients that meet or exceed investment returns for
comparable asset classes and competing investment services is a key consideration when clients decide to keep their assets with
us or invest additional assets, and when a prospective client is deciding whether to invest with us. Poor investment performance,
both in absolute terms and/or relative to peers and stated benchmarks, may result in clients withdrawing assets and prospective
clients choosing to invest with competitors.
•
Investing Trends. Our fee rates can vary significantly among the various investment products and services we offer to our clients
(see “Net Revenues” in Item 7 for additional information regarding our fee rates); our fee realization rate fluctuates as clients shift
assets between accounts or products with different fee structures.
• Service Changes. We may be required to reduce our fee levels, restructure the fees we charge and/or adjust the services we
offer to our clients because of, among other things, regulatory initiatives (whether industry-wide or specifically targeted),
changing technology in the asset management business (including algorithmic strategies and emerging financial technology),
court decisions and competitive considerations. A reduction in fee levels would reduce our revenues.
Annual Report 2018
15
A decrease in the value of our AUM, a decrease in the amount of AUM we manage, an adverse mix shift in our AUM and/or a
reduction in the level of fees we charge would adversely affect our investment advisory fees and revenues. A reduction in revenues,
without a commensurate reduction in expenses, adversely affects our results of operations.
The industry-wide shift from actively-managed investment services to passive services has adversely affected our invest-
ment advisory and services fees, revenues and results of operations, and this trend may continue.
Our competitive environment has become increasingly difficult over the past decade, as active managers, which invest based on
individual security selection, have, on average, consistently underperformed passive services, which invest based on market indices.
While the weak and volatile market environment in 2018 provided ample opportunities for stock selection, it was another
challenging year for active equity fund managers. Only 42% of active managers beat their benchmarks for the full year, with varied
results among growth, value and core managers. Despite the more volatile markets, demand for passive strategies persisted, albeit at a
slower pace, and active managers struggled to attract net new assets. In the U.S., total industry-wide active mutual fund inflows of
$67 billion in 2017 reversed to net outflows of $302 billion in 2018. Active equity U.S. mutual fund outflows of $259 billion in
2018 increased by 33% year-over-year as the pace of outflows accelerated in the fourth quarter, particularly in December. Further,
after $221 billion of active fixed income U.S. mutual fund inflows in 2017, flows slowed dramatically in 2018 to $13 billion.
Meanwhile, total industry-wide passive mutual fund inflows of $451 billion were down 35% from last year’s record $692 billion.
The most recent data available for U.S. institutions (through September 30, 2018) is more negative. Total industry active equity and
fixed income net outflows for the year-to-date through September 30, 2018 were $254 billion, triple the total for 2017. In this
environment, organic growth through positive net inflows is difficult to achieve for active managers, such as AB, and requires
taking market share from other active managers.
The significant shift from active services to passive services adversely affects Bernstein Research Services revenues as well. Global
market volumes have declined in recent years, and we expect this to continue, fueled by persistent active equity outflows and pas-
sive equity inflows. As a result, portfolio turnover has decreased and investors hold fewer shares that are actively traded by managers.
Our reputation could suffer if we are unable to deliver consistent, competitive investment performance.
Our business is based on the trust and confidence of our clients. Damage to our reputation, resulting from poor or inconsistent
investment performance, among other factors, can reduce substantially our AUM and impair our ability to maintain or grow our
business.
Maintaining adequate liquidity for our general business needs depends on certain factors, including operating cash flows
and our access to credit on reasonable terms.
Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets,
our ability to maintain and grow AUM and other factors beyond our control. Our ability to issue public or private debt on reason-
able terms may be limited by adverse market conditions, our profitability, our creditworthiness as perceived by lenders and changes
in government regulations, including tax rates and interest rates. Furthermore, our access to credit on reasonable terms is partially
dependent on our firm’s credit ratings.
Both Moody’s Investors Service, Inc. and Standard & Poor’s Rating Service recently affirmed AB’s long-term and short-term credit
ratings and indicated a stable outlook in 2018. Future changes in our credit ratings are possible and any downgrade to our ratings is
likely to increase our borrowing costs and limit our access to the capital markets. If this occurs, we may be forced to incur
unanticipated costs or revise our strategic plans, which could have a material adverse effect on our financial condition, results of
operations and business prospects.
AXA and its affiliates, including AXA Equitable Holdings, provide a significant amount of our AUM and fund a significant
portion of our seed investments, and if our agreements with them terminate or they withdraw capital support, whether as
a result of AXA Equitable Holdings’ initial public offering (“IPO”) in 2018 or another factor, it could have a material
adverse effect on our business, results of operations or financial condition.
AXA and its affiliates, including AXA Equitable Holdings, collectively are our largest client. AXA Equitable Holdings represented
18.1% of our total AUM as of December 31, 2018 and 3.1% of our net revenues for the year ended December 31, 2018. AXA and
16
AB
its affiliates other than AXA Equitable Holdings represented 6.1% of our total AUM as of December 31, 2018 and 2.4% of our net
revenues for the year ended December 31, 2018. Our investment management agreements with these affiliates are terminable at any
time or on short notice by either party, and none of these affiliates are under any obligation to maintain any level of AUM with us.
A material adverse effect on our business, results of operations or financial condition could result if AXA Equitable Holdings or
AXA and its other affiliates were to terminate their investment management agreements with us.
Further, while to date we have not experienced adverse effects from the IPO and we currently cannot predict the eventual impact,
if any, on us of the IPO, such impact could include a reduction in the support AXA has provided to us in the past with respect to
our investment management business, resulting in a decrease to our revenues and ability to initiate new investment services. Also,
we rely on AXA, including its subsidiary AXA Business Services, for a number of significant services and we benefit from our affili-
ation with AXA in certain common vendor relationships. These arrangements may change with possible negative financial
implications for us.
We may be unable to continue to attract, motivate and retain key personnel, and the cost to retain key personnel could
put pressure on our adjusted operating margin.
Our business depends on our ability to attract, motivate and retain highly skilled, and often highly specialized, technical, investment,
managerial and executive personnel and there is no assurance that we will be able to do so.
The market for these professionals is extremely competitive. They often maintain strong, personal relationships with investors in our
products and other members of the business community so their departure may cause us to lose client accounts or result in fewer
opportunities to win new business, either of which factors could have a material adverse effect on our results of operations and
business prospects.
Additionally, a decline in revenues may limit our ability to pay our employees at competitive levels, and maintaining (or increasing)
compensation without a revenue increase, in order to retain key personnel, may adversely affect our adjusted operating margin. As a
result, we remain vigilant about aligning our cost structure (including headcount) with our revenue base. For additional information
regarding our compensation practices, see “Compensation Discussion and Analysis” in Item 11.
Our process of relocating our headquarters may not be executed as we envision.
On May 2, 2018, we announced that we will establish our corporate headquarters in and relocate approximately 1,050 jobs located in
the New York metropolitan area to Nashville, Tennessee (for additional information, see “Relocation Strategy” in Item 7). Although the
eventual impact on AB from this process is not yet known, the uncertainty created by these circumstances could have a significant
adverse effect on AB’s ability to motivate and retain current employees. Further significant managerial and operational challenges
could arise, such as ineffective transfer of institutional knowledge from current employees to newly-hired employees, if AB experi-
ences significantly greater attrition among current employees than the firm anticipates in connection with the relocation and/or if the
firm encounters more difficulty than expected in hiring qualified employees to help staff our Nashville headquarters.
Additionally, our estimates for both the transition costs and the corresponding expense savings relating to our headquarters
relocation, which we discuss in more detail in “Relocation Strategy” in Item 7, are based on our current assumptions of employee
relocation costs, severance, and overlapping compensation and occupancy costs. If our assumptions turn out to be inaccurate, our
adjusted net revenues and adjusted operating income could be adversely affected.
Our business is dependent on investment advisory agreements with clients, and selling and distribution agreements with
various financial intermediaries and consultants, which generally are subject to termination or non-renewal on short notice.
We derive most of our revenues pursuant to written investment management agreements (or other arrangements) with institutional
investors, mutual funds and private wealth clients, and selling and distribution agreements with financial intermediaries that distrib-
ute AB Funds. Generally, the investment management agreements (and other arrangements), including our agreements with AXA,
EQH and their respective subsidiaries, are terminable at any time or upon relatively short notice by either party. The investment
management agreements pursuant to which we manage the U.S. Funds must be renewed and approved by the Funds’ boards of
directors annually. A significant majority of the directors are independent. Consequently, there can be no assurance that the board
Annual Report 2018
17
of directors of each fund will approve the fund’s investment management agreement each year, or will not condition its approval on
revised terms that may be adverse to us. In addition, investors in AB Funds can redeem their investments without notice. Any
termination of, or failure to renew, a significant number of these agreements, or a significant increase in redemption rates, could
have a material adverse effect on our results of operations and business prospects.
Similarly, the selling and distribution agreements with securities firms, brokers, banks and other financial intermediaries are termi-
nable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of
fund shares. These intermediaries generally offer their clients investment products that compete with our products. In addition, cer-
tain institutional investors rely on consultants to advise them about choosing an investment adviser and some of our services may
not be considered among the best choices by these consultants. As a result, investment consultants may advise their clients to move
their assets invested with us to other investment advisers, which could result in significant net outflows.
Lastly, our Private Wealth Services rely on referrals from financial planners, registered investment advisers and other professionals.
We cannot be certain that we will continue to have access to, or receive referrals from, these third parties. Loss of such access or
referrals could have a material adverse effect on our results of operations and business prospects.
Performance-based fee arrangements with our clients may cause greater fluctuations in our net revenues.
We sometimes charge our clients performance-based fees, whereby we charge a base advisory fee and are eligible to earn an addi-
tional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or a per-
centage of investment results in excess of a stated benchmark over a specified period of time. Some performance-based fees include
a high-watermark provision, which generally provides that if a client account under-performs relative to its performance target
(whether in absolute terms or relative to a specified benchmark), it must gain back such under-performance before we can collect
future performance-based fees. Therefore, if we fail to achieve the performance target for a particular period, we will not earn a
performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-
based fees will be impaired.
We are eligible to earn performance-based fees on 7.3%, 7.8% and 0.9% of the assets we manage for institutional clients, private
wealth clients and retail clients, respectively (in total, 5.1% of our AUM). If the percentage of our AUM subject to performance-
based fees increases, seasonality and volatility of revenue and earnings are likely to become more significant. Our performance-based
fees in 2018, 2017 and 2016 were $118.1 million, $94.8 million and $32.8 million, respectively.
An impairment of goodwill may occur.
Determining whether an impairment of the goodwill asset exists requires management to exercise a substantial amount of judgment.
In addition, to the extent that securities valuations are depressed for prolonged periods of time and/or market conditions deterio-
rate, or if we experience significant net redemptions, our AUM, revenues, profitability and unit price will be adversely affected.
Although the price of an AB Holding Unit is just one factor in the calculation of fair value, if AB Holding Unit price levels decline
significantly, reaching the conclusion that fair value exceeds carrying value will, over time, become more difficult. In addition, con-
trol premiums, industry earnings multiples and discount rates are impacted by economic conditions. As a result, subsequent impair-
ment tests may occur more frequently and be based on more negative assumptions and future cash flow projections, and may result
in an impairment of goodwill. An impairment may result in a material charge to our earnings. For additional information about our
impairment testing, see Item 7.
We may engage in strategic transactions that could pose risks.
As part of our business strategy, we consider potential strategic transactions, including acquisitions, dispositions, mergers, con-
solidations, joint ventures and similar transactions, some of which may be material. These transactions, if undertaken, may involve
various risks and present financial, managerial and operational challenges, including:.
• adverse effects on our earnings if acquired intangible assets or goodwill become impaired;
• existence of unknown liabilities or contingencies that arise after closing;
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AB
• potential disputes with counterparties; and
• potential dilution to our existing unitholders, if we fund the purchase price of a transaction with AB Units or AB Holding
Units.
Acquisitions also pose the risk that any business we acquire may lose customers or employees or could underperform relative to
expectations. Additionally, the loss of investment personnel poses the risk that we may lose the AUM we expected to manage,
which could adversely affect our results of operations. Furthermore, strategic transactions may require us to increase our leverage or,
if we issue AB Units or AB Holding Units to fund an acquisition, would dilute the holdings of our existing Unitholders.
Fluctuations in the exchange rates between the U.S. dollar and various other currencies can adversely affect our AUM,
revenues and results of operations.
Although significant portions of our net revenues and expenses, as well as our AUM, presently are denominated in U.S. dollars, we
have subsidiaries and clients outside of the United States with functional currencies other than the U.S. dollar. Weakening of these
currencies relative to the U.S. dollar adversely affects the value in U.S. dollar terms of our revenues and our AUM denominated in
these other currencies. Accordingly, fluctuations in U.S. dollar exchange rates affect our AUM, revenues and reported financial
results from one period to the next.
We may not be successful in our efforts to hedge our exposure to such fluctuations, which could negatively impact our revenues
and reported financial results.
Our seed capital investments are subject to market risk. While we enter into various futures, forwards, swap and option
contracts to economically hedge many of these investments, we also may be exposed to market risk and credit-related
losses in the event of non-performance by counterparties to these derivative instruments.
We have a seed investment program for the purpose of building track records and assisting with the marketing initiatives pertaining to
our firm’s new products. These seed capital investments are subject to market risk. Our risk management team oversees a seed hedging
program that attempts to minimize this risk, subject to practical and cost considerations. Also, not all seed investments are deemed
appropriate to hedge, and in those cases we are exposed to market risk. In addition, we may be subject to basis risk in that we cannot
always hedge with precision our market exposure and, as a result, we may be subject to relative spreads between market sectors. As a
result, volatility in the capital markets may cause significant changes in our period-to-period financial and operating results.
We use various derivative instruments, including futures, forwards, swap and option contracts, in conjunction with our seed hedg-
ing program. While in most cases broad market risks are hedged, our hedges are imperfect and some market risk remains. In addi-
tion, our use of derivatives results in counterparty risk (i.e., the risk that we may be exposed to credit-related losses in the event of
non-performance by counterparties to these derivative instruments), regulatory risk (e.g., short selling restrictions) and cash/synthetic
basis risk (i.e., the risk that the underlying positions do not move identically to the related derivative instruments).
The revenues generated by Bernstein Research Services may be adversely affected by circumstances beyond our control,
including declines in brokerage transaction rates, declines in global market volumes, failure to settle our trades by sig-
nificant counterparties and the effects of MiFID II.
Electronic, or “low-touch”, trading represents a significant percentage of buy-side trading activity and typically produces transaction
fees that are significantly lower than the price of traditional full service fee rates. As a result, blended pricing throughout our
industry is lower now than it was historically, and price declines may continue. In addition, fee rates we charge and charged by
other brokers for brokerage services have historically experienced price pressure, and we expect these trends to continue. Also,
while increases in transaction volume and market share often can offset decreases in rates, this may not continue.
In addition, the failure or inability of any of our broker-dealer’s significant counterparties to perform could expose us to substantial
expenditures and adversely affect our revenues. For example, SCB LLC, as a member of clearing and settlement organizations, would
be required to settle open trades of any non-performing counterparty. This exposes us to the mark-to-market adjustment on the trades
between trade date and settlement date, which could be significant, especially during periods of severe market volatility. Also, our abil-
ity to access liquidity in such situations may be limited by what our funding relationships are able to offer us at such times.
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19
We discuss the risks associated with the second installment of the Markets in Financial Instruments Directive II (“MiFID II”) below
in this Item 1A.
The individuals, third-party vendors or issuers on whom we rely to perform services for us or our clients may be unable
or unwilling to honor their contractual obligations to us.
We rely on various counterparties and other third-party vendors to augment our existing investment, operational, financial and
technological capabilities, but the use of a third-party vendor does not diminish AB’s responsibility to ensure that client and regu-
latory obligations are met. Default rates, credit downgrades and disputes with counterparties as to the valuation of collateral increase
significantly in times of market stress. Disruptions in the financial markets and other economic challenges may cause our counter-
parties and other third-party vendors to experience significant cash flow problems or even render them insolvent, which may
expose us to significant costs and impair our ability to conduct business.
Weaknesses or failures within a third-party vendor’s internal processes or systems, or inadequate business continuity plans, can mate-
rially disrupt our business operations. Also, third-party vendors may lack the necessary infrastructure or resources to effectively safe-
guard our confidential data. If we are unable to effectively manage the risks associated with such third-party relationships, we may
suffer fines, disciplinary action and reputational damage.
We may not accurately value the securities we hold on behalf of our clients or our company investments.
In accordance with applicable regulatory requirements, contractual obligations or client direction, we employ procedures for the
pricing and valuation of securities and other positions held in client accounts or for company investments. We have established a
Valuation Committee, composed of senior officers and employees, which oversees pricing controls and valuation processes. If mar-
ket quotations for a security are not readily available, the Valuation Committee determines a fair value for the security.
Extraordinary volatility in financial markets, significant liquidity constraints or our failure to adequately consider one or more factors
when determining the fair value of a security based on information with limited market observability could result in our failing to
properly value securities we hold for our clients or investments accounted for on our balance sheet. Improper valuation likely
would result in our basing fee calculations on inaccurate AUM figures, our striking incorrect net asset values for company-
sponsored mutual funds or hedge funds or, in the case of company investments, our inaccurately calculating and reporting our
financial condition and operating results. Although the overall percentage of our AUM that we fair value based on information with
limited market observability is not significant, inaccurate fair value determinations can harm our clients, create regulatory issues and
damage our reputation.
We may not have sufficient information to confirm or review the accuracy of valuations provided to us by underlying
external managers for the funds in which certain of our alternative investment products invest.
Certain of our alternative investment services invest in funds managed by external managers (“External Managers”) rather than
investing directly in securities and other instruments. As a result, our abilities will be limited with regard to (i) monitoring such
investments, (ii) regularly obtaining complete, accurate and current information with respect to such investments and (iii) exercising
control over such investments. Accordingly, we may not have sufficient information to confirm or review the accuracy of valuations
provided to us by External Managers. In addition, we will be required to rely on External Managers’ compliance with any appli-
cable investment guidelines and restrictions. Any failure of an External Manager to operate within such guidelines or to provide
accurate information with respect to the investment could subject our alternative investment products to losses and cause damage to
our reputation.
The quantitative models we use in certain of our investment services may contain errors, resulting in imprecise risk assess-
ments and unintended output.
We use quantitative models in a variety of our investment services, generally in combination with fundamental research. These models
are developed by senior quantitative professionals and typically are implemented by IT professionals. Our Model Risk Oversight
Committee oversees the model governance framework and associated model review activities, which are then executed by our Model
Risk Team. However, due to the complexity and large data dependency of such models, it is possible that errors in the models could
exist and our controls could fail to detect such errors. Failure to detect errors could result in client losses and reputational damage.
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AB
We may not always successfully manage actual and potential conflicts of interest that arise in our business.
Increasingly, we must manage actual and potential conflicts of interest, including situations where our services to a particular client
conflict, or are perceived to conflict, with the interests of another client. Failure to adequately address potential conflicts of interest
could adversely affect our reputation, results of operations and business prospects.
We have procedures and controls that are designed to identify and mitigate conflicts of interest, including those designed to prevent
the improper sharing of information. However, appropriately managing conflicts of interest is complex. Our reputation could be
damaged and the willingness of clients to enter into transactions in which such a conflict might arise may be affected if we fail, or
appear to fail, to deal appropriately with actual or perceived conflicts of interest. In addition, potential or perceived conflicts could
give rise to litigation or regulatory enforcement actions.
Technology failures and disruptions, including failures to properly safeguard confidential information, can significantly
constrain our operations and result in significant time and expense to remediate, which could result in a material adverse
effect on our results of operations and business prospects.
We are highly dependent on software and related technologies throughout our business, including both proprietary systems and
those provided by third-party vendors. We use our technology to, among other things, obtain securities pricing information, proc-
ess client transactions, store and maintain data, and provide reports and other services to our clients. Despite our protective meas-
ures, including measures designed to effectively secure information through system security technology and established and tested
business continuity plans, we may still experience system delays and interruptions as a result of natural disasters, hardware failures,
software defects, power outages, acts of war and third-party failures. We cannot predict with certainty all of the adverse effects that
could result from our failure, or the failure of a third party, to efficiently address and resolve these delays and interruptions. These
adverse effects could include the inability to perform critical business functions or failure to comply with financial reporting and
other regulatory requirements, which could lead to loss of client confidence, reputational damage, exposure to disciplinary action
and liability to our clients.
Many of the software applications that we use in our business are licensed from, and supported, upgraded and maintained by, third-
party vendors. A suspension or termination of certain of these licenses or the related support, upgrades and maintenance could cause
temporary system delays or interruption. Additionally, technology rapidly evolves and we cannot guarantee that our competitors
may not implement more advanced technology platforms for their products and services, which may place us at a competitive dis-
advantage and adversely affect our results of operations and business prospects.
Also, we could be subject to losses if we fail to properly safeguard sensitive and confidential information. As part of our normal
operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to our
business operations. Although we take protective measures, our systems still could be vulnerable to cyber attack or other forms of
unauthorized access (including computer viruses) that have a security impact, such as an authorized employee or vendor
inadvertently or intentionally causing us to release confidential or proprietary information. Such disclosure could, among other
things, allow competitors access to our proprietary business information and require significant time and expense to investigate and
remediate the breach. Moreover, loss of confidential client information could harm our reputation and subject us to liability under
laws that protect confidential personal data, resulting in increased costs or loss of revenues.
Any significant security breach of our information and cyber security infrastructure, as well as our failure to properly esca-
late and respond to such an incident, may significantly harm our operations and reputation.
It is critical that we ensure the continuity and effectiveness of our information and cyber security infrastructure, policies, procedures
and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through
them and contracted third-party systems. Although we take protective measures, including measures to effectively secure
information through system security technology, our technology systems may still be vulnerable to unauthorized access, computer
viruses or other events that have a security impact, such as an external attack by one or more cyber criminals (including phishing
attacks attempting to obtain confidential information and ransomware attacks attempting to block access to a computer system until
a sum of money is paid), which could materially harm our operations and reputation. Additionally, while we take precautions to
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21
password protect and encrypt our laptops and sensitive information on our other mobile electronic devices, if such devices are sto-
len, misplaced or left unattended, they may become vulnerable to hacking or other unauthorized use, creating a possible security
risk and resulting in potentially costly actions by us.
Furthermore, although we maintain a robust cyber security infrastructure and incident preparedness strategy, which we test periodi-
cally, we may be unable to respond, both internally and externally, to a cyber incident in a sufficiently expeditious manner. Any
such failure could cause significant harm to our reputation and result in litigation, regulatory scrutiny and/or significant remediation
costs.
Unpredictable events, including climate change, natural disaster, dangerous weather conditions, technology failure, terro-
rist attack and political unrest, may adversely affect our ability to conduct business.
War, terrorist attack, political unrest, power failure, climate change, natural disaster and rapid spread of infectious diseases could
interrupt our operations by:
• causing disruptions in global economic conditions, thereby decreasing investor confidence and making investment products
generally less attractive;
inflicting loss of life;
triggering large-scale technology failures or delays;
•
•
• breaching our information and cyber security infrastructure; and
•
requiring substantial capital expenditures and operating expenses to remediate damage and restore operations.
Despite the contingency plans and facilities we have in place, including system security measures, information back-up and disaster
recovery processes, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our
operations and the communities in which they are located. This may include a disruption involving electrical, communications,
transportation or other services we may use or third parties with which we conduct business. If a disruption occurs in one location
and our employees in that location are unable to occupy our offices or communicate with or travel to other locations, our ability to
conduct business with and on behalf of our clients may suffer, and we may not be able to successfully implement contingency plans
that depend on communication or travel. Furthermore, unauthorized access to our systems as a result of a security breach, the failure
of our systems, or the loss of data could give rise to legal proceedings or regulatory penalties under laws protecting the privacy of
personal information, disrupt operations, and damage our reputation.
Our operations require experienced, professional staff. Loss of a substantial number of such persons or an inability to provide prop-
erly equipped places for them to work may, by disrupting our operations, adversely affect our financial condition, results of oper-
ations and business prospects. In addition, our property and business interruption insurance may not be adequate to compensate us
for all losses, failures or breaches that may occur.
Our own operational failures or those of third parties on which we rely, including failures arising out of human error,
could disrupt our business, damage our reputation and reduce our revenues.
Weaknesses or failures in our internal processes or systems could lead to disruption of our operations, liability to clients, exposure to
disciplinary action or harm to our reputation. Our business is highly dependent on our ability to process, on a daily basis, large
numbers of transactions, many of which are highly complex, across numerous and diverse markets. These transactions generally
must comply with client investment guidelines, as well as stringent legal and regulatory standards.
Our obligations to clients require us to exercise skill, care and prudence in performing our services. Despite our employees being
highly trained and skilled, the large number of transactions we process makes it highly likely that errors will occasionally occur.
If we make a mistake in performing our services that causes financial harm to a client, we have a duty to act promptly to put the
client in the position the client would have been in had we not made the error. The occurrence of mistakes, particularly significant
ones, can have a material adverse effect on our reputation, results of operations and business prospects.
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AB
The insurance that we maintain may not fully cover all potential exposures.
We maintain professional liability, fidelity, cyber, property, casualty, business interruption and other types of insurance, but such
insurance may not cover all risks associated with the operation of our business. Our coverage is subject to exclusions and limitations,
including high self-insured retentions or deductibles and maximum limits and liabilities covered. In addition, from time to time,
various types of insurance may not be available on commercially acceptable terms or, in some cases, at all. We can make no assur-
ance that a claim or claims will be covered by our insurance policies or, if covered, will not exceed our available insurance cover-
age, or that our insurers will remain solvent and meet their obligations.
In the future, we may not be able to obtain coverage at current levels, if at all, and our premiums may increase significantly on
coverage that we maintain. Also, we currently are party to certain joint insurance arrangements with subsidiaries of EQH. If our
affiliates choose not to include us as insured parties under any such policies, we may need to obtain stand-alone insurance coverage,
which could have coverage terms that are less beneficial to us and/or cost more.
Our business is subject to pervasive, complex and continuously evolving global regulation, compliance with which
involves substantial expenditures of time and money, and violation of which may result in material adverse consequences.
Virtually all aspects of our business are subject to federal and state laws and regulations, rules of securities regulators and exchanges,
and laws and regulations in the foreign jurisdictions in which our subsidiaries conduct business. If we violate these laws or regu-
lations, we could be subject to civil liability, criminal liability or sanction, including restriction or revocation of our and our sub-
sidiaries’ professional licenses or registrations, revocation of the licenses of our employees, censures, fines, or temporary suspension
or permanent bar from conducting business. Any such liability or sanction could have a material adverse effect on our financial
condition, results of operations and business prospects. A regulatory proceeding, even if it does not result in a finding of wrong-
doing or sanction, could require substantial expenditures of time and money and could potentially damage our reputation.
In recent years, global regulators have substantially increased their oversight of financial services. Some of the newly-adopted and
proposed regulations are focused on investment management services. Others, while more broadly focused, nonetheless impact our
business. Moreover, the adoption of new laws, regulations or standards and changes in the interpretation or enforcement of existing
laws, regulations or standards have directly affected, and will continue to affect, our business, including making our efforts to com-
ply more expensive and time-consuming.
For example, the Financial Supervisory Commission in Taiwan (“FSC”) implemented, as of January 1, 2015, new limits on the
degree to which local investors can own an offshore investment product. While certain exemptions have been available to us,
should we not continue to qualify, the FSC’s rules could force some of our local resident investors to redeem their investments in
our funds sold in Taiwan (and/or prevent further sales of those funds in Taiwan), some of which funds have local ownership levels
substantially above the FSC limits. This could lead to significant declines in our investment advisory and services fees and revenues
earned from these funds.
In Europe, MiFID II, which became effective on January 3, 2018, makes significant modifications to the manner in which Euro-
pean broker-dealers can be compensated for research. These modifications have reduced, and are believed to have significantly
reduced, the overall research spend by European buy-side firms, which has decreased the revenues we derive from our European
clients. Our European clients may continue to reduce their research budgets, which could result in a significant decline in our sell-
side revenues.
Also, while MiFID II is not applicable to firms operating outside of Europe, competitive and client pressures may force buy-side
firms operating outside of Europe to pay for research from their own resources instead of through bundled trading commissions. If
that occurs, we would expect that research budgets from those clients will decrease further, which could result in an additional sig-
nificant decline in our sell-side revenues. Additionally, these competitive and client pressures may result in our buy-side operation
paying for research out of our own resources instead of through bundled trading commissions, which could increase our firm’s
expenses and decrease our operating income.
Lastly, it also is uncertain how regulatory trends will evolve under the current U.S. President’s administration and abroad. For
example, in June 2016, a narrow majority of voters in a U.K. referendum voted to exit the European Union (“Brexit”), but it
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23
remains unclear exactly how the U.K.’s status in relation to the European Union (“EU”) will change if and when it ultimately
leaves. Accordingly, our U.K.-based buy-side and sell-side subsidiaries are implementing alternative arrangements in EU juris-
dictions in order to ensure continued operations in the Eurozone, including our continued ability to market and sell various
investment products in the Eurozone. In addition, any other changes in the composition of the EU’s member states may add further
complexity to our global risks and operations.
We are involved in various legal proceedings and regulatory matters and may be involved in such proceedings in the
future, any one or combination of which could have a material adverse effect on our reputation, financial condition,
results of operations and business prospects.
We may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which
allege significant damages, and we may be involved in additional matters in the future. Litigation is subject to significant
uncertainties, particularly when plaintiffs allege substantial or indeterminate damages, the litigation is in its early stages, or when the
litigation is highly complex or broad in scope.
The financial services industry is intensely competitive.
We compete on the basis of a number of factors, including our investment performance for our clients, our array of investment
services, innovation, reputation and price. By having a global presence, we often face competitors with more experience and more
established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect our
ability to expand. Furthermore, if we are unable to maintain and/or continue to improve our investment performance, our client
flows may be adversely affected, which may make it more difficult for us to compete effectively.
Also, increased competition could reduce the demand for our products and services, which could have a material adverse effect on
our financial condition, results of operations and business prospects. For additional information regarding competitive factors, see
“Competition” in Item 1.
Structure-related Risks
The partnership structure of AB Holding and AB limits Unitholders’ abilities to influence the management and operation
of AB’s business and is highly likely to prevent a change in control of AB Holding and AB.
The General Partner, as general partner of both AB Holding and AB, generally has the exclusive right and full authority and responsi-
bility to manage, conduct, control and operate their respective businesses, except as otherwise expressly stated in their respective
Amended and Restated Agreements of Limited Partnership. AB Holding and AB Unitholders have more limited voting rights on
matters affecting AB than do holders of common stock in a corporation. Both Amended and Restated Agreements of Limited Partner-
ship provide that Unitholders do not have any right to vote for directors of the General Partner and that Unitholders only can vote on
certain extraordinary matters (including removal of the General Partner under certain extraordinary circumstances). Additionally, the
AB Partnership Agreement includes significant restrictions on the transfer of AB Units and provisions that have the practical effect of
preventing the removal of the General Partner, which provisions are highly likely to prevent a change in control of AB’s management.
AB Units are illiquid and subject to significant transfer restrictions.
There is no public trading market for AB Units and we do not anticipate that a public trading market will develop. The AB Partner-
ship Agreement restricts our ability to participate in a public trading market or anything substantially equivalent to one by providing
that any transfer that may cause AB to be classified as a “publicly traded partnership” (“PTP”) as defined in Section 7704 of the Internal
Revenue Code of 1986, as amended (“Code”), shall be deemed void and shall not be recognized by AB. In addition, AB Units are
subject to significant restrictions on transfer, such as obtaining the written consent of AXA Equitable and the General Partner pursuant
to the AB Partnership Agreement. Generally, neither AXA Equitable nor the General Partner will permit any transfer that it believes
would create a risk that AB would be treated as a corporation for tax purposes. AXA Equitable and the General Partner have
implemented a transfer program that requires a seller to locate a purchaser and imposes annual volume restrictions on transfers. You
may request a copy of the transfer program from our Corporate Secretary (corporate_secretary@alliancebernstein.com). Also, we have filed
the transfer program as Exhibit 10.15 to this Form 10-K.
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AB
Changes in the partnership structure of AB Holding and AB and/or changes in the tax law governing partnerships would
have significant tax ramifications.
AB Holding, having elected under Section 7704(g) of the Code to be subject to a 3.5% federal tax on partnership gross income
from the active conduct of a trade or business, is a “grandfathered” PTP for federal income tax purposes. AB Holding is also subject
to the 4.0% New York City unincorporated business tax (“UBT”), net of credits for UBT paid by AB. In order to preserve AB
Holding’s status as a “grandfathered” PTP for federal income tax purposes, management seeks to ensure that AB Holding does not
directly or indirectly (through AB) enter into a substantial new line of business. A “new line of business” includes any business that
is not closely related to AB’s historical business of providing research and diversified investment management and related services to
its clients. A new line of business is “substantial” when a partnership derives more than 15% of its gross income from, or uses more
than 15% of its total assets in, the new line of business.
AB is a private partnership for federal income tax purposes and, accordingly, is not subject to federal and state corporate income
taxes. However, AB is subject to the 4.0% UBT. Domestic corporate subsidiaries of AB, which are subject to federal, state and local
income taxes, generally are included in the filing of a consolidated federal income tax return with separate state and local income tax
returns being filed. Each of AB’s non-U.S. corporate subsidiaries generally is subject to taxes in the foreign jurisdiction where it is
located. If our business increasingly operates in countries other than the U.S., AB’s effective tax rate will increase as our interna-
tional subsidiaries are subject to corporate taxes in the jurisdictions where they are located.
In order to preserve AB’s status as a private partnership for federal income tax purposes, AB Units must not be considered publicly
traded. If such units were to be considered readily tradable, AB would be subject to federal and state corporate income tax on its net
income. Furthermore, as noted above, should AB enter into a substantial new line of business, AB Holding, by virtue of its ownership
of AB, would lose its status as a grandfathered PTP and would become subject to corporate income tax as set forth above. If AB and
AB Holding were to become subject to corporate income tax as set forth above, their net income and quarterly distributions to Unit-
holders would be materially reduced. For information about the significant restrictions on transfer of AB Units, see the risk factor
immediately above.
If, pursuant to the Bipartisan Budget Act of 2015 (“2015 Act”), any audit by the Internal Revenue Service (“IRS”) of our
income tax returns for any of our taxable years beginning after December 31, 2017 results in any adjustments, the IRS
may collect any resulting taxes, including any applicable penalties and interest, directly from us, in which case our net
income and the cash available for quarterly Unitholder distributions may be substantially reduced.
Although the IRS, under current law, generally determines tax adjustments at the partnership level when it audits the income tax
return of a partnership, the IRS, with respect to taxable years beginning on or before December 31, 2017, is required to collect any
additional taxes, interest and penalties from the partnership’s individual partners. The 2015 Act modifies this procedure for audits of
a partnership’s taxable years beginning after December 31, 2017 and, if a partnership meets certain requirements and makes a proper
election, for audits of a partnership’s taxable years beginning before January 1, 2018. We may choose to make such an election if we
receive a written notice of selection for examination for an eligible taxable year or if we file, on or after January 1, 2018, an
administrative adjustment request for an eligible taxable year and otherwise qualify to make such an election.
Generally, we will have the ability to collect tax liability from our Unitholders in accordance with their percentage interests during
the year under audit, but there can be no assurance that we will elect to do so or be able to do so under all circumstances. If we do
not collect such tax liability from our Unitholders in accordance with their percentage interests in the tax year under audit, our net
income and the available cash for quarterly distributions to current Unitholders may be substantially reduced. Accordingly, our
current Unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such Unitholders did not
own Units during the tax year under audit. In particular, as a publicly traded partnership, our Partnership Representative (as defined
below) may, in certain instances, request that any “imputed underpayment” resulting from an audit be adjusted by amounts of
certain of our passive losses. If we successfully make such a request, we would have to reduce suspended passive loss carryovers in a
manner which is binding on the partners.
In August and December, 2018, the IRS issued final regulations providing rules relating to the operation of the partnership audit rules
(the “Final Regulations”). Pursuant to the 2015 Act and the Final Regulations, for taxable years beginning after December 31, 2017,
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25
we will be required to designate a partner, or other person, with a substantial presence in the United States as the partnership
representative (“Partnership Representative”) and we will no longer have a “tax matters partner.” The Partnership Representative
will have the sole authority to act on our behalf for purposes of, among other things, U.S. federal income tax audits and judicial review
of administrative adjustments by the IRS. If we do not make such a designation, the IRS can select any person as the Partnership
Representative. Any actions taken by us or by the Partnership Representative on our behalf with respect to, among other things, U.S.
federal income tax audits and judicial review of administrative adjustments by the IRS, will be binding on us and our unitholders.
In addition, the Final Regulations clarified the procedure under which a partnership may elect to require its unitholders to take into
account on their income tax returns an audit adjustment made to the partnership’s income tax items. We may, but are not required
to, make such a “push-out” election. In addition, a partnership that is a partner of another partnership may elect to have its
unitholders take an audit adjustment of the lower-tier partnership into account (i.e., the upper-tier partnership may push adjust-
ments received from the lower-tier partnership through to the partners of the upper-tier partnership). The upper-tier partnership
must timely complete the “push-out” of the adjustment in order for it to be effective. Under the Final Regulations, such election
must be made by the extended due date for the return for the adjustment year of the audited partnership, regardless of whether the
audited partnership is required to file a return for the adjustment year or timely files a request for an extension for its return. The
Final Regulations set forth a number of requirements to make a “push-out” election and we may be unable or unwilling to comply
with such requirements. If we do not make a “push-out” election, we would be required to pay any tax resulting from the adjust-
ments to our income tax items, and the cash available for distribution to unitholders would be substantially reduced.
Non-U.S. Unitholders may be subject to a 10% withholding tax on the sale of their AB Units or AB Holding Units,
which could reduce the value of such Units.
Under the 2017 Tax Cuts and Jobs Act, gain or loss from the sale or exchange of partnership units after November 27, 2017 by a
non-U.S. unitholder are treated as effectively connected with a U.S. trade or business to the extent that the non-U.S. unitholder
would have had effectively connected gain or loss on a hypothetical sale by the partnership of all of its assets at fair market value as
of the date of the sale or exchange of the partnership units. The Tax Cuts and Jobs Act also imposed certain withholding
requirements for the sale of partnership units by a non-U.S. unitholder and authorized the IRS to issue regulations to carry out the
withholding rules in the case of publicly traded partnerships. No such regulations have been issued. Instead, in December 2017, the
IRS issued a notice suspending the application of these new withholding rules to the disposition of publicly traded partnership units
until the IRS issued related guidance. We cannot predict when or if the IRS will issue such regulations or other guidance or what
the regulations or other guidance will say. If the guidance generally subjects publicly traded partnerships to the same rules as other
partnerships, then we would be subject to two different withholding regimes. Under the first regime, the recipient of the units
being transferred generally will be required to withhold 10% of the amount realized by the transferring unitholder, unless the
transferring unitholder provides the recipient unitholder with either proper documentation proving that the transferring unitholder
is not a nonresident alien individual or foreign corporation, or with certain other statements or certifications described in IRS
Notice 2018-29 that limit or relieve the recipient unitholder’s withholding obligation. Under the second regime, if the recipient
unitholder fails to properly withhold, then we generally would be obligated to deduct and withhold from distributions to the
recipient unitholder a tax in an amount equal to the amount the transferring unitholder failed to withhold (plus interest). Whether
or not these withholding rules apply does not affect the characterization of gain or loss from the sale or exchange of partnership
units by a non-U.S. unitholder as effectively connected with a U.S. trade or business.
26
AB
Item 1B. Unresolved Staff Comments
Neither AB nor AB Holding has unresolved comments from the staff of the SEC to report.
Annual Report 2018
27
Item 2.
Properties
Our principal executive offices located at 1345 Avenue of the Americas, New York, New York are occupied pursuant to a lease
expiring in 2024. At this location, we currently lease 992,043 square feet of space, within which we currently occupy approximately
523,373 square feet of space and have sub-let (or are seeking to sub-let) approximately 468,670 square feet of space. We also lease
space at one other location in New York City with a lease expiration of December 31, 2019.
In addition, we lease approximately 229,147 square feet of space at One North Lexington, White Plains, New York under a lease
expiring in 2021 with options to extend to 2031. At this location, we currently occupy approximately 69,013 square feet of space
and have sub-let (or are seeking to sub-let) approximately 160,134 square feet of space.
We entered into a short-term lease for office space in Nashville, Tennessee during the construction of our new corporate head-
quarters at 501 Commerce Street, which we will vacate upon completion of 501 Commerce Street.
We entered into a 15-year lease agreement in Nashville, Tennessee, at 501 Commerce Street, for 205,000 square feet that is
expected to commence in July of 2020.
We also lease 92,067 square feet of space in San Antonio, Texas under a lease expiring in 2019 with options to extend to 2029. At
this location, we currently occupy approximately 59,004 square feet of space and have sub-let approximately 33,063 square feet of
space. We have renewed 50,792 square feet for ten years, expiring in 2029.
In addition, we lease less significant amounts of space in 21 other cities in the United States.
Our subsidiaries lease space in 28 cities outside the United States, the most significant of which are in London, England, under a
lease expiring in 2022, and in Hong Kong, China, under a lease expiring in 2027. In London, we currently lease 65,488 square feet
of space, within which we currently occupy approximately 54,746 square feet of space and have sub-let approximately 10,742
square feet of space. In Hong Kong, we currently lease and occupy 35,878 square feet of space.
28
AB
Item 3.
Legal Proceedings
With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of
a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected
outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of
the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the
possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because
litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages. Such is also the
case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose
that we are unable to predict the outcome or estimate a possible loss or range of loss.
We may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which
may allege significant damages. It is reasonably possible that we could incur losses pertaining to these matters, but management
cannot currently estimate any such losses.
Management, after consultation with legal counsel, currently believes that the outcome of any individual matter that is pending or
threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or
liquidity. However, any inquiry, proceeding or litigation has an element of uncertainty; management cannot determine whether
further developments relating to any individual matter that is pending or threatened, or all of them combined, will have a material
adverse effect on our results of operation, financial condition or liquidity in any future reporting period.
Annual Report 2018
29
Item 4.
Mine Safety Disclosures
Not applicable.
30
AB
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Market for AB Holding Units and AB Units; Cash Distributions
AB Holding Units are listed on the NYSE and trade publicly under the ticker symbol “AB.” There is no established public trading
market for AB Units, which are subject to significant restrictions on transfer. For information about these transfer restrictions, see
“Structure-related Risks” in Item 1A.
AB Holding’s principal source of income and cash flow is attributable to its limited partnership interests in AB.
Each of AB Holding and AB distributes on a quarterly basis all of its Available Cash Flow, as defined in the AB Holding Partnership
Agreement and the AB Partnership Agreement, respectively, to its Unitholders and the General Partner. For additional information
concerning distribution of Available Cash Flow by AB Holding, see Note 2 to AB Holding’s financial statements in Item 8. For addi-
tional information concerning distribution of Available Cash Flow by AB, see Note 2 to AB’s consolidated financial statements in Item 8.
On December 31, 2018, the last trading day during 2018, the closing price of an AB Holding Unit on the NYSE was $27.32 per
Unit. On December 31, 2018, there were (i) 929 AB Holding Unitholders of record for approximately 79,000 beneficial owners,
and (ii) 381 AB Unitholders of record (we do not believe there are substantial additional beneficial owners).
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
We did not engage in any unregistered sales of our securities during the years ended December 31, 2018, 2017 and 2016.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Each quarter since the third quarter of 2011, AB has implemented plans to repurchase AB Holding Units pursuant to Rules 10b5-1
and 10b-18 under the Exchange Act. The plan adopted during the fourth quarter of 2018 expired at the close of business on Febru-
ary 12, 2019. AB may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund
anticipated obligations under the firm’s incentive compensation award program and for other corporate purposes. For additional
information about Rule 10b5-1 plans, see “Units Outstanding” in Item 7.
AB Holding Units bought by us or one of our affiliates during the fourth quarter of 2018 are as follows:
Issuer Purchases of Equity Securities
Total Number
of AB Holding Units
Purchased
Average Price
Paid
Per AB Holding
Unit, net of
Commissions
Total Number of
AB Holding Units
Purchased as Part
of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
AB Holding Units that
May Yet Be
Purchased Under
the Plans or
Programs
632,466
881,840
4,973,748
6,488,054
$ 29.59
29.56
28.16
$28.49
—
—
—
—
—
—
—
—
Period
10/1/18-10/31/18(1)(2)
11/1/18-11/30/18(1)(2)
12/1/18-12/31/18(1)(2)
Total
(1) During the fourth quarter of 2018, we purchased 2,781,168 AB Holding Units from employees to allow them to fulfill statutory withholding tax requirements at
the time of distribution of long-term incentive compensation awards.
(2) During the fourth quarter of 2018, we purchased 3,706,886 AB Holding Units on the open market pursuant to a Rule 10b5-1 plan to help fund anticipated obli-
gations under our incentive compensation award program.
Annual Report 2018
31
AB Units bought by us or one of our affiliates during the fourth quarter of 2018 are as follows:
Issuer Purchases of Equity Securities
Total Number of
AB Units
Purchased
Average Price
Paid Per AB
Unit, net of
Commissions
Total Number of
AB Units
Purchased as Part
of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
AB Units that
May Yet Be
Purchased Under
the Plans or
Programs
—
—
800
800
$ —
—
29.78
$29.78
—
—
—
—
—
—
—
—
Period
10/1/18-10/31/18
11/1/18-11/30/18
12/1/18-12/31/18(1)
Total
(1) During December 2018, we purchased 800 AB Units in a private transaction.
32
AB
Item 6.
Selected Financial Data
AllianceBernstein Holding L.P.
2018
2017
Years Ended December 31,
2016
2015
2014
(in thousands, except per unit amounts)
Income Statement Data:
Equity in net income attributable to AB Unitholders
$ 270,647
$ 232,393
$ 239,389
$ 210,084
$ 200,931
Income taxes
Net income
Basic net income per unit
Diluted net income per unit
Cash Distributions Per Unit(1)
Balance Sheet Data at Period End:
Total assets
Partners’ capital
28,250
24,971
22,803
24,320
22,463
$ 242,397
$ 207,422
$ 216,586
$ 185,764
$ 178,468
$
$
$
2.50
2.50
2.68
$1,490,701
$1,490,057
$
$
$
2.19
2.19
2.30
$1,544,704
$1,543,550
$
$
$
2.24
2.23
1.92
$1,540,508
$1,539,889
$
$
$
1.87
1.86
1.86
$1,576,120
$1,575,846
$
$
$
1.84
1.84
1.86
$1,616,461
$1,616,079
(1) AB Holding is required to distribute all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement, to its Unitholders; for all years presented,
the cash distributions per unit reflect the impact of AB’s non-GAAP adjustments.
Annual Report 2018
33
AllianceBernstein L.P.
Selected Consolidated Financial Data
2018
Years Ended December 31,(1)
2016
2017
2015
2014
Income Statement Data:
Revenues:
Investment advisory and services fees
Bernstein research services
Distribution revenues
Dividend and interest income
Investment gains (losses)
Other revenues
Total revenues
Less: interest expense
Net revenues
Expenses:
Employee compensation and benefits:
Employee compensation and benefits
Promotion and servicing:
Distribution-related payments
Amortization of deferred sales commissions
Trade execution, marketing, T&E and other
General and administrative:
General and administrative
Real estate charges
Contingent payment arrangements
Interest on borrowings
Amortization of intangible assets
Total expenses
Operating income
Income taxes
Net income
Net income of consolidated entities attributable to non-controlling interests
Net income attributable to AB Unitholders
Basic net income per AB Unit
Diluted net income per AB Unit
Operating margin(2)
Cash Distributions Per AB Unit(3)
Balance Sheet Data at Period End:
Total assets
Debt
Total capital
Assets Under Management at Period End (in millions)
(in thousands, except per unit amounts and unless otherwise indicated)
$2,362,211
439,432
418,562
98,226
2,653
98,676
3,419,760
52,399
3,367,361
$2,201,305
449,919
412,063
71,162
92,102
97,135
3,323,686
25,165
3,298,521
$1,933,471
479,875
384,405
46,939
93,353
99,859
3,037,902
9,123
3,028,779
$1,973,837
493,463
427,156
24,872
3,551
101,169
3,024,048
3,321
3,020,727
$1,958,250
482,538
444,970
22,322
(9,076)
108,788
3,007,792
2,426
3,005,366
1,378,811
1,313,469
1,229,721
1,267,926
1,265,664
427,186
21,343
222,630
448,996
7,160
(2,219)
10,359
27,781
2,542,047
825,314
45,816
779,498
21,910
$ 757,588
411,467
31,886
213,275
481,488
36,669
267
8,194
27,896
2,524,611
773,910
53,110
720,800
58,397
$ 662,403
363,603
41,066
216,542
384,425
49,145
232,023
404,213
41,508
233,417
426,147
17,704
(20,245)
4,765
26,311
2,305,614
723,165
28,319
694,846
21,488
$ 673,358
431,635
998
(5,441)
3,119
25,798
2,389,628
631,099
44,797
586,302
6,375
$ 579,927
426,960
52
(2,782)
2,797
24,916
2,396,745
608,621
44,304
564,317
456
$ 563,861
$
$
$
2.79
2.78
23.9%
2.96
$
$
$
2.46
2.45
21.7%
2.57
$
$
$
2.48
2.47
23.2%
2.15
$
$
$
2.11
2.10
20.7%
2.11
$
$
$
2.07
2.07
20.2%
2.08
$8,789,098
$ 546,267
$3,916,209
$ 516,353
$9,282,734
$ 565,745
$4,063,304
$ 554,491
$8,741,158
$ 512,970
$4,068,189
$ 480,201
$7,433,721
$ 581,700
$4,017,221
$ 467,440
$7,375,621
$ 486,156
$4,084,840
$ 474,027
(1) Certain prior-year amounts have been reclassified to conform to our 2018 presentation; see Note 2 to AB’s financial statements in Item 8 for a discussion of
reclassifications.
(2) Operating income excluding net income (loss) attributable to non-controlling interests as a percentage of net revenues.
(3) Cash distributions per AB unit reflect the impact of AB’s non-GAAP adjustments.
34
AB
Item 7.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Percentage change figures are calculated using assets under management rounded to the nearest million and financial statement amounts rounded to
the nearest thousand.
Executive Overview
Our total assets under management (“AUM”) as of December 31, 2018 were $516.4 billion, down $38.1 billion, or 6.9%, during
2018. The decrease was driven by market depreciation of $30.0 billion and net outflows of $8.1 billion (primarily due to Institu-
tional outflows of $10.0 billion).
Institutional AUM decreased $23.0 billion, or 8.5%, to $246.3 billion during 2018, due to market depreciation of $13.2 billion and
net outflows of $10.0 billion. Gross sales increased $12.7 billion (of which $7.4 billion related to Customized Retirement Strategies
(“CRS”) fundings) from $13.4 billion in 2017 to $26.1 billion in 2018. Redemptions and terminations increased $18.6 billion (of
which $14.1 billion related to CRS redemptions) from $11.5 billion in 2017 to $30.1 billion in 2018.
Retail AUM decreased $12.1 billion, or 6.3%, to $180.8 billion during 2018, due to market depreciation of $12.3 billion and flat
net flows. Gross sales increased $0.4 billion from $53.8 billion in 2017 to $54.2 billion in 2018. Redemptions and terminations
increased $7.9 billion from $38.6 billion in 2017 to $46.5 billion in 2018.
Private Wealth Management AUM decreased $3.0 billion, or 3.2%, to $89.3 billion during 2018, due to market depreciation of
$4.5 billion, offset by net inflows of $1.9 billion. Gross sales increased $2.0 billion from $11.5 billion in 2017 to $13.5 billion in
2018. Redemptions and terminations increased $0.4 billion from $10.6 billion in 2017 to $11.0 billion in 2018.
Bernstein Research Services revenue decreased $10.5 million, or 2.3%, in 2018. The decrease was driven by a reduction in commis-
sion rates due to the unbundling of research services and a volume mix shift to lower fee electronic trading across all regions, parti-
ally offset by a weaker U.S. dollar.
Our 2018 net revenues of $3.4 billion increased $0.1 billion, or 2.1%, compared to the prior year’s net revenues of $3.3 billion.
The most significant contributors to the increase were higher base advisory fees of $137.5 million, higher performance-based fees of
$23.4 million and higher distribution revenues of $6.5 million, offset by lower investment gains revenue of $89.4 million and lower
Bernstein Research Services revenue of $10.5 million. Our operating expenses of $2.5 billion increased $17.4 million, or 0.7%,
compared to the prior year’s expenses. The increase primarily was due to higher employee compensation and benefits of
$65.3 million and higher promotion and servicing expenses of $14.5 million, offset by lower general and administrative expenses
(excluding real estate charges) of $32.5 million and lower real estate charges of $29.5 million. Our operating income increased
$51.4 million, or 6.6%, to $825.3 million from $773.9 million in 2017 and our operating margin increased from 21.7% in 2017 to
23.9% in 2018.
Market Environment
Global equity markets finished lower in 2018, the result of a fourth quarter sell-off driven by investor concerns over rising U.S.
interest rates, a slowdown in European business confidence, weaker Chinese growth and rising geopolitical uncertainty, including
Brexit implementation and ongoing trade tensions between the U.S. and China. Global fixed income markets were mixed for the
year, with higher returns for less-risky government bonds and negative credit market returns. In the U.S., while tax cuts enacted at
the end of 2017 helped spur growth and corporate earnings in 2018, the benefit may not continue throughout 2019, and investors
are focused on the length of the economic cycle. The U.S. Federal Reserve announced its fourth interest rate increase in
December, as expected, but revised its guidance on the number of rate hikes in 2019 from three to two. Oil prices fell sharply in
the fourth quarter which, when combined with higher U.S. interest rates and slowing growth, could be problematic for some
emerging markets. In Europe, the Central Bank ended its quantitative easing program in December despite the slowdown in
growth, and ongoing uncertainty around Brexit negotiations weighed on business and consumer confidence in the United King-
dom. In China, monetary policy is easing in response to slowing growth and U.S. trade tariff headwinds.
Annual Report 2018
35
While the weak and volatile market environment in 2018 provided ample opportunities for stock selection, it was another challeng-
ing year for active equity fund managers. Only 42% of active managers beat their benchmarks for the full year, with varied results
among growth, value and core managers. Despite the more volatile markets, demand for passive strategies persisted, albeit at a
slower pace, and active managers struggled to attract net new assets. In the U.S., total industry-wide active mutual fund inflows of
$67 billion in 2017 reversed to net outflows of $302 billion in 2018. Active equity U.S. mutual fund outflows of $259 billion in
2018 increased by 33% year-over-year as the pace of outflows accelerated in the fourth quarter, particularly in December. After
$221 billion of active fixed income U.S. mutual fund inflows in 2017, flows slowed dramatically in 2018 to $13 billion. Meanwhile,
total industry-wide passive mutual fund inflows of $451 billion were down 35% from last year’s record $692 billion.
MiFID II
In Europe, MiFID II, which became effective on January 3, 2018, makes significant modifications to the manner in which Euro-
pean broker-dealers can be compensated for research. These modifications have reduced, and are believed to have significantly
reduced, the overall research spend by European buy-side firms, which has decreased the revenues we derive from our European
clients. Our European clients may continue to reduce their research budgets, which could result in a significant decline in our sell-
side revenues.
Also, while MiFID II is not applicable to firms operating outside of Europe, competitive and client pressures may force buy-side
firms operating outside of Europe to pay for research from their own resources instead of through bundled trading commissions. If
that occurs, we would expect that research budgets from those clients will decrease further, which could result in an additional sig-
nificant decline in our sell-side revenues. Additionally, these competitive and client pressures may result in our buy-side operation
paying for research out of our own resources instead of through bundled trading commissions, which could increase our firm’s
expenses and decrease our operating income.
The ultimate impact of MiFID II on payments for research globally currently is uncertain.
AXA Equitable Holdings IPO
During 2017, AXA S.A. (“AXA”) announced its intention to pursue the sale of a minority stake in AXA Equitable Holdings, Inc.
(“EQH”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). During
the second quarter of 2018, EQH completed the IPO and, during the fourth quarter completed a secondary offering. As a result,
AXA owns 59.2% of the outstanding common stock of EQH as of December 31, 2018. EQH and its subsidiaries have an approx-
imate 65.2% economic interest in AB as of December 31, 2018. AXA has announced its intention to sell its entire remaining inter-
est in EQH over time, subject to market conditions and other factors. AXA is under no obligation to do so and retains the sole
discretion to determine the timing of any future sales of shares of EQH common stock.
While to date we have not experienced adverse effects from the IPO and we cannot at this time predict the eventual impact, if any,
on AB of this transaction, such impact could include a reduction in the support AXA has provided to AB in the past with respect to
AB’s investment management business, resulting in a decrease in our revenues and ability to initiate new investment services. Also,
AB relies on AXA, including its subsidiary AXA Business Services, for a number of significant services and AB benefits from its
affiliation with AXA in certain common vendor relationships. Some of these arrangements are expected to change with possible
negative financial implications for AB.
By letter dated March 31, 2018, AXA advised us of their current intention to continue using AB for the foreseeable future as a pre-
ferred provider of asset management services and to continue making commercial and seed investments that suit AXA from an
investment perspective, in each case (i) consistent with past practice, (ii) subject to investment performance/returns and (iii) subject
to applicable fiduciary duties.
Relocation Strategy
On May 2, 2018, we announced that we would establish our corporate headquarters in, and relocate approximately 1,050 jobs
located in the New York metro area to, Nashville, TN. Our Nashville headquarters will house Finance, IT, Operations, Legal,
Compliance, Internal Audit, Human Capital, and Sales and Marketing. We have begun relocating jobs and expect this transition to
take several years. We will continue to maintain a principal location in New York City, which will house our Portfolio Manage-
ment, Sell-Side Research and Trading, and New York-based Private Wealth Management businesses.
36
AB
We believe relocating our corporate headquarters to Nashville will afford us the opportunity to provide an improved quality of life
alternative for our employees and enable us to attract and recruit new talented employees to a highly desirable location while
improving the long-term cost structure of the firm.
During the transition period, which began in 2018 and is expected to continue through 2024, we currently estimate that we will
incur transition costs of approximately $155 million to $165 million. These costs include employee relocation, severance, recruit-
ment, and overlapping compensation and occupancy costs. Over this same period, we expect to realize total expense savings of
approximately $190 million to $200 million, an amount greater than the total transition costs. However, we will incur some tran-
sition costs before we begin to realize expense savings. We incurred $10 million of transition costs in 2018. We currently anticipate
that the largest reduction in net income per unit (“EPU”) during the transition period will be approximately $0.07 in 2019. We
expect to achieve a slight increase in EPU in 2021 and then achieve EPU accretion in each year thereafter. Beginning in 2025, once
the transition period has been completed, we estimate ongoing annual expense savings of approximately $70 to $75 million, which
will result from a combination of occupancy and compensation-related savings. Our estimates for both the transition costs and the
corresponding expense savings are based upon our current assumptions of employee relocation costs, severance and overlapping
compensation and occupancy costs. In addition, our estimates for both the timing of when we incur transition costs and realize the
related expense savings is based on our current relocation implementation plan and the timing for execution of each phase. The
actual total charges we eventually record, the related expense savings we realize and timing of EPU impact are expected to differ
from our current estimates as we implement each phase of our headquarters relocation.
During October 2018, we signed a lease, which commences in mid-2020, relating to 205,000 square feet of space at our new
Nashville headquarters. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 15-year
initial lease term is approximately $125 million.
Although we have presented our transition costs and annual expense savings with numerical specificity, and we believe these targets
to be reasonable as of the date of this report, the uncertainties surrounding the assumptions we discuss above create a significant risk
that these targets may not be achieved. Accordingly, the expenses we actually incur and the savings we actually realize may differ
from our targets, particularly if actual events adversely differ from one or more of our key assumptions. The transition costs and
expense savings, together with their underlying assumptions, are Forward-Looking Statements and can be affected by any of the
factors discussed in “Risk Factors” and “Cautions Regarding Forward-Looking Statements” in this 10-K. We strongly caution
investors not to place undue reliance on any of these assumptions or our cost and expenses targets. Except as may be required by
applicable securities laws, we are not under any obligation, and we expressly disclaim any obligation, to update or alter any assump-
tions, estimates, financial goals, targets, projections or other related statements that we may make.
Adjusted Operating Margin Target
We previously adopted a goal of increasing our adjusted operating margin to a target of 30% by 2020 (the “2020 Margin Target”),
subject to the assumptions, factors and contingencies described as part of the initial disclosure of this target. Our adjusted operating
margin during 2018 was 29.1%.
Significant declines in the equity and certain fixed income markets during the fourth quarter of 2018, most notably in December
2018, reduced our AUM by $34.0 billion, or 6.2%, during the fourth quarter to $516.4 billion from $550.4 billion at the end of the
third quarter of 2018. Given the impact we expect this lower AUM will have on our ability to generate the level of investment
advisory fee revenues we initially forecast when establishing the 2020 Margin Target, presently we do not believe that achieving the
2020 Margin Target is likely. However, we are taking additional actions to better align our expenses with these lower AUM and
expected revenues. We remain committed to achieving an adjusted operating margin of 30% in years subsequent to 2020 and will
take continued actions in this regard, subject to prevailing market conditions and the evolution of our business mix.
AB Holding
AB Holding’s principal source of income and cash flow is attributable to its investment in AB Units. The AB Holding financial
statements and notes and management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be
read in conjunction with those of AB.
Annual Report 2018
37
Results of Operations
Net income attributable to AB Unitholders
Weighted average equity ownership interest
Equity in net income attributable to AB Unitholders
Income taxes
Net income of AB Holding
Diluted net income per AB Holding Unit
Distributions per AB Holding Unit (1)
Years Ended December 31,
2017
2018
2016
% Change
2018-17
2017-16
(in thousands, except per unit amounts)
$757,588
$662,403
$673,358
14.4%
(1.6)%
35.7%
35.1%
35.6%
$270,647
28,250
$242,397
$
$
2.50
2.68
$232,393
24,971
$207,422
$
$
2.19
2.30
$239,389
22,803
$216,586
$
$
2.23
1.92
16.5
13.1
16.9
14.2
16.5
(2.9)
9.5
(4.2)
(1.8)
19.8
(1) Distributions reflect the impact of AB’s non-GAAP adjustments.
AB Holding had net income of $242.4 million in 2018 compared to $207.4 million in 2017, reflecting higher net income attribut-
able to AB Unitholders and higher weighted average equity ownership interest. AB Holding had net income of $207.4 million in
2017 as compared to $216.6 million in 2016. The decrease reflected lower net income attributable to AB Unitholders and lower
weighted average equity ownership interest.
AB Holding’s partnership gross income is derived from its interest in AB. AB Holding’s income taxes, which reflect a 3.5% federal
tax on its partnership gross income from the active conduct of a trade or business, are computed by multiplying certain AB qualify-
ing revenues (primarily U.S. investment advisory fees and brokerage commissions) by AB Holding’s ownership interest in AB,
multiplied by the 3.5% tax rate. AB Holding’s effective tax rate was 10.4% in 2018, 10.7% in 2017 and 9.5% in 2016. See Note 6 to
AB Holding’s financial statements in Item 8 for a further description.
As supplemental information, AB provides the performance measures “adjusted net revenues,” “adjusted operating income” and
“adjusted operating margin,” which are the principal metrics management uses in evaluating and comparing the period-to-period
operating performance of AB. Management principally uses these metrics in evaluating performance because they present a clearer
picture of AB’s operating performance and allow management to see long-term trends without the distortion primarily caused by
long-term incentive compensation-related mark-to-market adjustments, real estate consolidation charges and other adjustment
items. Similarly, management believes that these management operating metrics help investors better understand the underlying
trends in AB’s results and, accordingly, provide a valuable perspective for investors. Such measures are not based on generally
accepted accounting principles (“non-GAAP measures”). These non-GAAP measures are provided in addition to, and not as sub-
stitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures pre-
sented by other companies. Management uses both GAAP and non-GAAP measures in evaluating the company’s financial
performance. The non-GAAP measures alone may pose limitations because they do not include all of AB’s revenues and expenses.
Further, adjusted diluted net income per AB Holding Unit is not a liquidity measure and should not be used in place of cash flow
measures. See “Management Operating Metrics” in this Item 7.
38
AB
The impact of these adjustments on AB Holding’s net income and diluted net income per AB Holding Unit are as follows:
AB non-GAAP adjustments, before taxes
Income tax (expense) benefit on non-GAAP adjustments
Income tax credit on AB’s income tax provision
AB non-GAAP adjustments, after taxes
AB Holding’s weighted average equity ownership interest in AB
Impact on AB Holding’s net income of AB non-GAAP adjustments
Net income—diluted, GAAP basis
Impact on AB Holding’s net income of AB non-GAAP adjustments
Adjusted net income—diluted
Diluted net income per AB Holding Unit, GAAP basis
Impact of AB non-GAAP adjustments
Adjusted diluted net income per AB Holding Unit
Years Ended December 31,
2017
2016
2018
(in thousands, except per unit amounts)
$ 48,655
$ 34,605
$ (77,275)
(1,473)
—
47,182
(3,599)
—
31,006
5,332
(21,572)
(93,515)
35.7%
35.1%
35.6%
$ 16,856
$242,844
16,856
$259,700
$
$
2.50
0.17
2.67
$ 10,877
$208,102
10,877
$218,979
$
$
2.19
0.11
2.30
$(33,246)
$217,464
(33,246)
$184,218
$
$
2.23
(0.34)
1.89
The degree to which AB’s non-GAAP adjustments impact AB Holding’s net income fluctuates based on AB Holding’s ownership
percentage in AB. The 2016 income tax credit on AB’s income tax provision reflects a fourth quarter 2016 change in estimate made
by AB to its income tax liability relating to a third quarter 2016 revision to income taxes ($13.3 million) and a reversal of a deferred
tax liability relating to foreign translation adjustments ($8.2 million).
Tax Legislation
For a discussion of tax legislation, see “Risk Factors—Structure-related Risks” in Item 1A.
Capital Resources and Liquidity
During the year ended December 31, 2018, net cash provided by operating activities was $279.3 million, compared to
$202.4 million during the corresponding 2017 period. The increase primarily resulted from higher cash distributions received from
AB of $81.2 million. During the year ended December 31, 2017, net cash provided by operating activities was $202.4 million,
compared to $169.5 million during the corresponding 2016 period. The increase primarily resulted from higher cash distributions
received from AB of $34.9 million.
During the years ended December 31, 2018, 2017 and 2016, net cash used in investing activities was $16.6 million, $20.1 million
and $6.1 million, respectively, reflecting investments in AB with proceeds from exercises of compensatory options to buy AB Hold-
ing Units.
During the year ended December 31, 2018, net cash used in financing activities was $262.7 million, compared to $182.3 million
during the corresponding 2017 period. The increase primarily was due to higher cash distributions to Unitholders of $78.3 million
and lower proceeds from exercise of compensatory options to buy AB Holding Units of $3.5 million. During the year ended
December 31, 2017, net cash used in financing activities was $182.3 million, compared to $163.4 million during the corresponding
2016 period. The increase primarily was due to higher cash distributions to Unitholders of $32.7 million, offset by higher proceeds
from exercise of compensatory options to buy AB Holding Units of $14.0 million.
Management believes that AB Holding will have the resources it needs to meet its financial obligations as a result of the cash flow
AB Holding realizes from its investment in AB.
Annual Report 2018
39
Cash Distributions
AB Holding is required to distribute all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement, to its
Unitholders (including the General Partner). Available Cash Flow typically is the adjusted diluted net income per unit for the quar-
ter multiplied by the number of units outstanding at the end of the quarter. Management anticipates that Available Cash Flow will
continue to be based on adjusted diluted net income per unit, unless management determines, with concurrence of the Board of
Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available
Cash Flow calculation. See Note 2 to AB Holding’s financial statements in Item 8 for a description of Available Cash Flow.
Commitments and Contingencies
For a discussion of commitments and contingencies, see Note 7 to AB Holding’s financial statements in Item 8.
AB
Assets Under Management
Assets under management by distribution channel are as follows:
Institutions
Retail
Private Wealth Management
Total
Assets under management by investment service are as follows:
Equity
Actively Managed
Passively Managed(1)
Total Equity
Fixed Income
Actively Managed
Taxable
Tax-exempt
Passively Managed(1)
Total Fixed Income
Other(2)
Actively Managed
Passively Managed(1)
Total Other
Total
As of December 31,
2017
2018
(in billions)
2016
2018-17
2017-16
% Change
$ 246.3
180.8
89.3
$516.4
$ 269.3
192.9
92.3
$554.5
$ 239.3
160.2
80.7
$480.2
(8.5)%
(6.3)
(3.2)
(6.9)
12.5%
20.5
14.2
15.5
As of December 31,
2017
2018
(in billions)
2016
2018-17
2017-16
% Change
$ 136.2
50.2
186.4
$ 139.4
54.3
193.7
$ 111.9
48.1
160.0
(2.3)%
(7.6)
(3.8)
24.6%
13.0
21.1
219.7
41.7
261.4
9.4
270.8
58.3
0.9
59.2
$516.4
247.9
40.4
288.3
9.9
298.2
61.9
0.7
62.6
$554.5
220.9
36.9
257.8
11.1
268.9
50.8
0.5
51.3
$480.2
(11.4)
3.0
(9.4)
(4.8)
(9.2)
(5.8)
39.7
(5.3)
(6.9)
12.2
9.5
11.8
(10.4)
10.9
21.7
37.0
21.8
15.5
Includes index and enhanced index services.
Includes certain multi-asset solutions and services and certain alternative investments.
(1)
(2)
40
AB
Changes in assets under management during 2018 and 2017 are as follows:
Balance as of December 31, 2017
Long-term flows:
Sales/new accounts
Redemptions/terminations
Cash flow/unreinvested dividends
Net long-term (outflows) inflows
Transfers
Market depreciation
Net change
Balance as of December 31, 2018
Balance as of December 31, 2016
Long-term flows:
Sales/new accounts
Redemptions/terminations
Cash flow/unreinvested dividends
Net long-term inflows
Market appreciation
Net change
Balance as of December 31, 2017
Distribution Channel
Institutions
Retail
Private
Wealth
Management
Total
(in billions)
$ 269.3
$ 192.9
$ 92.3
$ 554.5
26.1
(30.1)
(6.0)
(10.0)
0.2
(13.2)
(23.0)
54.2
(46.5)
(7.7)
—
0.2
(12.3)
(12.1)
13.5
(11.0)
(0.6)
1.9
(0.4)
(4.5)
(3.0)
93.8
(87.6)
(14.3)
(8.1)
—
(30.0)
(38.1)
$246.3
$180.8
$ 89.3
$516.4
$ 239.3
$ 160.2
$ 80.7
$ 480.2
13.4
(11.5)
1.7
3.6
26.4
30.0
53.8
(38.6)
(6.3)
8.9
23.8
32.7
11.5
(10.6)
(0.2)
0.7
10.9
11.6
78.7
(60.7)
(4.8)
13.2
61.1
74.3
$269.3
$192.9
$ 92.3
$554.5
Annual Report 2018
41
Equity
Actively
Managed
Equity
Passively
Managed(1)
Investment Service
Fixed
Income
Actively
Managed
- Taxable
Fixed
Income
Actively
Managed -
Tax-
Exempt
(in billions)
Fixed
Income
Passively
Managed(1)
Other(2)
Total
Balance as of December 31, 2017
$ 139.4
$ 54.3
$ 247.9
$ 40.4
$ 9.9
$ 62.6
$ 554.5
Long-term flows:
Sales/new accounts
Redemptions/terminations
Cash flow/unreinvested dividends
Net long-term inflows (outflows)
Market (depreciation) appreciation
Net change
36.7
(22.2)
(3.7)
10.8
(14.0)
(3.2)
4.0
(0.6)
(3.6)
(0.2)
(3.9)
(4.1)
27.6
(40.8)
(6.2)
(19.4)
(8.8)
(28.2)
7.9
(6.7)
(0.4)
0.8
0.5
1.3
0.1
(0.6)
0.2
(0.3)
(0.2)
(0.5)
17.5
(16.7)
(0.6)
0.2
(3.6)
(3.4)
93.8
(87.6)
(14.3)
(8.1)
(30.0)
(38.1)
Balance as of December 31, 2018
$136.2
$50.2
$219.7
$41.7
$ 9.4
$ 59.2
$516.4
Balance as of December 31, 2016
$ 111.9
$ 48.1
$ 220.9
$ 36.9
$11.1
$ 51.3
$ 480.2
Long-term flows:
Sales/new accounts
Redemptions/terminations
Cash flow/unreinvested dividends
Net long-term inflows (outflows)
Market appreciation
Net change
Balance as of December 31, 2017
21.9
(19.0)
(2.1)
0.8
26.7
27.5
$139.4
1.1
(1.4)
(4.0)
(4.3)
10.5
6.2
$54.3
41.1
(29.8)
1.5
12.8
14.2
27.0
7.9
(5.9)
(0.1)
1.9
1.6
3.5
0.1
(1.8)
—
(1.7)
0.5
(1.2)
$247.9
$40.4
$ 9.9
6.6
(2.8)
(0.1)
3.7
7.6
11.3
$ 62.6
78.7
(60.7)
(4.8)
13.2
61.1
74.3
$554.5
(1)
Includes index and enhanced index services.
(2)
Includes certain multi-asset solutions and services and certain alternative investments.
Net long-term inflows (outflows) for actively managed investment services as compared to passively managed investment services
during 2018 and 2017 are as follows:
Actively Managed
Equity
Fixed Income
Other
Passively Managed
Equity
Fixed Income
Other
Years Ended December 31,
2018
2017
(in billions)
$ 10.8
(18.6)
(0.1)
(7.9)
(0.2)
(0.3)
0.3
(0.2)
$ 0.8
14.7
3.6
19.1
(4.3)
(1.7)
0.1
(5.9)
Total net long-term (outflows) inflows
$ (8.1)
$13.2
42
AB
Average assets under management by distribution channel and investment service are as follows:
Years Ended December 31,
2017
2018
2016
% Change
2018-17
2017-16
DistributionChannel:
Institutions
Retail
Private Wealth Management
Total
InvestmentService:
Equity Actively Managed
Equity Passively Managed(1)
Fixed Income Actively Managed—Taxable
Fixed Income Actively Managed—Tax-exempt
Fixed Income Passively Managed(1)
Other(2)
Total
(in billions)
$ 258.1
$ 253.8
$ 243.4
1.7%
4.3%
191.8
94.3
177.5
86.7
157.7
78.9
$544.2
$518.0
$480.0
$ 146.4
53.8
230.3
41.3
9.8
62.6
$ 125.6
50.8
236.3
38.8
10.3
56.2
$ 109.4
46.5
221.5
36.3
11.0
55.3
$544.2
$518.0
$480.0
8.1
8.8
5.1
16.6
5.9
(2.5)
6.4
(4.3)
11.3
5.1
12.6
9.8
7.9
14.8
9.3
6.6
7.0
(6.4)
1.7
7.9
(1)
Includes index and enhanced index services.
(2)
Includes certain multi-asset solutions and services and certain alternative investments.
As a result of the significant market declines in the fourth quarter of 2018, AUM as of December 31, 2018 is lower than AUM as of
December 31, 2017 in all three distribution channels; however, average AUM during 2018 is higher than average AUM during
2017 in all three distribution channels, reflecting our strong performance through the first nine months of 2018.
During 2018, our Institutional channel average AUM of $258.1 billion increased $4.3 billion, or 1.7%, compared to 2017; however,
our Institutional channel AUM decreased $23.0 billion, or 8.5%, to $246.3 billion over the last twelve months. The $23.0 billion
decrease in AUM resulted from market depreciation of $13.2 billion (with $11.6 million of the deprecation occurring in the fourth
quarter of 2018) and net outflows of $10.0 billion. During 2017, our Institutional channel average AUM of $253.8 billion increased
$10.4 billion, or 4.3%, compared to 2016, primarily due to our Institutional AUM increasing $30.0 billion, or 12.5%, to
$269.3 billion during 2017. The $30.0 billion increase in AUM primarily resulted from market appreciation of $26.4 billion and net
inflows of $3.6 billion.
During 2018, our Retail channel average AUM of $191.8 billion increased $14.3 billion, or 8.1%, compared to 2017; however, our
Retail channel AUM decreased $12.1 billion, or 6.3%, to $180.8 billion over the last twelve months. The $12.1 billion decrease in
AUM resulted primarily from market depreciation of $12.3 billion (with $16.4 million of the deprecation occurring in the fourth
quarter of 2018). During 2017, our Retail average AUM of $177.5 billion increased $19.8 billion, or 12.6%, compared to 2016,
primarily due to our Retail channel AUM increasing $32.7 billion, or 20.5%, to $192.9 billion during 2017. The $32.7 billion
increase in AUM for 2017 resulted from market appreciation of $23.8 billion and net inflows of $8.9 billion.
During 2018, our Private Wealth Management channel average AUM of $94.3 billion increased $7.6 billion, or 8.8%, compared to
2017; however, Private Wealth Management AUM decreased $3.0 billion, or 3.2%, to $89.3 billion over the last twelve months.
The $3.0 billion decrease in AUM resulted from market depreciation of $4.5 billion (with $6.8 million of the deprecation occurring
in the fourth quarter of 2018), offset by net inflows of $1.9 billion. During 2017, our Private Wealth Management channel average
AUM of $86.7 billion increased $7.8 billion, or 9.8%, compared to 2016, primarily due to our Private Wealth Management AUM
increasing $11.6 billion, or 14.2%, to $92.3 billion during 2017. The $11.6 billion increase in AUM for 2017 resulted from market
appreciation of $10.9 billion and net inflows of $0.7 billion.
Annual Report 2018
43
Absolute investment composite returns, gross of fees, and relative performance as of December 31, 2018 compared to benchmarks
for certain representative Institutional equity and fixed income services are as follows:
1-Year
3-Year
5-Year
Global High Income—Hedged (fixed income)
Absolute return
Relative return (vs. Bloomberg Barclays Global High Yield Index—Hedged)
U.S. High Yield (fixed income)
Absolute return
Relative return (vs. Bloomberg Barclays U.S. Corp. High Yield Index)
Global Plus—Hedged (fixed income)
Absolute return
Relative return (vs. Bloomberg Barclays Global Aggregate Index—Hedged)
Intermediate Municipal Bonds (fixed income)
Absolute return
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg)
U.S. Strategic Core Plus (fixed income)
Absolute return
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index)
Emerging Market Debt (fixed income)
Absolute return
Relative return (vs. JPM EMBI Global/JPM EMBI)
Emerging Markets Value
Absolute return
Relative return (vs. MSCI EM Index)
Global Strategic Value
Absolute return
Relative return (vs. MSCI ACWI Index)
U.S. Small & Mid Cap Value
Absolute return
Relative return (vs. Russell 2500 Value Index)
U.S. Strategic Value
Absolute return
Relative return (vs. Russell 1000 Value Index)
U.S. Small Cap Growth
Absolute return
Relative return (vs. Russell 2000 Growth Index)
U.S. Large Cap Growth
Absolute return
Relative return (vs. Russell 1000 Growth Index)
U.S. Small & Mid Cap Growth
Absolute return
Relative return (vs. Russell 2500 Growth Index)
Concentrated U.S. Growth
Absolute return
Relative return (vs. S&P 500 Index)
Select U.S. Equity
Absolute return
Relative return (vs. S&P 500 Index)
Strategic Equities
Absolute return
Relative return (vs. Russell 3000 Index)
Global Core Equity
Absolute return
Relative return (vs. MSCI ACWI Index)
(4.0)%
(1.3)
(2.8)
(0.7)
1.4
(0.4)
1.4
0.4
0.2
0.2
(6.1)
(1.5)
(17.8)
(3.2)
(18.5)
(9.1)
(14.3)
(2.0)
(13.8)
(5.5)
0.1
9.4
2.8
4.3
(3.6)
3.9
2.2
6.6
(4.1)
0.3
(4.2)
1.1
(4.4)
5.1
6.8%
(0.0)
6.5
(0.8)
4.0%
(0.4)
3.7
(0.1)
3.7
0.7
1.8
0.5
3.1
1.0
5.9
1.1
7.2
(2.0)
3.0
(3.6)
7.2
0.6
3.5
(3.5)
13.6
6.4
12.3
1.2
10.8
2.7
10.8
1.6
9.3
(0.0)
8.3
(0.7)
9.6
3.0
4.0
0.5
2.5
0.7
3.4
0.9
4.1
(0.0)
1.0
(0.7)
2.5
(1.8)
5.2
1.1
3.1
(2.8)
7.8
2.7
12.8
2.4
7.2
1.0
9.7
1.2
8.8
0.3
8.3
0.4
5.7
1.4
44
AB
Consolidated Results of Operations
Net revenues
Expenses
Operating income
Income taxes
Net income
Net income of consolidated entities attributable to non-controlling interests
Net income attributable to AB Unitholders
Diluted net income per AB Unit
Distributions per AB Unit
Operating margin(1)
Years Ended December 31,
2017
2018
2016
2018-17
2017-16
% Change
(in thousands, except per unit amounts)
$3,367,361
2,542,047
$3,298,521
2,524,611
$3,028,779
2,305,614
825,314
45,816
779,498
21,910
773,910
53,110
720,800
58,397
723,165
28,319
694,846
21,488
$ 757,588
$ 662,403
$ 673,358
$
$
2.78
2.96
23.9%
$
$
2.45
2.57
21.7%
$
$
2.47
2.15
23.2%
2.1%
0.7
6.6
(13.7)
8.1
(62.5)
14.4
13.5
15.2
8.9%
9.5
7.0
87.5
3.7
171.8
(1.6)
(0.8)
19.5
(1) Operating income excluding net income (loss) attributable to non-controlling interests as a percentage of net revenues.
Net income attributable to AB Unitholders for the year ended December 31, 2018 increased $95.2 million from the year ended
December 31, 2017. The increase primarily is due to (in millions):
Higher base advisory fees
Lower general and administrative expenses (including real estate charges)
Lower net income of consolidated entities attributable to non-controlling interest
Higher performance-based fees
Lower income tax expenses
Higher distribution revenues
Changes in contingent payment arrangements
Lower investment gains
Higher employee compensation and benefits
Higher promotion and servicing expenses
Lower Bernstein Research Services revenue
Other
$137.5
62.0
36.5
23.4
7.3
6.5
2.5
(89.4)
(65.3)
(14.5)
(10.5)
(0.8)
$ 95.2
Net income attributable to AB Unitholders for the year ended December 31, 2017 decreased $11.0 million from the year ended
December 31, 2016. The decrease primarily was due to (in millions):
Higher employee compensation and benefits
Higher other general and administrative expenses
Higher net income of consolidated entities attributable to non-controlling interest
Higher promotion and servicing expenses
Lower Bernstein Research Services revenue
Higher income tax expenses
Lower adjustments to contingent payment arrangements
Higher real estate charges
Higher base advisory fees
Higher performance-based fees
Higher distribution revenues
Annual Report 2018
$ (83.7)
(55.3)
(36.9)
(35.4)
(30.0)
(24.8)
(20.5)
(19.0)
204.9
62.0
27.7
$ (11.0)
45
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606,
Revenue from Contracts with Customers, which outlines a single comprehensive revenue recognition model for all contracts with cus-
tomers and supersedes most of the existing revenue recognition requirements. We adopted this new standard on January 1, 2018 on
a modified retrospective basis for contracts that were not completed as of the date of adoption. This adoption method required an
adjustment to the 2018 opening balance of partners’ capital for the cumulative effect of initially applying the new standard.
The new standard did not change the timing of revenue recognition for our base fees, distribution revenues, shareholder servicing
fees and broker-dealer revenues. However, performance-based fees, which, prior to the adoption of ASC 606, were recognized at
the end of the applicable measurement period when no risk of reversal remained, and carried-interest distributions received
(considered performance-based fees), recorded as deferred revenues until no risk of reversal remained, are recognized earlier under
the new standard, if it is probable that significant reversal of performance-based fees recognized will not occur.
On January 1, 2018, we recorded a cumulative effect adjustment, net of tax, of $35.0 million to partners’ capital in the condensed
consolidated statement of financial condition. This amount represents carried interest distributions of $77.9 million previously
received, net of revenue sharing payments to investment team members of $42.7 million, with respect to which it is probable that
significant reversal will not occur. These amounts were included in adjusted net revenues and adjusted operating income in the first
quarter of 2018. During 2018, we recognized $12.9 million of performance-based fees from a fund in liquidation that was not
probable of significant reversal, that under the previous revenue accounting standard would not be recognized until final liquidation.
Real Estate Charges
Since 2010, we have sub-leased over one million square feet of office space.
During 2016, we recorded pre-tax real estate charges of $17.7 million, resulting from new charges of $22.8 million relating to the
further consolidation of office space at our New York offices, offset by changes in estimates related to previously recorded real estate
charges of $5.1 million, which reflected the shortening of the lease term of our New York City location from 2029 to 2024.
During 2017, we recorded pre-tax real estate charges of $36.7 million, resulting from new charges of $40.2 million primarily relat-
ing to the further consolidation of office space at our New York offices, offset by changes in estimates pertaining to previously
recorded real estate charges of $3.5 million.
During the 2018, we recorded pre-tax real estate charges of $7.2 million, resulting from changes in estimates pertaining to pre-
viously recorded real estate charges.
Units Outstanding
Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18
under the Securities Exchange Act of 1934, as amended (“Exchange Act”). A plan of this type allows a company to repurchase its
shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it
possesses material non-public information. Each broker we select has the authority under the terms and limitations specified in the
plan to repurchase AB Holding Units on our behalf in accordance with the terms of the plan. Repurchases are subject to regulations
promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted
during the fourth quarter of 2018 expired at the close of business on February 12, 2019. We may adopt additional plans in the
future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive
compensation award program and for other corporate purposes.
46
AB
Cash Distributions
We are required to distribute all of our Available Cash Flow, as defined in the AB Partnership Agreement, to our Unitholders and
the General Partner. Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the
number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Avail-
able Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines, with con-
currence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with
respect to the Available Cash Flow calculation. See Note 2 to our consolidated financial statements contained in Item 8 for a description of
Available Cash Flow.
Management Operating Metrics
We are providing the non-GAAP measures “adjusted net revenues,” “adjusted operating income” and “adjusted operating margin”
because they are the principal operating metrics management uses in evaluating and comparing period-to-period operating
performance. Management principally uses these metrics in evaluating performance because they present a clearer picture of our
operating performance and allow management to see long-term trends without the distortion primarily caused by long-term
incentive compensation-related mark-to-market adjustments, real estate consolidation charges and other adjustment items. Similarly,
we believe that these management operating metrics help investors better understand the underlying trends in our results and,
accordingly, provide a valuable perspective for investors.
These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating
margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both accounting
principles generally accepted in the United States of America (“US GAAP”) and non-GAAP measures in evaluating our financial
performance. The non-GAAP measures alone may pose limitations because they do not include all of our revenues and expenses.
Net revenues, US GAAP basis
Adjustments:
Impact of adoption of revenue recognition standard ASC 606
Distribution-related payments
Amortization of deferred sales commissions
Pass-through fees and expenses
Impact of consolidated company-sponsored funds
Loss (gain) on sale of software technology
Long-term incentive compensation-related investment losses (gains) and dividends and interest
Gain on sale of investment carried at cost
Other
Adjusted net revenues
Years Ended December 31,
2017
2018
2016
(in thousands)
$3,367,361
$3,298,521
$3,028,779
77,844
(427,186)
(21,343)
(40,219)
(38,142)
3,733
3,509
—
47
—
—
(411,467)
(363,603)
(31,886)
(40,531)
(87,255)
(4,592)
(9,891)
—
—
(41,066)
(43,808)
(24,889)
—
(2,822)
(75,273)
—
$2,925,604
$2,712,899
$2,477,318
Annual Report 2018
47
Operating income, US GAAP basis
Adjustments:
Impact of adoption of revenue recognition standard ASC 606
Real estate charges
Acquisition-related expenses
Loss (gain) on sale of software technology
Long-term incentive compensation-related items
Gain on sale of investment carried at cost
Contingent payment arrangements
Other
Sub-total of non-GAAP adjustments
Less: Net income of consolidated entities attributable to non-controlling interests
Adjusted operating income
Adjusted income taxes
Adjusted net income
Diluted net income per AB Unit, GAAP basis
Impact of non-GAAP adjustments
Adjusted diluted net income per AB Unit
Adjusted operating margin
Years Ended December 31,
2017
2018
2016
(in thousands)
$825,314
$773,910
$723,165
35,156
7,160
1,924
3,733
3,064
—
(2,429)
47
48,655
21,910
852,059
47,289
—
36,669
2,012
(4,592)
709
—
(193)
—
34,605
58,397
750,118
56,709
—
17,704
1,057
—
720
(75,273)
(21,483)
—
(77,275)
21,488
624,402
44,559
$804,770
$693,409
$579,843
$
$
2.78
0.18
2.96
$
$
2.45
0.12
2.57
29.1%
27.7%
$
$
2.47
(0.34)
2.13
25.2%
Adjusted operating income for the year ended December 31, 2018 increased $101.9 million, or 13.6%, from the year ended
December 31, 2017, primarily due to higher investment advisory base fees of $139.3 million, higher performance-based fees of
$90.7 million and lower general and administrative expenses of $19.1 million, offset by higher employee compensation expenses
(excluding the impact of long-term incentive compensation-related items) of $119.6 million, lower Bernstein Research Services
revenue of $10.5 million, lower investments gains and losses revenue of $9.5 million and higher promotion and servicing expenses
of $8.6 million. Adjusted operating income for the year ended December 31, 2017 increased $125.7 million, or 20.1%, from the
year ended December 31, 2016, primarily due to higher investment advisory base fees of $207.9 million and higher performance-
based fees of $72.4 million, offset by higher employee compensation expenses (excluding the impact of long-term incentive
compensation-related items) of $76.7 million, higher general and administrative expenses of $32.2 million, lower Bernstein
Research Services revenue of $30.0 million and higher net distribution expenses of $12.0 million.
On January 1, 2018, we recorded a cumulative effect adjustment, net of tax, of $35.0 million to partners’ capital in the condensed con-
solidated statement of financial condition. This amount represents carried interest distributions of $77.9 million previously received, net
of revenue sharing payments to investment team members, of $42.7 million, with respect to which it is probable that significant reversal
will not occur. These amounts were included in adjusted net revenues and adjusted operating income in the first quarter of 2018.
Adjusted Net Revenues
Adjusted net revenues offset distribution-related payments to third parties as well as amortization of deferred sales commissions
against distribution revenues. We believe offsetting net revenues by distribution-related payments is useful for our investors and
other users of our financial statements because such presentation appropriately reflects the nature of these costs as pass-through
payments to third parties who perform functions on behalf of our sponsored mutual funds and/or shareholders of these funds. We
offset amortization of deferred sales commissions against net revenues because such costs, over time, essentially offset our distribution
revenues. We also exclude additional pass-through expenses we incur (primarily through our transfer agency) that are reimbursed
and recorded as fees in revenues. These fees do not affect operating income, but they do affect our operating margin. As such, we
exclude these fees from adjusted net revenues.
48
AB
We adjust for the revenue impact of consolidating company-sponsored investment funds by eliminating the consolidated company-
sponsored investment funds’ revenues and including AB’s fees from such consolidated company-sponsored investment funds and
AB’s investment gains and losses on its investments in such consolidated company-sponsored investment funds that were eliminated
in consolidation.
Adjusted net revenues exclude investment gains and losses and dividends and interest on employee long-term incentive
compensation-related investments.
Adjusted net revenues include the impact of adoption of revenue recognition standard ASC 606, discussed above.
During 2017, we excluded a realized gain of $4.6 million on the exchange of software technology for an ownership stake in a third
party provider of financial market data and trading tools. During 2018, we decreased our valuation of this investment by
$3.7 million.
In 2016, we excluded a realized gain of $75.3 million resulting from the liquidation of an investment in Jasper Wireless Tech-
nologies, Inc. (“Jasper”), which was acquired by Cisco Systems, Inc., because these transactions are not part of our core operating
results.
Adjusted Operating Income
Adjusted operating income represents operating income on a US GAAP basis excluding (1) real estate charges (credits), (2) acquisition-
related expenses, (3) the impact on net revenues and compensation expense of the investment gains and losses (as well as the dividends
and interest) associated with employee long-term incentive compensation-related investments, (4) the impact of consolidated company-
sponsored investment funds, (5) loss (gain) on software technology investment, (6) adjustments to contingent payment arrangements,
and (7) the impact of revenues and expenses associated with the implementation of ASC 606 discussed above.
Real estate charges (credits) have been excluded because they are not considered part of our core operating results when comparing
financial results from period to period and to industry peers.
Acquisition-related expenses have been excluded because they are not considered part of our core operating results when compar-
ing financial results from period to period and to industry peers.
Prior to 2009, a significant portion of employee compensation was in the form of long-term incentive compensation awards that
were notionally invested in AB investment services and generally vested over a period of four years. AB economically hedged the
exposure to market movements by purchasing and holding these investments on its balance sheet. All such investments had vested as
of year-end 2012 and the investments have been delivered to the participants, except for those investments with respect to which
the participant elected a long-term deferral. Fluctuation in the value of these investments is recorded within investment gains and
losses on the income statement and also impacts compensation expense. Management believes it is useful to reflect the offset ach-
ieved from economically hedging the market exposure of these investments in the calculation of adjusted operating income and
adjusted operating margin. The non-GAAP measures exclude gains and losses and dividends and interest on employee long-term
incentive compensation-related investments included in revenues and compensation expense.
We adjusted for the operating income impact of consolidating certain company-sponsored investment funds by eliminating the
consolidated company-sponsored funds’ revenues and expenses and including AB’s revenues and expenses that were eliminated in
consolidation. We also excluded the limited partner interests we do not own.
Gains and losses on the software technology investment have been excluded due to their non-recurring nature and because they are
not part of our core operating results.
The recording of changes in estimates of contingent consideration payable with respect to contingent payment arrangements asso-
ciated with our acquisitions are not considered part of our core operating results and, accordingly, have been excluded.
A realized gain on the liquidation of our Jasper investment during 2016 was excluded due to its non-recurring nature and because it
was not part of our core operating results.
Annual Report 2018
49
Adjusted Net Income and Adjusted Diluted Net Income per AB Unit
As previously discussed, our quarterly distribution is typically our adjusted diluted net income per unit (which is derived from
adjusted net income) for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter.
Adjusted income taxes, used in calculating adjusted net income, are calculated using the GAAP effective tax rate adjusted for
non-GAAP income tax adjustments.
Adjusted Operating Margin
Adjusted operating margin allows us to monitor our financial performance and efficiency from period to period without the vola-
tility noted above in our discussion of adjusted operating income and to compare our performance to industry peers on a basis that better
reflects our performance in our core business. Adjusted operating margin is derived by dividing adjusted operating income by
adjusted net revenues.
Net Revenues
The adoption of ASC 606 had no significant impact on revenue recognition during 2018, except for the recognition of
$12.9 million of performance-based fees during 2018 from a fund in liquidation, which recognition was not probable of significant
reversal. Under the previous revenue accounting standard, these performance-based fees would not have been recognized until final
liquidation of the fund.
The components of net revenues are as follows:
Investment advisory and services fees:
Institutions:
Base fees
Performance-based fees
Retail:
Base fees
Performance-based fees
Private Wealth Management:
Base fees
Performance-based fees
Total:
Base fees
Performance-based fees
Bernstein Research Services
Distribution revenues
Dividend and interest income
Investment gains
Other revenues
Total revenues
Less: Interest expense
Net revenues
Years Ended December 31,
2017
2018
(in thousands)
2016
2018-17
2017-16
% Change
$
444,884
$
430,446
$
403,503
32,898
477,782
992,037
18,278
1,010,315
807,147
66,967
874,114
2,244,068
118,143
2,362,211
439,432
418,562
98,226
2,653
98,676
3,419,760
52,399
45,159
475,605
922,510
24,216
946,726
753,569
25,405
778,974
2,106,525
94,780
2,201,305
449,919
412,063
71,162
92,102
97,135
3,323,686
25,165
17,394
420,897
805,621
3,333
808,954
691,595
12,025
703,620
1,900,719
32,752
1,933,471
479,875
384,405
46,939
93,353
99,859
3,037,902
9,123
$3,367,361
$3,298,521
$3,028,779
3.4%
(27.2)
0.5
7.5
(24.5)
6.7
7.1
163.6
12.2
6.5
24.6
7.3
(2.3)
1.6
38.0
(97.1)
1.6
2.9
108.2
2.1
6.7%
159.6
13.0
14.5
626.6
17.0
9.0
111.3
10.7
10.8
189.4
13.9
(6.2)
7.2
51.6
(1.3)
(2.7)
9.4
175.8
8.9
50
AB
Investment Advisory and Services Fees
Investment advisory and services fees are the largest component of our revenues. These fees generally are calculated as a percentage
of the value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and
vary with the type of investment service, the size of account and the total amount of assets we manage for a particular client.
Accordingly, fee income generally increases or decreases as AUM increase or decrease and is affected by market appreciation or
depreciation, the addition of new client accounts or client contributions of additional assets to existing accounts, withdrawals of
assets from and termination of client accounts, purchases and redemptions of mutual fund shares, shifts of assets between accounts or
products with different fee structures, and acquisitions. Our average basis points realized (investment advisory and services fees
divided by average AUM) generally approximate 40 to 110 basis points for actively-managed equity services, 10 to 75 basis points
for actively-managed fixed income services and 2 to 20 basis points for passively-managed services. Average basis points realized for
other services range from 5 basis points for certain Institutional asset allocation services to over 100 basis points for certain Retail
and Private Wealth Management alternative services. These ranges include all-inclusive fee arrangements (covering investment
management, trade execution and other services) for our Private Wealth Management clients.
We calculate AUM using established market-based valuation methods and fair valuation (non-observable market) methods. Market-
based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures;
evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; mid prices from
recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing vendors and brokers for
other derivative products. Fair valuation methods include: discounted cash flow models, evaluation of assets versus liabilities or any
other methodology that is validated and approved by our Valuation Committee (see paragraph immediately below for more information
regarding our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-based
valuation methods, such as in the case of private equity or illiquid securities.
The Valuation Committee, which consists of senior officers and employees, is responsible for overseeing the pricing and valuation
of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing
principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which
reports to the Valuation Committee and is responsible for overseeing the pricing process for all investments.
We sometimes charge our clients performance-based fees. In these situations, we charge a base advisory fee and are eligible to earn
an additional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or
a percentage of investment results in excess of a stated benchmark over a specified period of time. Some performance-based fees
include a high-watermark provision, which generally provides that if a client account underperforms relative to its performance
target (whether absolute or relative to a specified benchmark), it must gain back such underperformance before we can collect
future performance-based fees. Therefore, if we fail to achieve our performance target for a particular period, we will not earn a
performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-
based fees will be impaired. We are eligible to earn performance-based fees on 7.3%, 7.8% and 0.9% of the assets we manage for
institutional clients, private wealth clients and retail clients, respectively (in total, 5.1% of our AUM).
Our investment advisory and services fees increased by $160.9 million, or 7.3%, in 2018, primarily due to a $137.5 million, or 6.5%,
increase in base fees, which primarily resulted from a 5.1% increase in average AUM and the impact of a shift in distribution channel mix
from Institutions to Retail and Private Wealth Management. Also, performance-based fees increased by $23.4 million. Our investment
advisory and services fees increased by $267.8 million, or 13.9%, in 2017, primarily due to a $205.8 million, or 10.8%, increase in base
fees, which primarily resulted from a 7.9% increase in average AUM and the impact of a shift in distribution channel mix from
Institutions to Retail and Private Wealth Management. Also, performance-based fees increased $62.0 million from the prior year.
Institutional investment advisory and services fees increased $2.2 million, or 0.5%, in 2018, primarily due to an increase in base fees of
$14.4 million, or 3.4%, primarily resulting from a 1.7% increase in average AUM and the impact of higher fees from alternatives and a
shift in product mix to active equities, which generally have higher fees. The increase was partially offset by a decrease in performance-
based fees of $12.3 million. Institutional investment advisory and services fees increased $54.7 million, or 13.0%, in 2017, primarily due
to an increase in base fees of $26.9 million, or 6.7%, primarily resulting from a 4.3% increase in average AUM and the impact of a shift
in product mix to active equities, which generally have higher fees. In addition, performance-based fees increased by $27.8 million.
Annual Report 2018
51
Retail investment advisory and services fees increased $63.6 million, or 6.7%, in 2018, primarily due to an increase in base fees of
$69.5 million, or 7.5%, primarily resulting from an 8.1% increase in average AUM. The increase was partially offset by a decrease in
performance-based fees of $5.9 million. Retail investment advisory and services fees increased $137.8 million, or 17.0%, in 2017,
primarily due to an increase in base fees of $116.9 million, or 14.5%, primarily resulting from a 12.6% increase in average AUM and
higher fee rate realization. In addition, performance-based fees increased by $20.9 million.
Private Wealth Management investment advisory and services fees increased by $95.1 million, or 12.2%, in 2018, due to an increase
in base fees of $53.6 million, or 7.1%, primarily resulting from an 8.8% increase in average AUM. In addition, performance-based
fees increased $41.6 million. Private Wealth Management investment advisory and services fees increased $75.4 million, or 10.7%,
in 2017, due to an increase in base fees of $62.0 million, or 9.0%, resulting from a 9.8% increase in average AUM and a
$13.4 million increase in performance-based fees.
Bernstein Research Services
We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients
compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to
a lesser extent by paying us directly for research through commission sharing agreements or cash payments.
Revenues from Bernstein Research Services decreased $10.5 million, or 2.3%, in 2018. The decrease was driven by a reduction in
commission rates due to the unbundling of research services and a volume mix shift to lower fee electronic trading across all
regions, partially offset by a weaker U.S. dollar.
Revenues from Bernstein Research Services decreased $30.0 million, or 6.2%, in 2017. The decrease was driven by a decline in
client activity in the U.S. and a volume mix shift to electronic trading in Europe. The decrease was partially offset by increased cli-
ent activity in Asia and a weaker U.S. dollar year-over-year.
Distribution Revenues
Two of our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution
services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. Period-over-period
fluctuations of distribution revenues typically are in line with fluctuations of the corresponding average AUM of these mutual funds.
Distribution revenues increased $6.5 million, or 1.6%, in 2018, primarily due to the corresponding average AUM of these mutual
funds increasing 4.5%, offset by the impact of a shift in product mix. During 2018, average AUM for Japan and Taiwan domiciled
funds increased 35.1%, while average AUM of B-share and C-share mutual funds (which have higher distribution rates than A-share
mutual funds, as well as other funds not domiciled in the U.S. or Luxembourg) decreased 22.5%.
Distribution revenues increased $27.7 million, or 7.2%, in 2017, primarily due to the corresponding average AUM of these mutual
funds increasing 11.2%, offset by the impact of a shift in product mix. During 2017, average AUM of A-share mutual funds (which
have lower distribution fee rates than B-share and C-share mutual funds) increased 21.5%, while average AUM of B-share and
C-share mutual funds decreased by 13.5%.
Dividend and Interest Income and Interest Expense
Dividend and interest income consists primarily of investment income and interest earned on customer margin balances and U.S.
Treasury Bills as well as dividend and interest income in our consolidated company-sponsored investment funds. Interest expense
principally reflects interest accrued on cash balances in customers’ brokerage accounts. Dividend and interest income, net of interest
expense, decreased $0.2 million, or 0.4%, in 2018. Dividend and interest income, net of interest expense, increased $8.2 million, or
21.6%, in 2017, primarily due to higher dividend and interest income in our consolidated company-sponsored investment funds.
Investment Gains (Losses)
Investment gains (losses) consist primarily of realized and unrealized investment gains or losses on: (i) employee long-term incentive
compensation-related investments, (ii) U.S. Treasury Bills, (iii) market-making in exchange-traded options and equities, (iv) seed
capital investments, (v) derivatives and (vi) investments in our consolidated company-sponsored investment funds. Investment gains
(losses) also include equity in earnings of proprietary investments in limited partnership hedge funds that we sponsor and manage.
52
AB
Investment gains (losses) are as follows:
Long-term incentive compensation-related investments
Realized gains
Unrealized (losses) gains
Investments held by consolidated company-sponsored investment funds
Realized (losses) gains
Unrealized gains
Seed capital and other investments
Realized gains (losses)
Seed capital and other
Derivatives
Unrealized gains (losses)
Seed capital and other
Derivatives
Brokerage-related investments
Realized losses
Unrealized gains (losses)
Years Ended December 31,
2017
2018
2016
(in thousands)
$ 2,512
(8,032)
$ 2,214
5,723
$ 1,463
(288)
(1,134)
14,217
59,669
36,340
(8,482)
28,437
(943)
7,001
(15,003)
5,384
(1,410)
61
$ 2,653
24,822
(22,395)
(9,713)
(1,478)
(2,796)
(284)
$92,102
67,778
(15,207)
24,976
(311)
(5,057)
44
$93,353
Other Revenues
Other revenues consist of fees earned for transfer agency services provided to company-sponsored mutual funds, fees earned for
administration and recordkeeping services provided to company-sponsored mutual funds and the general accounts of AXA, EQH
and their respective subsidiaries, and other miscellaneous revenues. Other revenues increased $1.5 million, or 1.6%, in 2018,
primarily due to higher shareholder servicing fees and higher mutual fund reimbursements. Other revenues decreased $2.7 million,
or 2.7%, in 2017, primarily due to lower shareholder servicing fees, partly offset by higher mutual fund reimbursements.
Expenses
The components of expenses are as follows:
Employee compensation and benefits
Promotion and servicing:
Distribution-related payments
Amortization of deferred sales commissions
Trade execution, marketing, T&E and other
General and administrative:
General and administrative
Real estate charges
Contingent payment arrangements
Interest
Amortization of intangible assets
Total
Annual Report 2018
Years Ended December 31,
2017
2018
(in thousands)
2016
2018-17
2017-16
% Change
$ 1,378,811
$ 1,313,469
$ 1,229,721
5.0%
6.8%
427,186
21,343
222,630
671,159
448,996
7,160
456,156
(2,219)
10,359
27,781
$2,542,047
411,467
31,886
213,275
656,628
481,488
36,669
518,157
267
8,194
27,896
$2,524,611
363,603
41,066
216,542
621,211
426,147
17,704
443,851
(20,245)
4,765
26,311
$2,305,614
3.8
(33.1)
4.4
2.2
(6.7)
(80.5)
(12.0)
(931.1)
26.4
(0.4)
0.7
13.2
(22.4)
(1.5)
5.7
13.0
107.1
16.7
n/m
72.0
6.0
9.5
53
Employee Compensation and Benefits
Employee compensation and benefits consist of base compensation (including salaries and severance), annual short-term incentive
compensation awards (cash bonuses), annual long-term incentive compensation awards, commissions, fringe benefits and other
employment costs (including recruitment, training, temporary help and meals).
Compensation expense as a percentage of net revenues was 40.9%, 39.8% and 40.6% for the years ended December 31, 2018, 2017
and 2016, respectively. Compensation expense generally is determined on a discretionary basis and is primarily a function of our firm’s
current-year financial performance. The amounts of incentive compensation we award are designed to motivate, reward and retain top
talent while aligning our executives’ interests with the interests of our Unitholders. Senior management, with the approval of the
Compensation Committee of the Board of Directors of AllianceBernstein Corporation (“Compensation Committee”), periodically
confirms that the appropriate metric to consider in determining the amount of incentive compensation is the ratio of adjusted employee
compensation and benefits expense to adjusted net revenues. Adjusted net revenues used in the adjusted compensation ratio are the
same as the adjusted net revenues presented as a non-GAAP measure (discussed earlier in this Item 7). Adjusted employee compensation
and benefits expense is total employee compensation and benefits expense minus other employment costs such as recruitment, training,
temporary help and meals (which were 1.1% of adjusted net revenues for 2018, 2017 and 2016), and excludes the impact of
mark-to-market vesting expense, as well as dividends and interest expense, associated with employee long-term incentive
compensation-related investments. Senior management, with the approval of the Compensation Committee, has established as an
objective that adjusted employee compensation and benefits expense generally should not exceed 50% of our adjusted net revenues,
except in unexpected or unusual circumstances. Our ratios of adjusted compensation expense as a percentage of adjusted net revenues
were 47.5%, 47.1% and 48.5%, respectively, for the years ended December 31, 2018, 2017 and 2016.
In 2018, employee compensation and benefits expense increased $65.3 million, or 5.0%, primarily due to higher incentive compen-
sation of $19.3 million, higher commissions of $19.0 million, higher base compensation of $14.7 million, which primarily resulted
from higher salaries, and higher fringes of $7.4 million. In 2017, employee compensation and benefits expense increased
$83.7 million, or 6.8%, primarily due to higher incentive compensation of $68.4 million, higher base compensation of $5.4 million,
which primarily resulted from higher severance, higher commissions of $4.8 million and higher fringes of $4.1 million.
Promotion and Servicing
Promotion and servicing expenses include distribution-related payments to financial intermediaries for distribution of AB mutual
funds and amortization of deferred sales commissions paid to financial intermediaries for the sale of back-end load shares of AB
mutual funds. Also included in this expense category are costs related to travel and entertainment, advertising and promotional
materials.
Promotion and servicing expenses increased $14.5 million or 2.2%, in 2018. The increase primarily was due to higher distribution-
related payments of $15.7 million, higher marketing expenses of $4.5 million and higher trade execution and clearance expenses of
$4.5 million, offset by lower amortization of deferred sales commissions of $10.5 million. Promotion and servicing expenses
increased $35.4 million, or 5.7%, in 2017. The increase primarily was due to higher distribution-related payments of $47.9 million,
offset by lower amortization of deferred sales commissions of $9.2 million and lower travel and entertainment costs of $2.6 million.
General and Administrative
General and administrative expenses include portfolio services expenses, technology expenses, professional fees and office-related
expenses (occupancy, communications and similar expenses). General and administrative expenses as a percentage of net revenues
were 13.5% (13.3% excluding real estate charges), 15.7% (14.6% excluding real estate charges) and 14.7% (14.1% excluding real
estate charges) for the years ended December 31, 2018, 2017 and 2016, respectively. General and administrative expenses decreased
$62.0 million, or 12.0%, during 2018, primarily due to lower real estate charges of $29.5 million, the lack of a $19.7 million vendor
termination fee we recorded in 2017, lower rent expense of $5.0 million, lower exchange rate losses of $2.8 million and lower
errors of $2.7 million. General and administrative expenses increased $74.3 million, or 16.7%, during 2017, primarily due to higher
expenses related to our consolidated company-sponsored investment funds of $25.5 million, a vendor termination accrual of
$19.7 million, higher real estate charges of $19.0 million and higher professional fees of $6.5 million.
54
AB
Contingent Payment Arrangements
Contingent payment arrangements reflect changes in estimates of contingent payment liabilities associated with acquisitions in pre-
vious periods, as well as accretion expense of these liabilities. The credit of $2.2 million for 2018 reflects the change in estimate of
the contingent consideration payable relating to our 2010 acquisition of $2.4 million, offset by accretion expenses of $0.2 million.
The expense of $0.3 million for 2017 reflects accretion expenses of $0.5 million, offset by a change in estimate of the contingent
consideration payable relating to our 2010 acquisition of $0.2 million. The credit to operating expenses of $20.2 million in 2016
reflects changes in estimates of contingent consideration payable of $21.5 million relating to our 2013 and 2010 acquisitions, offset
by the accretion expense of $1.3 million.
Interest
Interest expense increased 26.4% and 72.0% in 2018 and 2017, respectively, reflecting higher weighted average interest rates on
commercial paper borrowings. Average daily borrowings of commercial paper during 2018, 2017 and 2016 were $350.3 million,
$482.2 million and $422.9 million, respectively, with weighted average interest rates of 2.0%, 1.2% and 0.6%, respectively.
Income Taxes
AB, a private limited partnership, is not subject to federal or state corporate income taxes, but is subject to a 4.0% New York City
unincorporated business tax (“UBT”). Our domestic corporate subsidiaries are subject to federal, state and local income taxes and
generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are
filed. Foreign corporate subsidiaries generally are subject to taxes in the jurisdictions where they are located.
Income tax expense decreased $7.3 million, or 13.7%, in 2018 compared to 2017. This decrease is due to a lower effective tax rate
in 2018 of 5.6% compared to 6.9% in 2017 and higher pre-tax income. The decrease in our effective tax rate was driven by the
impact of tax reform in the prior year, offset by one-time discrete items.
Income tax expense increased $24.8 million, or 87.5%, in 2017 compared to 2016. The increase is due to a higher effective tax rate
in 2017 of 6.9%, compared to 3.9% in 2016, and higher pre-tax income. The significant increase in our effective tax rate was driven
by the deemed repatriation tax on foreign earnings, the tax associated with the remeasurement of deferred tax items, and the
unfavorable mix of earnings across the AB tax filing groups.
Net Income (Loss) of Consolidated Entities Attributable to Non-Controlling Interests
Net income (loss) of consolidated entities attributable to non-controlling interests primarily consists of limited partner interests owned
by other investors in our consolidated company-sponsored investment funds. In 2018, 2017, and 2016, we had $21.9 million,
$58.4 million and $21.5 million, respectively, of net gains of consolidated entities attributable to non-controlling interests, primarily due
to gains on investments held by our consolidated company-sponsored investment funds. Fluctuations period-to-period are driven by
the number of consolidated company-sponsored investment funds and their respective market performance.
Capital Resources and Liquidity
During 2018, net cash provided by operating activities was $1.3 billion, compared to $645.5 million during 2017. The change
primarily was due to an increase in broker-dealer payables (net of receivable and segregated U.S. Treasury Bills activity) of
$618.8 million, a decrease in net activity of our consolidated company-sponsored investment funds of $467.3 million and higher
cash provided by net income of $75.5 million, offset by higher net purchases of broker-dealer investments of $294.7 million and an
increase in broker dealer deposits with clearing organizations of $150.5 million. During 2017, net cash provided by operating activ-
ities was $645.5 million, compared to $1.5 billion during 2016. The change primarily was due to a decrease in net activity of our
consolidated company-sponsored investment funds of $466.5 million, a decrease in broker-dealer payables (net of receivable and
segregated U.S. Treasury Bills activity) of $376.3 million and lower net redemptions of seed capital and higher net purchases of
broker-dealer investments of $187.5 million, offset by an increase in cash provided by net income of $86.5 million.
Annual Report 2018
55
During 2018, net cash used in investing activities was $32.8 million, compared to $39.3 million during 2017. The change primarily
reflects lower purchases of furniture, equipment and leasehold improvements of $6.6 million. During 2017, net cash used in inves-
ting activities was $39.3 million, compared to $59.4 million during 2016. The change primarily reflects the $20.5 million spent in
2016 to purchase a business.
During 2018, net cash used in financing activities was $1.6 billion, compared to $623.9 million during 2017. The change reflects
the net redemptions of non-controlling interests of consolidated company-sponsored investment funds in 2018 as compared to net
purchases of consolidated company-sponsored investment funds in 2017 (impact of $635.3 million), higher distributions to the
General Partner and Unitholders of $214.1 million and net repayments of bank loans in 2018 as compared to net proceeds from
bank loans in 2017 (impact of $125.0 million). During 2017, net cash used in financing activities was $623.9 million, compared to
$1.1 billion during 2016. The change reflects the net purchases of non-controlling interests of consolidated company-sponsored
investment funds in 2017 as compared to net redemptions of consolidated company-sponsored investment funds in 2016 (impact of
$296.0 million), a net increase in overdrafts payable of $147.9 million, proceeds from bank loans of $75.0 million and lower net
repayments of commercial paper of $43.5 million, offset by higher distributions to the General Partner and Unitholders of
$106.6 million.
As of December 31, 2018, AB had $640.2 million of cash and cash equivalents (excluding cash and cash equivalents of consolidated
company-sponsored investment funds), all of which is available for liquidity, consisting primarily of cash on deposit for our broker-
dealers to comply with various customer clearing activities, and cash held by foreign subsidiaries of $418.0 million.
Debt and Credit Facilities
As of December 31, 2018 and 2017, AB had $523.2 million and $491.8 million, respectively, in commercial paper outstanding with
weighted average interest rates of approximately 2.7% and 1.6%, respectively. Debt included in the statement of financial condition is
presented net of issuance costs of $1.9 million and $1.1 million as of December 31, 2018 and 2017, respectively. The commercial paper
is short term in nature, and as such, recorded value is estimated to approximate fair value (and considered a Level 2 security in the fair
value hierarchy). Average daily borrowings of commercial paper during 2018 and 2017 were $350.3 million and $482.2 million,
respectively, with weighted average interest rates of approximately 2.0% and 1.2%, respectively.
On September 27, 2018, AB amended and restated the existing $1.0 billion committed, unsecured senior revolving credit facility
(the “Credit Facility”) with a group of commercial banks and other lenders, reducing the principal amount to $800.0 million and
extending the maturity to September 27, 2023. The Credit Facility provides for possible increases in the principal amount by up to
an aggregate incremental amount of $200.0 million; any such increase is subject to the consent of the affected lenders. The Credit
Facility is available for AB and Sanford C. Bernstein & Co., LLC (“SCB LLC”) business purposes, including the support of AB’s
commercial paper program. Both AB and SCB LLC can draw directly under the Credit Facility and management may draw on the
Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Credit Facility.
The Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including
restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of
December 31, 2018, we were in compliance with these covenants. The Credit Facility also includes customary events of default
(with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all
outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the
occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the Credit Facility would
automatically become immediately due and payable, and the lender’s commitments automatically would terminate.
Amounts under the Credit Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the
facility. Voluntary prepayments and commitment reductions requested by us are permitted at any time without a fee (other than
customary breakage costs relating to the prepayment of any drawn loans) upon proper notice and subject to a minimum dollar
requirement. Borrowings under the Credit Facility bear interest at a rate per annum, which will be, at our option, a rate equal to an
applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indices: London
Interbank Offered Rate; a floating base rate; or the Federal Funds rate.
56
AB
As of December 31, 2018 and 2017, we had no amounts outstanding under the Credit Facility. During 2018 and 2017, we did not
draw upon the Credit Facility.
On November 16, 2018, AB amended and restated its existing $200.0 million committed, unsecured senior revolving credit facility
(the “Revolver”) with a leading international bank, extending the maturity date of the Revolver from November 28, 2018 to
November 16, 2021. There were no other material changes included in the amendment. The Revolver is available for AB’s and
SCB LLC’s business purposes, including the provision of additional liquidity to meet funding requirements primarily related to SCB
LLC’s operations. Both AB and SCB LLC can draw directly under the Revolver and management expects to draw on the Revolver
from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Revolver. The Revolver contains affirmative,
negative and financial covenants which are identical to those of the Credit Facility. As of December 31, 2018 and December 31,
2017, we had $25.0 million and $75.0 million outstanding under the Revolver, respectively, with interest rates of 3.4% and 2.4%,
respectively. Average daily borrowings for 2018 and 2017 were $19.4 million and $21.4 million, respectively, with weighted aver-
age interest rates of 2.8% and 2.0%, respectively.
In addition, SCB LLC currently has three uncommitted lines of credit with three financial institutions. Two of these lines of credit
permit us to borrow up to an aggregate of approximately $175.0 million, with AB named as an additional borrower, while the other
line has no stated limit. As of December 31, 2018 and 2017, SCB LLC had no bank loans outstanding. Average daily borrowings of
bank loans during 2018 and 2017 were $2.7 million and $4.5 million, respectively, with weighted average interest rates of approx-
imately 1.6% and 1.4%, respectively.
Our financial condition and access to public and private debt markets should provide adequate liquidity for our general business
needs. Management believes that cash flow from operations and the issuance of debt and AB Units or AB Holding Units will pro-
vide us with the resources we need to meet our financial obligations. See “Risk Factors” in Item 1A and “Cautions Regarding Forward-
Looking Statements” in this Item 7 for a discussion of credit markets and our ability to renew our credit facilities at expiration.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Guarantees
Under various circumstances, AB guarantees the obligations of its consolidated subsidiaries.
AB maintains guarantees in connection with the Credit Facility and Revolver. If SCB LLC is unable to meet its obligations, AB
will pay the obligations when due or on demand. In addition, AB maintains guarantees totaling $375 million for SCB LLC’s three
uncommitted lines of credit.
AB maintains a guarantee with a commercial bank, under which we guarantee the obligations in the ordinary course of business of
each of SCB LLC, our U.K.-based broker-dealer and our Cayman subsidiary. We also maintain four additional guarantees with
other commercial banks under which we guarantee approximately $366 million of obligations for our U.K.-based broker-dealer and
$99 million of obligations for our India-based broker-dealer. In the event that any of these four entities is unable to meet its obliga-
tions, AB will pay the obligations when due or on demand.
We also have two smaller guarantees with a commercial bank totaling approximately $1.5 million, under which we guarantee cer-
tain obligations in the ordinary course of business of one of our foreign subsidiaries.
We have not been required to perform under any of the above agreements and currently have no liability in connection with these
agreements.
Annual Report 2018
57
Aggregate Contractual Obligations
Our contractual obligations as of December 31, 2018 are as follows:
Commercial paper
Line of Credit
Operating leases, net of sublease commitments
Funding commitments
Accrued compensation and benefits
Unrecognized tax benefits (1)
Federal transition tax (1)
Total
Total
Less than
1 Year
Payments Due by Period
1-3 Years
3-5 Years
(in millions)
$
523.2
$ 523.2
25.0
578.8
15.3
255.6
3.9
21.8
25.0
84.3
6.9
171.1
—
1.9
$ —
—
158.4
1.8
49.5
1.1
3.8
$ —
—
136.0
1.2
15.0
—
5.4
More than
5 Years
$ —
—
200.1
5.4
20.0
2.8
10.7
$1,423.6
$812.4
$214.6
$157.6
$239.0
(1) See Note 21 to our consolidated financial statements in Item 8 for discussion of unrecognized tax benefits and federal transition tax.
During 2010, as general partner of AllianceBernstein U.S. Real Estate L.P. (“Real Estate Fund”), we committed to invest
$25 million in the Real Estate Fund. As of December 31, 2018, we had funded $22.4 million of this commitment. During 2014, as
general partner of AllianceBernstein U.S. Real Estate II L.P. (“Real Estate Fund II”), we committed to invest $28.0 million, as
amended in 2015, in the Real Estate Fund II. As of December 31, 2018, we had funded $15.3 million of this commitment.
Accrued compensation and benefits amounts in the table above exclude our accrued pension obligation. Offsetting our accrued com-
pensation obligations are long-term incentive compensation-related investments and money market investments we funded totaling
$57.7 million, which are included in our consolidated statement of financial condition. Any amounts reflected on the consolidated
statement of financial condition as payables (to broker-dealers, brokerage clients and company-sponsored mutual funds) and
accounts payable and accrued expenses (excluding the tax obligations above) are excluded from the table above.
We expect to make contributions to our qualified profit sharing plan of approximately $14 million in each of the next four years.
We currently estimate that we will contribute $4 million to the Retirement Plan during 2019.
Contingencies
See Note 14 to our consolidated financial statements in Item 8 for a discussion of our commitments and contingencies.
Critical Accounting Estimates
The preparation of the consolidated financial statements and notes to consolidated financial statements requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
Management believes that the critical accounting policies and estimates discussed below involve significant management judgment due
to the sensitivity of the methods and assumptions used.
Goodwill
As of December 31, 2018, we had goodwill of $3.1 billion on the consolidated statement of financial condition. We have
determined that AB has only one reporting segment and reporting unit. We test our goodwill annually, as of September 30, for
impairment. As of September 30, 2018, the impairment test indicated that goodwill was not impaired. The carrying value of good-
will is also reviewed if facts and circumstances occur that suggest possible impairment, such as significant declines in AUM, rev-
enues, earnings or the price of an AB Holding Unit.
58
AB
On an annual basis, or when circumstances warrant, we perform step one of our two-step goodwill impairment test. The first step
of the goodwill impairment test is used to identify potential impairment by comparing the fair value of AB, the reporting unit, with
its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered to
be impaired and the second step of the impairment test is not performed. However, if the carrying value of the reporting unit
exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if
any. The second step compares the implied fair value of the reporting unit to the aggregated fair values of its individual assets and
liabilities to determine the amount of impairment, if any.
AB estimates its fair value under both the market approach and income approach. Under the market approach, the fair value of the
reporting unit is based on its unadjusted market valuation (AB Units outstanding multiplied by the price of an AB Holding Unit)
and adjusted market valuations assuming a control premium and earnings multiples. The price of a publicly-traded AB Holding
Unit serves as a reasonable starting point for valuing an AB Unit because each represents the same fractional interest in our under-
lying business. Our market approach analysis also includes control premiums, which are based on an analysis of control premiums
for relevant recent acquisitions, and comparable industry earnings multiples applied to our earnings forecast. Under the income
approach, the fair value of the reporting unit is based on the present value of estimated future cash flows. Determining estimated fair
value using a discounted cash flow valuation technique consists of applying business growth rate assumptions over the estimated life
of the goodwill asset and then discounting the resulting expected cash flows using an estimated weighted average cost of capital of
market participants to arrive at a present value amount that approximates fair value.
Real Estate Charges
Since 2010, in connection with our workforce reductions and in an effort to reduce our global real estate footprint, we have
implemented a global office space consolidation. As a result, we have sub-leased over one million square feet of office space.
We recorded real estate charges that reflect the net present value of the difference between the amount of our on-going contractual
lease obligations for the vacated floors and our estimate of current market rental rates for such floors. The charges we recorded were
based on current assumptions at the time of the charges regarding sublease marketing periods, costs to prepare the properties to
market, market rental rates, broker commissions and subtenant allowances/incentives, all of which are factors largely beyond our
control. If our assumptions prove to be incorrect, we may need to record additional charges or reduce previously recorded charges.
We review the assumptions and estimates we used in recording these charges on a quarterly basis.
Loss Contingencies
Management continuously reviews with legal counsel the status of regulatory matters and pending or threatened litigation. We
evaluate the likelihood that a loss contingency exists and record a loss contingency if it is both probable and reasonably estimable as
of the date of the financial statements. See Note 14 to our consolidated financial statements in Item 8.
Accounting Pronouncements
See Note 2 to our consolidated financial statements in Item 8.
Cautions Regarding Forward-Looking Statements
Certain statements provided by management in this report are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that
could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most
significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment per-
formance of sponsored investment products and separately-managed accounts, general economic conditions, industry trends, future
acquisitions, integration of acquired companies, competitive conditions and government regulations, including changes in tax regu-
lations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. We caution readers to carefully
consider such factors. Further, these forward-looking statements speak only as of the date on which such statements are made; we
undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such state-
ments. For further information regarding these forward-looking statements and the factors that could cause actual results to differ,
Annual Report 2018
59
see “Risk Factors” in Item 1A. Any or all of the forward-looking statements that we make in this Form 10-K, other documents we
file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember
that other factors besides those listed in “Risk Factors” and those listed below could also adversely impact our revenues, financial con-
dition, results of operations and business prospects.
The forward-looking statements referred to in the preceding paragraph, most of which directly affect AB but also affect AB Holding
because AB Holding’s principal source of income and cash flow is attributable to its investment in AB, include statements regarding:
• Our belief that the cash flow AB Holding realizes from its investment in AB will provide AB Holding with the resources it needs to
meet its financial obligations: AB Holding’s cash flow is dependent on the quarterly cash distributions it receives from AB.
Accordingly, AB Holding’s ability to meet its financial obligations is dependent on AB’s cash flow from its operations, which is
subject to the performance of the capital markets and other factors beyond our control.
• Our financial condition and ability to access the public and private capital markets providing adequate liquidity for our general business
needs: Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital
markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to
access public and private capital markets on reasonable terms may be limited by adverse market conditions, our firm’s credit
ratings, our profitability and changes in government regulations, including tax rates and interest rates.
• The outcome of litigation: Litigation is inherently unpredictable, and excessive damage awards do occur. Though we have stated
that we do not expect any pending legal proceedings to have a material adverse effect on our results of operations, financial
condition or liquidity, any settlement or judgment with respect to a pending or future legal proceeding could be significant, and
could have such an effect.
• The possibility that we will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our
incentive compensation award program: The number of AB Holding Units AB may decide to buy in future periods, if any, to
help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the
fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases.
• Our determination that adjusted employee compensation expense should not exceed 50% of our adjusted net revenues: Aggregate
employee compensation reflects employee performance and competitive compensation levels. Fluctuations in our revenues and/
or changes in competitive compensation levels could result in adjusted employee compensation expense exceeding 50% of our
adjusted net revenues.
• Our Relocation Strategy: While the expenses, expense savings and EPU impact we expect will result from our Relocation Strat-
egy are presented with numerical specificity, and we believe these figures to be reasonable as of the date of this report, the
uncertainties surrounding the assumptions on which our estimates are based create a significant risk that our current estimates
may not be realized. These assumptions include:
•
•
the amount and timing of employee relocation costs, severance, and overlapping compensation and occupancy costs we
experience; and
the timing for execution of each phase of our relocation implementation plan.
• Our 2020 Margin Target: We previously adopted a goal of increasing our adjusted operating margin to a target of 30% by 2020,
subject to the assumptions, factors and contingencies described as part of the initial disclosure of this target. Our adjusted operat-
ing margin for 2018 was 29.1%.
Significant declines in the equity and fixed income markets during the fourth quarter of 2018, most notably in December 2018,
reduced our AUM by $34.0 billion, or 6.2%, during the fourth quarter to $516.4 billion from $550.4 billion at the end of the
third quarter of 2018. Given the impact we expect this lower AUM will have on our ability to generate the level of investment
advisory fee revenues we initially forecast when establishing the 2020 Margin Target, presently we do not believe that achieving
the 2020 Margin Target is likely. However, we are taking additional actions to better align our expenses with these lower AUM
and expected revenues. We remain committed to achieving an adjusted operating margin of 30% in years subsequent to 2020
and will take continued actions in this regard, subject to prevailing market conditions and the evolution of our business mix.
60
AB
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
AB Holding
Market Risk, Risk Management and Derivative Financial Instruments
AB Holding’s sole investment is AB Units. AB Holding did not own, nor was it a party to, any derivative financial instruments
during the years ended December 31, 2018, 2017 and 2016.
AB
Market Risk, Risk Management and Derivative Financial Instruments
Our investments consist of trading and other investments. Trading investments include U.S. Treasury Bills, mutual funds, exchange-
traded options and various separately-managed portfolios consisting of equity securities. Trading investments are purchased for
short-term investment, principally to fund liabilities related to long-term incentive compensation plans and to seed new investment
services. Other investments include investments in hedge funds we sponsor and other private equity investment vehicles.
We enter into various futures, forwards, swaps and options primarily to economically hedge our seed capital investments. We do
not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging. See Note 8 to our con-
solidated financial statements in Item 8.
Trading and Non-Trading Market Risk Sensitive Instruments
Investments with Interest Rate Risk—Fair Value
The table below provides our potential exposure with respect to our fixed income investments, measured in terms of fair value, to an
immediate 100 basis point increase in interest rates at all maturities from the levels prevailing as of December 31, 2018 and 2017.
Such a fluctuation in interest rates is a hypothetical rate scenario used to calibrate potential risk and does not represent our view of
future market movements. While these fair value measurements provide a representation of interest rate sensitivity of our invest-
ments in fixed income mutual funds and fixed income hedge funds, they are based on our exposures at a particular point in time
and may not be representative of future market results. These exposures will change as a result of ongoing changes in investments in
response to our assessment of changing market conditions and available investment opportunities:
Fixed Income Investments:
Trading
As of December 31,
2018
Effect of +100
Basis Point
Change
Fair Value
2017
Effect of +100
Basis Point
Change
Fair Value
(in thousands)
$435,020
$(28,668)
$137,002
$(8,987)
Annual Report 2018
61
Investments with Equity Price Risk—Fair Value
Our investments also include investments in equity securities, mutual funds and hedge funds. The following table provides our poten-
tial exposure with respect to our equity investments, measured in terms of fair value, to an immediate 10% drop in equity prices from
those prevailing as of December 31, 2018 and 2017. A 10% decrease in equity prices is a hypothetical scenario used to calibrate
potential risk and does not represent our view of future market movements. While these fair value measurements provide a repre-
sentation of equity price sensitivity of our investments in equity securities, mutual funds and hedge funds, they are based on our
exposures at a particular point in time and may not be representative of future market results. These exposures will change as a result
of ongoing portfolio activities in response to our assessment of changing market conditions and available investment opportunities:
Equity Investments:
Trading
Other investments
As of December 31,
2018
Effect of -10%
Equity Price
Change
2017
Effect of -10%
Equity Price
Change
Fair Value
Fair Value
(in thousands)
$178,215
101,109
$(17,822)
(10,111)
$214,172
92,415
$(21,417)
(9,242)
62
AB
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the General Partner and Unitholders of
AllianceBernstein Holding L.P.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying statements of financial condition of AllianceBernstein Holding L.P. (the “Company”) as of
December 31, 2018 and 2017, and the related statements of income, comprehensive income, changes in partners’ capital and cash
flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the
“financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Com-
pany as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2018, based on criteria established in Internal Control-Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report
on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regu-
lations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall pre-
sentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Annual Report 2018
63
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projec-
tions of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 13, 2019
We have served as the Company’s auditor since 2006.
64
AB
AllianceBernstein Holding L.P.
Statements of Financial Condition
ASSETS
Investment in AB
Total assets
LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Other liabilities
Total liabilities
Commitments and contingencies (SeeNote7)
Partners’ capital:
General Partner: 100,000 general partnership units issued and outstanding
Limited partners: 96,558,278 and 96,361,989 limited partnership units issued and outstanding
AB Holding Units held by AB to fund long-term incentive compensation plans
Accumulated other comprehensive loss
Total partners’ capital
Total liabilities and partners’ capital
December 31,
2018
2017
(in thousands,
except unit amounts)
$ 1,490,701
$1,490,701
$ 1,544,704
$1,544,704
$
644
644
$
1,154
1,154
1,385
1,555,892
(27,759)
(39,461)
1,490,057
$1,490,701
1,411
1,590,776
(15,174)
(33,463)
1,543,550
$1,544,704
See Accompanying Notes to Financial Statements.
Annual Report 2018
65
AllianceBernstein Holding L.P.
Statements of Income
Equity in net income attributable to AB Unitholders
Income taxes
Net income
Net income per unit:
Basic
Diluted
Years Ended December 31,
2017
2018
2016
(in thousands, except per unit amounts)
$ 270,647
$ 232,393
$ 239,389
28,250
24,971
22,803
$242,397
$207,422
$216,586
$
$
2.50
2.50
$
$
2.19
2.19
$
$
2.24
2.23
See Accompanying Notes to Financial Statements.
66
AB
AllianceBernstein Holding L.P.
Statements of Comprehensive Income
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments, before reclassification and tax
Less: reclassification adjustment for (losses) included in net income upon liquidation
Foreign currency translation adjustments, before tax
Income tax benefit
Foreign currency translation adjustments, net of tax
Unrealized gains on investments:
Unrealized gains arising during period
Less: reclassification adjustments for losses included in net income
Changes in unrealized gains on investments
Income tax benefit
Unrealized gains on investments, net of tax
Changes in employee benefit related items:
Amortization of prior service cost
Recognized actuarial gain (loss)
Changes in employee benefit related items
Income tax expense
Employee benefit related items, net of tax
Other
Other comprehensive (loss) income
Comprehensive income
Years Ended December 31,
2017
2018
2016
(in thousands)
$ 242,397
$ 207,422
$ 216,586
(6,884)
(36)
(6,848)
217
(6,631)
—
—
—
—
—
8
541
549
(49)
500
133
(5,998)
9,671
—
9,671
3
9,674
2
—
2
2
4
9
(1,115)
(1,106)
(10)
(1,116)
—
8,562
(6,697)
(2)
(6,695)
56
(6,639)
4
(2)
6
—
6
40
(737)
(697)
(12)
(709)
—
(7,342)
$236,399
$215,984
$209,244
See Accompanying Notes to Financial Statements.
Annual Report 2018
67
AllianceBernstein Holding L.P.
Statements of Changes in Partners’ Capital
General Partner’s Capital
Balance, beginning of year
Impact of adoption of revenue recognition standard ASC 606
Net income
Cash distributions to Unitholders
Balance, end of year
Limited Partners’ Capital
Balance, beginning of year
Impact of adoption of revenue recognition standard ASC 606
Net income
Cash distributions to Unitholders
Retirement of AB Holding Units
Issuance of AB Holding Units to fund long-term incentive compensation plan awards
Exercise of compensatory options to buy AB Holding Units
Other
Balance, end of year
AB Holding Units held by AB to fund long-term incentive compensation plans
Balance, beginning of year
AB Holding Units held by AB to fund long-term incentive compensation plans
Balance, end of year
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of year
Unrealized gain on investments, net of tax
Foreign currency translation adjustment, net of tax
Changes in employee benefit related items, net of tax
Other
Balance, end of year
Total Partners’ Capital
Years Ended December 31,
2017
2018
2016
(in thousands)
$
1,411
$
1,405
$
1,357
12
250
(288)
1,385
—
219
(213)
1,411
—
223
(175)
1,405
1,590,776
1,592,240
1,619,841
12,536
242,147
(280,434)
(194,544)
168,955
16,589
(133)
—
207,203
(202,175)
(162,206)
135,604
20,110
—
—
216,363
(169,556)
(184,336)
103,820
6,108
—
1,555,892
1,590,776
1,592,240
(15,174)
(12,585)
(27,759)
(33,463)
—
(6,631)
500
133
(11,731)
(3,443)
(15,174)
(10,669)
(1,062)
(11,731)
(42,025)
(34,683)
4
9,674
(1,116)
—
6
(6,639)
(709)
—
(39,461)
(33,463)
(42,025)
$1,490,057
$1,543,550
$1,539,889
See Accompanying Notes to Financial Statements.
68
AB
AllianceBernstein Holding L.P.
Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net income attributable to AB Unitholders
Cash distributions received from AB
Changes in assets and liabilities:
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Investments in AB with proceeds from exercises of compensatory options to buy AB Holding Units
Net cash used in investing activities
Cash flows from financing activities:
Cash distributions to Unitholders
Capital contributions from (to) AB
Proceeds from exercise of compensatory options to buy AB Holding Units
Net cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents as of beginning of the year
Cash and cash equivalents as of end of the year
Cash paid:
Income taxes
Non-cash investing activities:
Years Ended December 31,
2017
2018
2016
(in thousands)
$ 242,397
$ 207,422
$ 216,586
(270,647)
308,042
(510)
279,282
(16,589)
(16,589)
(232,393)
226,846
535
202,410
(20,110)
(20,110)
(239,389)
191,989
345
169,531
(6,108)
(6,108)
(280,722)
(202,388)
(169,731)
1,440
16,589
(22)
20,110
200
6,108
(262,693)
(182,300)
(163,423)
—
—
—
—
—
—
$
$
—
—
—
$
$
28,766
$
24,436
$
22,456
Issuance of AB Holding Units to fund long-term incentive compensation plan awards
Retirement of AB Holding Units
168,955
(194,544)
135,604
(162,206)
103,820
(184,336)
See Accompanying Notes to Financial Statements.
Annual Report 2018
69
AllianceBernstein Holding L.P.
Notes to Financial Statements
The words “we” and “our” refer collectively to AllianceBernstein Holding L.P. (“AB Holding”) and AllianceBernstein L.P. and its subsidiaries
(“AB”), or to their officers and employees. Similarly, the word “company” refers to both AB Holding and AB. Where the context requires dis-
tinguishing between AB Holding and AB, we identify which of them is being discussed. Cross-references are in italics.
1. Business Description and Organization
AB Holding’s principal source of income and cash flow is attributable to its investment in AB limited partnership interests.
AB provides research, diversified investment management and related services globally to a broad range of clients. Its principal serv-
ices include:
•
Institutional Services—servicing its institutional clients, including private and public pension plans, foundations and endow-
ments, insurance companies, central banks and governments worldwide, and affiliates such as AXA S.A. (“AXA”), AXA Equi-
table Holdings, Inc. (“EQH”) and their respective subsidiaries, by means of separately-managed accounts, sub-advisory
relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles.
• Retail Services—servicing its retail clients, primarily by means of retail mutual funds sponsored by AB or an affiliated company,
sub-advisory relationships with mutual funds sponsored by third parties, separately-managed account programs sponsored by
financial intermediaries worldwide and other investment vehicles.
• Private Wealth Management Services—servicing its private clients, including high-net-worth individuals and families, trusts and
estates, charitable foundations, partnerships, private and family corporations, and other entities, by means of separately-managed
accounts, hedge funds, mutual funds and other investment vehicles.
• Bernstein Research Services—servicing institutional investors, such as pension fund, hedge fund and mutual fund managers,
seeking high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options.
AB also provides distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds it spon-
sors.
AB’s high-quality, in-depth research is the foundation of its business. AB’s research disciplines include economic, fundamental
equity, fixed income and quantitative research. In addition, AB has experts focused on multi-asset strategies, wealth management
and alternative investments.
AB provides a broad range of investment services with expertise in:
• Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and
investment strategies, including value, growth and core equities;
• Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;
• Passive management, including index and enhanced index strategies;
• Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct lending); and
• Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds.
AB’s services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term
(e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging
markets, regional and local), in major markets around the world.
Organization
During the second quarter of 2018, EQH, the holding company for a diversified financial services organization, conducted an initial
public offering. AXA, a French holding company for AXA Group, a worldwide leader in life, property and casualty and health insurance
70
AB
AllianceBernstein Holding L.P.
Notes to Financial Statements (continued)
and asset management, owns 59.2% of the outstanding common stock of EQH as of December 31, 2018. AXA has announced its
intention to sell its entire remaining interest in EQH over time, subject to market conditions and other factors. AXA is under no obliga-
tion to do so and retains the sole discretion to determine the timing of any future sales of shares of EQH common stock.
As of December 31, 2018, EQH owns approximately 4.2% of the issued and outstanding units representing assignments of beneficial
ownership of limited partnership interests in AB Holding (“AB Holding Units”). AllianceBernstein Corporation (an indirect
wholly-owned subsidiary of EQH, “General Partner”) is the general partner of both AB Holding and AB. AllianceBernstein
Corporation owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB.
As of December 31, 2018, the ownership structure of AB, expressed as a percentage of general and limited partnership interests, is as
follows:
EQH and its subsidiaries
AB Holding
Unaffiliated holders
63.6%
35.6
0.8
100.0%
Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries have an
approximate 65.2% economic interest in AB as of December 31, 2018.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America. The preparation of the financial statements requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
AB Holding’s financial statements and notes should be read in conjunction with the consolidated financial statements and notes of
AB, which are included in this Form 10-K.
Investment in AB
AB Holding records its investment in AB using the equity method of accounting. AB Holding’s investment is increased to reflect its
proportionate share of income of AB and decreased to reflect its proportionate share of losses of AB and cash distributions made by
AB to its Unitholders. In addition, AB Holding’s investment is adjusted to reflect its proportionate share of certain capital trans-
actions of AB.
AB’s ASC 606 Implementation
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Rev-
enue from Contracts with Customers, which outlines a single comprehensive revenue recognition model for all contracts with cus-
tomers and supersedes most of the existing revenue recognition requirements. This standard had no impact on AB Holding’s
statement of income. AB adopted this new standard on January 1, 2018 on a modified retrospective basis for contracts that were not
completed as of the date of adoption.
On January 1, 2018, AB recorded a cumulative effect adjustment, net of tax, of a $35.0 million increase to partners’ capital in its
condensed consolidated statement of financial condition. Accordingly, AB Holding, as a result of its 35.5% ownership interest in AB
as of January 1, 2018, recorded a cumulative effect adjustment, net of tax, of $12.5 million to partners’ capital in its condensed
statement of financial condition.
Annual Report 2018
71
AllianceBernstein Holding L.P.
Notes to Financial Statements (continued)
Cash Distributions
AB Holding is required to distribute all of its Available Cash Flow, as defined in the Amended and Restated Agreement of Limited
Partnership of AB Holding (“AB Holding Partnership Agreement”), to its Unitholders pro rata in accordance with their percent-
age interests in AB Holding. Available Cash Flow is defined as the cash distributions AB Holding receives from AB minus such
amounts as the General Partner determines, in its sole discretion, should be retained by AB Holding for use in its business (such as
the payment of taxes) or plus such amounts as the General Partner determines, in its sole discretion, should be released from pre-
viously retained cash flow.
On February 13, 2019, the General Partner declared a distribution of $0.64 per unit, representing a distribution of Available Cash
Flow for the three months ended December 31, 2018. Each general partnership unit in AB Holding is entitled to receive dis-
tributions equal to those received by each AB Holding Unit. The distribution is payable on March 7, 2019 to holders of record at
the close of business on February 25, 2019.
Total cash distributions per Unit paid to Unitholders during 2018, 2017 and 2016 were $2.88, $2.13 and $1.75, respectively.
Long-term Incentive Compensation Plans
AB maintains several unfunded, non-qualified long-term incentive compensation plans, under which the company grants awards of
restricted AB Holding Units to its employees and members of the Board of Directors, who are not employed by AB or by any of
AB’s affiliates (“Eligible Directors”).
AB funds its restricted AB Holding Unit awards either by purchasing AB Holding Units on the open market or purchasing newly-
issued AB Holding Units from AB Holding, and then keeping all of these AB Holding Units in a consolidated rabbi trust until
delivering them or retiring them. In accordance with the AB Holding Partnership Agreement, when AB purchases newly-issued
AB Holding Units from AB Holding, AB Holding is required to use the proceeds it receives from AB to purchase the equivalent
number of newly-issued AB Units, thus increasing its percentage ownership interest in AB. AB Holding Units held in the con-
solidated rabbi trust are corporate assets in the name of the trust and are available to the general creditors of AB.
During each of 2018 and 2017, AB purchased 9.3 million AB Holding Units for $268.0 million and $220.2 million, respectively (on a
trade date basis). These amounts reflect open-market purchases of 6.5 million and 5.2 million AB Holding Units for $183.2 million and
$117.1 million, respectively, with the remainder relating to purchases of AB Holding Units from employees to allow them to fulfill
statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards.
Each quarter, AB considers whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18
under the Securities Exchange Act of 1934, as amended (“Exchange Act”). A plan of this type allows a company to repurchase its
shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it
possesses material non-public information. Each broker selected by AB has the authority under the terms and limitations specified in
the plan to repurchase AB Holding Units on AB’s behalf in accordance with the terms of the plan. Repurchases are subject to regu-
lations promulgated by the U.S. Securities and Exchange Commission (“SEC”) as well as certain price, market volume and timing
constraints specified in the plan. The plan adopted during the fourth quarter of 2018 expired at the close of business on Febru-
ary 12, 2019. AB may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund
anticipated obligations under its incentive compensation award program and for other corporate purposes.
During 2018, AB granted to employees and Eligible Directors 8.7 million restricted AB Holding Units (including 6.2 million
granted in December for 2018 year-end awards). During 2017, AB granted to employees and Eligible Directors 8.6 million
restricted AB Holding Units (including 6.4 million granted in December for 2017 year-end awards).
During 2018 and 2017, AB Holding issued 0.9 million and 1.2 million AB Holding Units, respectively, upon exercise of options to
buy AB Holding Units. AB Holding used the proceeds of $16.6 million and $20.1 million, respectively, received from employees as
payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.
72
AB
AllianceBernstein Holding L.P.
Notes to Financial Statements (continued)
3. Net Income Per Unit
Basic net income per unit is derived by dividing net income by the basic weighted average number of units outstanding for each
year. Diluted net income per unit is derived by adjusting net income for the assumed dilutive effect of compensatory options (“Net
income—diluted”) and dividing by the diluted weighted average number of units outstanding for each year.
Years Ended December 31,
2017
2018
2016
Net income—basic
Additional allocation of equity in net income attributable to AB resulting from assumed dilutive effect of compensatory
options
Net income—diluted
Weighted average units outstanding—basic
Dilutive effect of compensatory options
Weighted average units outstanding—diluted
Basic net income per unit
Diluted net income per unit
(in thousands, except per unit amounts)
$242,397
$207,422
$216,586
447
$242,844
97,041
251
97,292
$
$
2.50
2.50
680
$208,102
94,733
430
95,163
$
$
2.19
2.19
878
$217,464
96,834
554
97,388
$
$
2.24
2.23
We excluded 49,784 options in 2018, 1,970,741 options in 2017 and 2,873,106 options in 2016, from the diluted net income per
unit computation due to their anti-dilutive effect.
4. Investment in AB
Changes in AB Holding’s investment in AB for the years ended December 31, 2018 and 2017 are as follows:
Investment in AB as of January 1,
Equity in net income attributable to AB Unitholders
Changes in accumulated other comprehensive (loss) income
Cash distributions received from AB
Additional investments with proceeds from exercises of compensatory options to buy AB Holding Units, net
Capital contributions (from) to AB
AB Holding Units retired
AB Holding Units issued to fund long-term incentive compensation plans
Change in AB Holding Units held by AB for long-term incentive compensation plans
Impact of AB’s adoption of revenue recognition standard ASC 606
Other
Investment in AB as of December 31,
2018
2017
(in thousands)
$ 1,544,704
$ 1,540,508
270,647
(5,998)
(308,042)
16,589
(1,440)
(194,544)
168,955
(12,585)
12,548
(133)
232,393
8,562
(226,846)
20,110
22
(162,206)
135,604
(3,443)
—
—
$1,490,701
$1,544,704
Annual Report 2018
73
AllianceBernstein Holding L.P.
Notes to Financial Statements (continued)
5. Units Outstanding
Changes in AB Holding Units outstanding for the years ended December 31, 2018 and 2017 are as follows:
Outstanding as of January 1,
Options exercised
Units issued
Units retired
Outstanding as of December 31,
6. Income Taxes
2018
2017
96,461,989
96,652,190
889,119
6,153,320
1,179,860
5,546,695
(6,846,150)
(6,916,756)
96,658,278
96,461,989
AB Holding is a “grandfathered” publicly-traded partnership (“PTP”) for federal tax purposes and, accordingly, is not subject to
federal or state corporate income taxes. However, AB Holding is subject to the 4.0% New York City unincorporated business tax
(“UBT”), net of credits for UBT paid by AB, and to a 3.5% federal tax on partnership gross income from the active conduct of a
trade or business. AB Holding’s partnership gross income is derived from its interest in AB.
The principal reasons for the difference between AB Holding’s effective tax rates and the UBT statutory tax rate of 4.0% are as fol-
lows:
UBT statutory rate
Federal tax on partnership gross business income
State income taxes
Credit for UBT paid by AB
Income tax expense and effective tax rate
2018
Years Ended December 31,
2017
(in thousands)
2016
$ 10,826
27,674
576
(10,826)
$28,250
4.0%
$ 9,296
4.0%
$ 9,576
4.0%
10.2
0.2
(4.0)
10.4
24,520
451
(9,296)
$24,971
10.5
0.2
(4.0)
10.7
22,342
461
(9,576)
$22,803
9.3
0.2
(4.0)
9.5
AB Holding’s federal income tax is computed by multiplying certain AB qualifying revenues (primarily U.S. investment advisory
fees and brokerage commissions) by AB Holding’s ownership interest in AB, multiplied by the 3.5% tax rate. AB Holding Units in
AB’s consolidated rabbi trust are not considered outstanding for purposes of calculating AB Holding’s ownership interest in AB.
Years Ended December 31,
% Change
2018
2017
2016
2018-17
2017-16
(in thousands)
Net income attributable to AB Unitholders
$ 757,588
$ 662,403
$ 673,358
14.4%
(1.6)%
Multiplied by: weighted average equity ownership interest
Equity in net income attributable to AB Unitholders
AB qualifying revenues
Multiplied by: weighted average equity ownership interest for calculating tax
Multiplied by: federal tax
Federal income taxes
State income taxes
Total income taxes
35.7%
35.1%
35.6%
$ 270,647
$2,647,254
$ 232,393
$2,407,212
$ 239,389
$2,143,858
16.5
10.0
(2.9)
12.3
29.9%
3.5%
27,674
576
29.1%
3.5%
24,520
451
29.8%
3.5%
22,342
461
$ 28,250
$ 24,971
$ 22,803
13.1
9.5
74
AB
AllianceBernstein Holding L.P.
Notes to Financial Statements (continued)
In order to preserve AB Holding’s status as a “grandfathered” PTP for federal income tax purposes, management ensures that AB
Holding does not directly or indirectly (through AB) enter into a substantial new line of business. If AB Holding were to lose its
status as a “grandfathered” PTP, it would be subject to corporate income tax, which would reduce materially AB Holding’s net
income and its quarterly distributions to AB Holding Unitholders.
We recognize the effects of a tax position in the financial statements only if, as of the reporting date, it is “more likely than not” to
be sustained based on its technical merits and their applicability to the facts and circumstances of the tax position. In making this
assessment, we assume that the taxing authority will examine the tax position and have full knowledge of all relevant information.
Accordingly, we have no liability for unrecognized tax benefits as of December 31, 2018 and 2017. A liability for unrecognized tax
benefits, if required, would be recorded in income tax expense and affect the company’s effective tax rate.
As of December 31, 2018, AB Holding is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities
for years before 2015.
7. Commitments and Contingencies
Legal and regulatory matters described below pertain to AB and are included here due to their potential significance to AB Hol-
ding’s investment in AB.
With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of
a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected
outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of
the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the
possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because
litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages. Such is also the
case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose
that we are unable to predict the outcome or estimate a possible loss or range of loss.
AB may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which
may allege significant damages. It is reasonably possible that AB could incur losses pertaining to these matters, but management
cannot currently estimate any such losses.
Management, after consultation with legal counsel, currently believes that the outcome of any individual matter that is pending or
threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or
liquidity. However, any inquiry, proceeding or litigation has the element of uncertainty; management cannot determine whether
further developments relating to any individual matter that is pending or threatened, or all of them combined, will have a material
adverse effect on our results of operations, financial condition or liquidity in any future reporting period.
Annual Report 2018
75
AllianceBernstein Holding L.P.
Notes to Financial Statements (continued)
8. Quarterly Financial Data (Unaudited)
Equity in net income attributable to AB Unitholders
Net income
Basic net income per unit(1)
Diluted net income per unit(1)
Cash distributions per unit(2)(3)
Equity in net income attributable to AB Unitholders
Net income
Basic net income per unit(1)
Diluted net income per unit(1)
Cash distributions per unit(2)(3)
Quarters Ended 2018
December 31
September 30
June 30
March 31
(in thousands, except per unit amounts)
$66,759
$59,880
$
$
$
0.63
0.63
0.64
$72,802
$65,900
$
$
$
0.68
0.68
0.69
$65,388
$58,457
$
$
$
0.59
0.59
0.62
$65,698
$58,160
$
$
$
0.60
0.60
0.73
Quarters Ended 2017
December 31
September 30
June 30
March 31
(in thousands, except per unit amounts)
$85,725
$78,593
$
$
$
0.84
0.84
0.84
$49,055
$43,178
$
$
$
0.46
0.46
0.51
$47,947
$41,741
$
$
$
0.43
0.43
0.49
$49,666
$43,910
$
$
$
0.46
0.46
0.46
(1) Basic and diluted net income per unit are computed independently for each of the periods presented. Accordingly, the sum of the quarterly net income per unit
amounts may not agree to the total for the year.
(2) Declared and paid during the following quarter.
(3) Cash distributions reflect the impact of AB’s non-GAAP adjustments.
76
AB
Report of Independent Registered Public Accounting Firm
To the General Partner and Unitholders of
AllianceBernstein L.P.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of AllianceBernstein L.P. and its subsidiaries (the
“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income,
changes in partners’ capital and cash flows for each of the three years in the period ended December 31, 2018, including the related
notes and financial statement schedule listed in the index appearing under Item 15(a) (collectively referred to as the “consolidated
financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Manage-
ment’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on
the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial state-
ments. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
Annual Report 2018
77
in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projec-
tions of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 13, 2019
We have served as the Company’s auditor since 2006.
78
AB
AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Financial Condition
ASSETS
Cash and cash equivalents
Cash and securities segregated, at fair value (cost $1,169,461 and $816,350)
Receivables, net:
Brokers and dealers
Brokerage clients
AB funds fees
Other fees
Investments:
Long-term incentive compensation-related
Other
Assets of consolidated company-sponsored investment funds:
Cash and cash equivalents
Investments
Other assets
Furniture, equipment and leasehold improvements, net
Goodwill
Intangible assets, net
Deferred sales commissions, net
Other assets
Total assets
LIABILITIES AND CAPITAL
Liabilities:
Payables:
Brokers and dealers
Securities sold not yet purchased
Brokerage clients
AB mutual funds
Accounts payable and accrued expenses
Liabilities of consolidated company-sponsored investment funds
Accrued compensation and benefits
Debt
Total liabilities
Commitments and contingencies (See Note 14)
Redeemable non-controlling interest
Capital:
General Partner
Limited partners: 268,850,276 and 268,659,333 units issued and outstanding
Receivables from affiliates
AB Holding Units held for long-term incentive compensation plans
Accumulated other comprehensive loss
Partners’ capital attributable to AB Unitholders
Non-redeemable non-controlling interests in consolidated entities
Total capital
Total liabilities and capital
See Accompanying Notes to Consolidated Financial Statements.
December 31,
2018
2017
(in thousands,
except unit amounts)
$
640,206
1,169,554
$
671,930
816,350
197,048
1,718,629
217,470
127,462
52,429
661,915
13,118
351,696
22,840
155,519
3,066,700
79,424
17,148
297,940
$8,789,098
$
290,960
8,623
3,095,458
74,599
412,313
22,610
273,250
546,267
4,724,080
199,690
1,647,059
212,115
130,119
66,034
377,555
326,518
1,246,283
35,397
157,569
3,066,700
105,784
30,126
193,505
$9,282,734
$
237,861
29,961
2,229,371
82,967
503,227
698,101
270,610
565,745
4,617,843
148,809
601,587
40,240
4,075,306
(11,430)
(77,990)
(110,866)
3,915,260
949
3,916,209
$8,789,098
41,221
4,168,841
(11,494)
(42,688)
(94,140)
4,061,740
1,564
4,063,304
$9,282,734
Annual Report 2018
79
AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Income
Revenues:
Investment advisory and services fees
Bernstein research services
Distribution revenues
Dividend and interest income
Investment gains (losses)
Other revenues
Total revenues
Less: Interest expense
Net revenues
Expenses:
Employee compensation and benefits
Promotion and servicing:
Distribution-related payments
Amortization of deferred sales commissions
Trade execution, marketing, T&E and other
General and administrative:
General and administrative
Real estate charges
Contingent payment arrangements
Interest on borrowings
Amortization of intangible assets
Total expenses
Operating income
Income tax
Net income
Net income of consolidated entities attributable to non-controlling interests
Net income attributable to AB Unitholders
Net income per AB Unit:
Basic
Diluted
Years Ended December 31,
2017
2018
2016
(in thousands, except per unit amounts)
$2,362,211
$2,201,305
$1,933,471
439,432
418,562
98,226
2,653
98,676
3,419,760
52,399
3,367,361
449,919
412,063
71,162
92,102
97,135
3,323,686
25,165
3,298,521
479,875
384,405
46,939
93,353
99,859
3,037,902
9,123
3,028,779
1,378,811
1,313,469
1,229,721
427,186
21,343
222,630
448,996
7,160
(2,219)
10,359
27,781
2,542,047
825,314
45,816
779,498
21,910
411,467
31,886
213,275
481,488
36,669
267
8,194
27,896
2,524,611
773,910
53,110
720,800
58,397
363,603
41,066
216,542
426,147
17,704
(20,245)
4,765
26,311
2,305,614
723,165
28,319
694,846
21,488
$ 757,588
$ 662,403
$ 673,358
$
$
2.79
2.78
$
$
2.46
2.45
$
$
2.48
2.47
See Accompanying Notes to Consolidated Financial Statements.
80
AB
AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Comprehensive Income
Net income
Other comprehensive (loss) income:
Foreign currency translation adjustments, before reclassification and tax:
Less: reclassification adjustment for losses included in net income upon liquidation
Foreign currency translation adjustments, before tax
Income tax expense
Foreign currency translation adjustments, net of tax
Unrealized gains on investments:
Unrealized gains arising during period
Less: reclassification adjustment for losses included in net income
Changes in unrealized gains on investments
Income tax benefit (expense)
Unrealized gains on investments, net of tax
Changes in employee benefit related items:
Amortization of prior service cost
Recognized actuarial gain (loss)
Changes in employee benefit related items
Income tax expense
Employee benefit related items, net of tax
Other
Other comprehensive (loss) gain
Less: Comprehensive income in consolidated entities attributable to non-controlling interests
Years Ended December 31,
2017
2018
2016
(in thousands)
$ 779,498
$ 720,800
$ 694,846
(19,337)
(100)
(19,237)
620
(18,617)
—
—
—
—
—
24
1,586
1,610
(139)
1,471
374
(16,772)
21,864
28,123
—
28,123
—
28,123
6
—
6
3
9
24
(3,190)
(3,166)
(27)
(3,193)
—
24,939
59,379
(19,849)
(6)
(19,843)
—
(19,843)
10
(6)
16
(7)
9
93
(3,043)
(2,950)
(22)
(2,972)
—
(22,806)
21,426
Comprehensive income attributable to AB Unitholders
$740,862
$686,360
$650,614
See Accompanying Notes to Consolidated Financial Statements.
Annual Report 2018
81
AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Partner’s Capital
General Partner’s Capital
Balance, beginning of year
Impact of adoption of revenue recognition standard ASC 606
Net income
Cash distributions to General Partner
Long-term incentive compensation plans activity
(Retirement) issuance of AB Units, net
Other
Balance, end of year
Limited Partners’ Capital
Balance, beginning of year
Impact of adoption of revenue recognition standard ASC 606
Net income
Cash distributions to Unitholders
Long-term incentive compensation plans activity
(Retirement) issuance of AB Units, net
Other
Balance, end of year
Receivables from Affiliates
Balance, beginning of year
Capital contributions from General Partner
Compensation plan accrual
Capital contributions from AB Holding
Balance, end of year
AB Holding Units held for Long-term Incentive Compensation Plans
Balance, beginning of year
Purchases of AB Holding Units to fund long-term compensation plans, net
Retirement (issuance) of AB Units, net
Long-term incentive compensation awards expense
Re-valuation of AB Holding Units held in rabbi trust
Balance, end of year
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of year
Unrealized gain (loss) on investments, net of tax
Foreign currency translation adjustment, net of tax
Changes in employee benefit related items, net of tax
Other
Balance, end of year
Total Partners’ Capital attributable to AB Unitholders
Non-redeemable Non-controlling Interests in Consolidated Entities
Balance, beginning of year
Net income
Foreign currency translation adjustment
Purchase of non-controlling interest
Distributions (to) from non-controlling interests of our consolidated venture capital fund activities
Balance, end of year
Total Capital
See Accompanying Notes to Consolidated Financial Statements.
Years Ended December 31,
2017
2018
2016
(in thousands)
$
41,221
349
7,576
(8,608)
(39)
(256)
(3)
40,240
4,168,841
34,601
750,012
(849,585)
(3,880)
(25,486)
803
4,075,306
(11,494)
19
352
(307)
(11,430)
(42,688)
(267,427)
25,589
187,514
19,022
(77,990)
(94,140)
—
(18,571)
1,471
374
(110,866)
3,915,260
1,564
69
(46)
—
(638)
949
$3,916,209
$
41,100
—
6,624
(6,449)
211
(266)
1
41,221
4,154,810
—
655,779
(637,690)
20,859
(27,339)
2,422
4,168,841
(12,830)
344
156
836
(11,494)
(32,967)
(219,627)
26,603
185,234
(1,931)
(42,688)
(118,096)
9
27,140
(3,193)
—
(94,140)
4,061,740
36,172
9,632
983
(2,006)
(43,217)
1,564
$4,063,304
$
40,498
—
6,733
(5,384)
58
(805)
—
41,100
4,091,433
—
666,625
(532,180)
5,802
(80,084)
3,214
4,154,810
(14,498)
1,200
313
155
(12,830)
(29,332)
(235,893)
80,515
152,012
(269)
(32,967)
(95,353)
9
(19,780)
(2,972)
—
(118,096)
4,032,017
24,473
11,398
(63)
—
364
36,172
$4,068,189
82
AB
AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31,
2017
2016
2018
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred sales commissions
Non-cash long-term incentive compensation expense
Depreciation and other amortization
Unrealized losses (gains) on investments
Unrealized (gains) on investments of consolidated company-sponsored investment funds
Losses on real estate asset write-offs
Other, net
Changes in assets and liabilities:
Consolidation of cash and cash equivalents of consolidated company-sponsored investment funds
(Increase) decrease in securities, segregated
(Increase) decrease in receivables
(Increase) decrease in investments
Decrease (increase) in investments of consolidated company-sponsored investment funds
(Increase) decrease in deferred sales commissions
(Increase) decrease in other assets
(Decrease) increase in other assets and liabilities of consolidated company-sponsored investment funds
Increase (decrease) in payables
(Decrease) increase in accounts payable and accrued expenses
Increase (decrease) in accrued compensation and benefits
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of investments
Proceeds from sales of investments
Purchases of furniture, equipment and leasehold improvements
Proceeds from sales of furniture, equipment and leasehold improvements
Purchase of intangible asset
Purchase of businesses, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Issuance (repayment) of commercial paper, net
(Repayment) proceeds from bank loans
Increase (decrease) in overdrafts payable
Distributions to General Partner and Unitholders
Capital contributions (to) from non-controlling interests in consolidated entities
(Redemptions) purchases of non-controlling interests of consolidated company-sponsored investment funds, net
Capital contributions (to) from affiliates
Payments of contingent payment arrangements/purchase of shares
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net
Purchases of AB Units
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents as of beginning of the period
Cash and cash equivalents as of end of the period
Cash paid:
Interest paid
Income taxes paid
Non-cash investing activities:
Fair value of assets acquired
Fair value of liabilities assumed
Non-cash financing activities:
Payables recorded under contingent payment arrangements
See Accompanying Notes to Consolidated Financial Statements.
Annual Report 2018
(in thousands)
$
779,498
$ 720,800
$
694,846
21,343
187,514
70,000
23,164
(14,217)
38
(6,484)
—
(353,204)
(207,000)
(294,383)
908,804
(8,365)
(152,726)
(662,934)
1,024,317
(11,225)
4,341
1,308,481
—
—
(32,789)
—
—
—
(32,789)
24,546
(50,000)
3,273
(858,193)
(638)
(472,143)
(1,421)
(1,093)
16,589
(267,427)
(153)
(1,998)
(1,608,658)
(12,158)
(345,124)
998,448
653,324
$
31,886
185,234
66,999
3,554
(36,340)
8,161
5,028
—
129,747
67,539
293
(639,067)
1,878
(2,255)
417,674
(338,523)
10,657
12,187
645,452
(12)
11
(39,417)
75
—
—
(39,343)
(28,553)
75,000
63,393
(644,139)
(43,217)
163,164
366
(7,592)
20,110
(219,627)
(1,003)
(1,833)
(623,931)
21,760
3,938
994,510
$ 998,448
41,066
152,162
59,026
(28,204)
(29,121)
5,456
3,629
358,534
(380,823)
(296,233)
187,752
(342,938)
(5,886)
13,517
229,524
886,520
2,459
(3,238)
1,548,048
—
372
(36,728)
15
(2,500)
(20,541)
(59,382)
(72,003)
—
(84,512)
(537,564)
364
(132,837)
1,000
(5,545)
6,108
(235,893)
(374)
(22)
(1,061,278)
(10,178)
417,210
577,300
994,510
$
$
60,286
41,946
$
30,975
67,421
$
—
—
—
—
—
—
11,148
27,387
33,583
1,149
11,893
83
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements
The words “we” and “our” refer collectively to AllianceBernstein L.P. and its subsidiaries (“AB”), or to their officers and employees. Similarly,
the word “company” refers to AB. Cross-references are in italics.
1. Business Description and Organization
We provide research, diversified investment management and related services globally to a broad range of clients. Our principal
services include:
•
Institutional Services—servicing our institutional clients, including private and public pension plans, foundations and endow-
ments, insurance companies, central banks and governments worldwide, and affiliates such as AXA S.A. (“AXA”), AXA Equi-
table Holdings, Inc. (“EQH”) and their respective subsidiaries, by means of separately-managed accounts, sub-advisory
relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles.
• Retail Services—servicing our retail clients, primarily by means of retail mutual funds sponsored by AB or an affiliated com-
pany, sub-advisory relationships with mutual funds sponsored by third parties, separately-managed account programs sponsored
by financial intermediaries worldwide and other investment vehicles.
• Private Wealth Management Services—servicing our private clients, including high-net-worth individuals and families, trusts
and estates, charitable foundations, partnerships, private and family corporations, and other entities, by means of separately-
managed accounts, hedge funds, mutual funds and other investment vehicles.
• Bernstein Research Services—servicing institutional investors, such as pension fund, hedge fund and mutual fund managers,
seeking high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options.
We also provide distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds we
sponsor.
Our high-quality, in-depth research is the foundation of our business. Our research disciplines include economic, fundamental
equity, fixed income and quantitative research. In addition, we have experts focused on multi-asset strategies, wealth management
and alternative investments.
We provide a broad range of investment services with expertise in:
• Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and
investment strategies, including value, growth and core equities;
• Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;
• Passive management, including index and enhanced index strategies;
• Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct lending); and
• Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds.
Our services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term
(e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging
markets, regional and local), in major markets around the world.
During the second quarter of 2018, EQH, the holding company for a diversified financial services organization, conducted an initial
public offering. AXA, a French holding company for AXA Group, a worldwide leader in life, property and casualty and health
insurance and asset management, owns 59.2% of the outstanding common stock of EQH as of December 31, 2018. AXA has
announced its intention to sell its entire remaining interest in EQH over time, subject to market conditions and other factors. AXA
is under no obligation to do so and retains the sole discretion to determine the timing of any future sales of shares of EQH common
stock.
84
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
As of December 31, 2018, EQH owns approximately 4.2% of the issued and outstanding units representing assignments of beneficial
ownership of limited partnership interests in AllianceBernstein Holding L.P. (“AB Holding Units”). AllianceBernstein Corporation
(an indirect wholly-owned subsidiary of EQH, “General Partner”) is the general partner of both AllianceBernstein Holding L.P.
(“AB Holding”) and AB. AllianceBernstein Corporation owns 100,000 general partnership units in AB Holding and a 1% general
partnership interest in AB.
As of December 31, 2018, the ownership structure of AB, including limited partnership units outstanding as well as the general
partner’s 1% interest, is as follows:
EQH and its subsidiaries
AB Holding
Unaffiliated holders
63.6%
35.6
0.8
100.0%
Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an
approximate 65.2% economic interest in AB as of December 31, 2018.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“US GAAP”). The preparation of the consolidated financial statements requires management to make certain
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include AB and its majority-owned and/or controlled subsidiaries, and the consolidated enti-
ties that are considered to be variable interest entities (“VIEs”) and voting interest entities (“VOEs”) in which AB has a controlling
financial interest. Non-controlling interests on the consolidated statements of financial condition include the portion of consolidated
company-sponsored investment funds in which we do not have direct equity ownership. All significant inter-company transactions
and balances among the consolidated entities have been eliminated.
Reclassifications
During 2018, to conform to the current period’s presentation, prior period amounts for:
•
revenues related to our middle market lending business previously presented as other revenues are now presented as investment
advisory and services fees in the consolidated statements of income;
• payments to financial intermediaries for administrative services, sub-accounting services and maintenance of books and records
for certain funds previously presented as distribution-related payments are now presented as trade execution, marketing, T&E
and other expenses in the consolidated statements of income;
•
•
research and miscellaneous fees related to our brokers dealers previously presented as other assets are now presented as other fees
receivables in the consolidated statements of financial condition; and
income tax payable and receivable as well as deferred tax assets and liabilities are now shown net by jurisdiction in the con-
solidated statements of financial condition.
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Notes to Consolidated Financial Statements (continued)
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606,
Revenue from Contracts with Customers, which outlines a single comprehensive revenue recognition model for all contracts with cus-
tomers and supersedes most of the existing revenue recognition requirements. We adopted this new standard on January 1, 2018 on
a modified retrospective basis for contracts that were not completed as of the date of adoption.
The new standard did not change the timing of revenue recognition for our base fees, distribution revenues, shareholder servicing fees
and broker-dealer revenues. However, performance-based fees, which, prior to the adoption of ASC 606, were recognized at the end
of the applicable measurement period when no risk of reversal remained, and carried-interest distributions received (considered
performance-based fees), recorded as deferred revenues until no risk of reversal remained, may in certain instances be recognized earlier
under the new standard, if it is probable that significant reversal of performance-based fees recognized will not occur.
On January 1, 2018, we recorded a cumulative effect adjustment, net of tax, of a $35.0 million increase to partners’ capital in the
consolidated statement of financial condition. This amount represents carried interest distributions of $77.9 million previously
received, net of revenue sharing payments to investment team members of $42.7 million, with respect to which it is probable that
significant reversal will not occur.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amend-
ment addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. We adopted this
standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of
operations.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The amendment is intended to reduce diver-
sity in practice in how certain transactions are classified in the statement of cash flows. We adopted this standard on January 1, 2018.
The adoption of this standard did not have a material impact on our financial condition or results of operations.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard requires
that the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally
described as restricted cash or restricted cash equivalents. Companies are also required to reconcile such total amounts in the state-
ment of financial condition and disclose the nature of the restrictions. We adopted this standard on January 1, 2018. The adoption
of this standard did not have a material impact on our financial condition or results of operations.
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost. The amendment requires that an employer disaggregate the service cost component from the other components of net
benefit costs on the income statement. We adopted this standard on January 1, 2018. The adoption of this standard did not have a
material impact on our financial condition or results of operations.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation, Scope of Modification Accounting. The amendment
provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compen-
sation – Stock Compensation, to a change to the terms or conditions of a share-based payment award. We adopted this standard on
January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.
Accounting Pronouncements Not Yet Adopted in 2018
In February 2016, the FASB issued ASU 2016-02, Leases. This pronouncement, along with subsequent ASUs issued to clarify cer-
tain provisions of ASU 2016-02, requires lessees to record most leases on their balance sheet while also disclosing key information
about those lease arrangements. The classification criteria to distinguish between finance and operating leases are generally consistent
with the classification criteria to distinguish between capital and operating leases under existing lease accounting guidance. This
pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018.
We adopted the new standard for our fiscal year beginning January 1, 2019, using the simplified transition method. The adoption of
this standard is not expected to have a material impact on our results of operations. Our future financial statements will include
additional disclosures as required by ASU 2016-02.
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Notes to Consolidated Financial Statements (continued)
As of January 1, 2019, we expect to record an increase in assets ranging between $430 million to $440 million and an increase in
liabilities ranging between $560 million to $570 million, respectively, on our statement of financial condition as a result of recogniz-
ing right-of-use assets and lease liabilities for our lease portfolio (primarily real estate leases). The right-of-use assets recognized as of
January 1, 2019 are net of deferred rent and liabilities associated with previously recognized impairments as of December 31, 2018.
These estimated ranges were based on our lease portfolio as of January 1, 2019, and it did not include the potential impacts of
re-measurement due to changes in our assessment of the lease term subsequent to our adoption of the standard.
In June 2016, the FASB issued ASU 2016-03, Financial Instruments – Credit Losses (Topic 326). This new guidance relates to the
accounting for credit losses on financial instruments. The new guidance introduces an approach based on expected losses to estimate
credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and
provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new
guidance is effective for financial statements issued for fiscal years ending after December 15, 2019, with early adoption permitted.
Management currently is evaluating the impact that adoption of this standard will have on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the
goodwill impairment test, which requires a hypothetical purchase price allocation. As a result of the revised guidance, a goodwill
impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount
of goodwill. The revised guidance will be applied prospectively, and is effective in 2020. The revised guidance is not expected to
have a material impact on our financial condition or results of operations.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,
which permits a company to reclassify the disproportionate income tax effects of the 2017 Tax Cuts and Job Act (“2017 Tax Act”)
on items within Accumulated Other Comprehensive Income (“AOCI”) to retained earnings. The FASB refers to these amounts as
“stranded tax effects.” The ASU also requires certain new disclosures, some of which are applicable for all companies. The guidance
is effective for all companies for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
Companies may adopt the new guidance using one of two transition methods: (1) retrospective to each period (or periods) in which
the income tax effect of the 2017 Tax Act related to items remaining in AOCI are recognized, or (2) at the beginning of the period
of adoption. We adopted this standard on January 1, 2019. The adoption of this standard is not expected to have a material impact
on our financial condition or results of operations.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure
Requirements for Fair Value Measurement. The amendment modifies the disclosure requirements for fair value measurements by
removing, modifying, or adding certain disclosures. The revised guidance is effective for all companies for fiscal years beginning
after December 15, 2019, and interim periods within those years. Companies are permitted to early adopt any eliminated or modi-
fied disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. The removed
and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The
revised guidance is not expected to have a material impact on our financial condition or results of operations.
In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Topic 715-20). The
amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The
revised guidance is effective for financial statements issued for fiscal years ending after December 15, 2020, with early adoption permit-
ted. The revised guidance is not expected to have a material impact on our financial condition or results of operations.
Revenue Recognition
Investment advisory and services fees
AB provides asset management services by managing customer assets and seeking to deliver investment returns to investors. Each
investment management contract between AB and a customer creates a distinct, separately identifiable performance obligation for
each day the customer’s assets are managed as the customer can benefit from each day of service. In accordance with ASC 606, a
series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer are treated
as a single performance obligation. Accordingly, we have determined that our investment and advisory services are performed over
time and entitle us to variable consideration earned based upon the value of the investors’ assets under management (“AUM”).
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Notes to Consolidated Financial Statements (continued)
We calculate AUM using established market-based valuation methods and fair valuation (non-observable market) methods. Market-
based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures;
evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; mid prices from
recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing vendors and brokers for
other derivative products. Fair valuation methods include: discounted cash flow models, evaluation of assets versus liabilities or any
other methodology that is validated and approved by our Valuation Committee (see paragraph immediately below for additional
information about our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-
based valuation methods, such as in the case of private equity or illiquid securities.
The Valuation Committee, which consists of senior officers and employees, is responsible for overseeing the pricing and valuation
of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing
principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which
reports to the Valuation Committee and is responsible for overseeing the pricing process for all investments.
We record as revenue investment advisory and services base fees, which we generally calculate as a percentage of AUM. At
month-end, all the components of the transaction price (i.e., the base fee calculation) are no longer variable and the value of the
consideration is determined. These fees are not subject to claw back and there is minimal probability that a significant reversal of the
revenue recorded will occur.
The transaction price for the asset management performance obligation for certain investment advisory contracts, including those asso-
ciated with hedge funds or other alternative investments, provide for a performance-based fee (including carried interest), in addition
to a base advisory fee, which is calculated as either a percentage of absolute investment results or a percentage of investment results in
excess of a stated benchmark over a specified period of time. The performance-based fees are forms of variable consideration and are
therefore excluded from the transaction price until it becomes probable that there will not be significant reversal of the cumulative
revenue recognized. At each reporting date, we evaluate the constraining factors, discussed below, surrounding the variable consideration
to determine the extent to which, if any, revenues associated with the performance-based fee can be recognized.
Constraining factors impacting the amount of variable consideration included in the transaction price include: the contractual claw-
back provisions to which the variable consideration is subject, the length of time to which the uncertainty of the consideration is
subject, the number and range of possible consideration amounts, the probability of significant fluctuations in the fund’s market
value, the level at which the fund’s value exceeds the contractual threshold required to earn such a fee, and the materiality of the
amount being evaluated.
Prior to the adoption of ASC 606 on January 1, 2018, we recognized performance-based fees at the end of the applicable measure-
ment period when no risk of reversal remained, and carried-interest distributions received as deferred revenues until no risk of
reversal remained.
Bernstein Research Services
Bernstein Research Services revenue consists principally of commissions received for trade execution services and providing equity
research services to institutional clients. Brokerage commissions for trade execution services and related expenses are recorded on a
trade-date basis when the performance obligations are satisfied. Generally, the transaction price is agreed upon at the point of each
trade and based upon the number of shares traded or the value of the consideration traded. Research revenues are recognized when
the transaction price is quantified, collectability is assured and significant reversal of such revenue is not probable.
Distribution Revenues
Two of our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution
services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. Depending upon the con-
tractual arrangements with the customer and the specific product sold, the variable consideration can be determined in different
ways, as discussed below, as we satisfy the performance obligation.
Most open-end U.S. funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out
of assets of the fund, distribution and service fees for the distribution and sale of its shares (“Rule 12b-1 Fees”). The open-end U.S.
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Notes to Consolidated Financial Statements (continued)
funds have such agreements with us, and we have selling and distribution agreements pursuant to which we pay sales commissions
to the financial intermediaries that distribute our open-end U.S. funds. These agreements are terminable by either party upon notice
(generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares.
We record 12b-1 fees monthly based upon a percentage of the net asset value (“NAV”) of the funds. At month-end, the variable
consideration of the transaction price is no longer constrained as the NAV can be calculated and the value of consideration is
determined. These services are separate and distinct from other asset management services as the customer can benefit from these
services independently of other services. We accrue the corresponding 12b-1 fees paid to sub-distributors monthly as the expenses
are incurred. We are acting in a principal capacity in these transactions; as such, these revenues and expenses are recorded on a gross
basis.
We offer back-end load shares in limited instances and charge the investor a contingent deferred sales charge (“CDSC”) if the invest-
ment is redeemed within a certain period. The variable consideration for these contracts is contingent upon the timing of the
redemption by the investor and the value of the sale proceeds. Due to these constraining factors, we exclude the CDSC fee from
the transaction price until the investor redeems the investment. Upon redemption, the cash consideration received for these con-
tractual arrangements are recorded as reductions of unamortized deferred sales commissions.
Our Luxembourg subsidiary, the management company for most of our non-U.S. funds, earns a management fee which is accrued
daily and paid monthly, at an annual rate, based on the average daily net assets of the fund. With respect to certain share classes, the
management fee may also contain a component that is paid to distributors and other financial intermediaries and service providers to
cover shareholder servicing and other administrative expenses (also referred to as an All-in-Fee). As we have concluded that asset
management is distinct from distribution, we allocate a portion of the investment and advisory fee to distribution revenues for the
servicing component based on standalone selling prices.
Other Revenues
Revenues from contracts with customers include a portion of other revenues, which consists primarily of shareholder servicing fees,
as well as mutual fund reimbursements and other brokerage income.
We provide shareholder services, which include transfer agency, administrative and recordkeeping services provided to company-
sponsored mutual funds. The consideration for these services is based on a percentage of the NAV of the fund or a fixed-fee based
on the number of shareholder accounts being serviced. The revenues are recorded at month-end when the constraining factors
involved with determining NAV or the number of shareholders’ accounts are resolved.
Non-Contractual Revenues
Dividend and interest income is accrued as earned. Investment gains and losses on the condensed consolidated statements of income
include unrealized gains and losses of trading and private equity investments stated at fair value, equity in earnings of our limited
partnership hedge fund investments, and realized gains and losses on investments sold.
Contract Assets and Liabilities
We use the practical expedient for contracts that have an original duration of one year or less. Accordingly, we do not consider the
time value of money and, instead, accrue the incremental costs of obtaining the contract when incurred. As of December 31, 2018,
the balances of contract assets and contract liabilities are not considered material and, accordingly, no further disclosures are necessary.
Consolidation of company-sponsored investment funds
For legal entities (company-sponsored investment funds) evaluated for consolidation, we first determine whether the fees we receive
and the interests we hold qualify as a variable interest in the entity, including an evaluation of fees paid to us as a decision maker or
service provider to the entity being evaluated. Fees received by us are not variable interests if (i) the fees are compensation for serv-
ices provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes
only terms, conditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length, and
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Notes to Consolidated Financial Statements (continued)
(iii) our other economic interests in the entity held directly and indirectly through our related parties, as well as economic interests
held by related parties under common control, would not absorb more than an insignificant amount of the entity’s losses or receive
more than an insignificant amount of the entity’s benefits.
For those entities in which we have a variable interest, we perform an analysis to determine whether the entity is a VIE by consider-
ing whether the entity’s equity investment at risk is insufficient, whether the investors lack decision making rights proportional to
their ownership percentage of the entity, and whether the investors lack the obligation to absorb an entity’s expected losses or the
right to receive an entity’s expected income.
A VIE must be consolidated by its primary beneficiary, which generally is defined as the party that has a controlling financial interest
in the VIE. We are deemed to have a controlling financial interest in a VIE if we have (i) the power to direct the activities of the
VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to
receive income from the VIE that could potentially be significant to the VIE. For purposes of evaluating (ii) above, fees paid to us as
a decision maker or service provider are excluded if the amount of fees is commensurate with the level of effort required to be per-
formed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services
negotiated at arm’s length. The primary beneficiary evaluation generally is performed qualitatively based on all facts and circum-
stances, as well as quantitatively, as appropriate.
If we have a variable interest in an entity that is determined not to be a VIE, the entity is then evaluated for consolidation under the
VOE model. For limited partnerships and similar entities, we are deemed to have a controlling financial interest in a VOE, and
would be required to consolidate the entity, if we own a majority of the entity’s kick-out rights through voting limited partnership
interests and limited partners do not hold substantive participating rights (or other rights that would indicate that we do not control
the entity). For entities other than limited partnerships, we are deemed to have a controlling financial interest in a VOE if we own a
majority voting interest in the entity.
The analysis performed regarding the determination of variable interests held, whether entities are VIEs or VOEs, and whether we
have a controlling financial interest in such entities requires the exercise of judgment. The analysis is updated continuously as cir-
cumstances change or new entities are formed.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, money market accounts, overnight commercial paper and highly
liquid investments with original maturities of three months or less. Due to the short-term nature of these instruments, the recorded
value has been determined to approximate fair value (and considered Level 1 securities in the fair value hierarchy). During 2017, the
majority of our consolidated VIEs’ cash and cash equivalents is pledged as collateral for short positions in equities.
Fees Receivable, Net
Fees receivable are shown net of allowances. An allowance for doubtful accounts related to investment advisory and services fees is
determined through an analysis of the aging of receivables, assessments of collectability based on historical trends and other qual-
itative and quantitative factors, including our relationship with the client, the financial health (or ability to pay) of the client, current
economic conditions and whether the account is active or closed. The allowance for doubtful accounts is not material to fees
receivable.
Brokerage Transactions
Customers’ securities transactions are recorded on a settlement date basis, with related commission income and expenses reported on
a trade date basis. Receivables from and payables to clients include amounts due on cash and margin transactions. Securities owned
by customers are held as collateral for receivables; such collateral is not reflected in the consolidated financial statements. We have
the ability by contract or custom to sell or re-pledge this collateral, and have done so at various times. As of December 31, 2018,
there were no re-pledged securities. Principal securities transactions and related expenses are recorded on a trade date basis.
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Notes to Consolidated Financial Statements (continued)
Securities borrowed and securities loaned by our broker-dealer subsidiaries are recorded at the amount of cash collateral advanced or
received in connection with the transaction and are included in receivables from and payables to brokers and dealers in the con-
solidated statements of financial condition. Securities borrowed transactions require us to deposit cash collateral with the lender.
With respect to securities loaned, we receive cash collateral from the borrower. See Note 9 for securities borrowed and loaned
amounts recorded in our consolidated statements of financial condition as of December 31, 2018 and 2017. The initial collateral
advanced or received approximates or is greater than the fair value of securities borrowed or loaned. We monitor the fair value of
the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate. As of
December 31, 2018 and 2017, there is no allowance provision required for the collateral advanced. Income or expense is recog-
nized over the life of the transaction.
As of December 31, 2018 and 2017, we had $196.9 million and $42.9 million, respectively, of cash on deposit with clearing orga-
nizations for trade facilitation purposes which are reported in other assets in our consolidated statements of financial condition. In
addition, as of December 31, 2018 and 2017, we held U.S. Treasury Bills with values totaling $392.4 million and $52.6 million,
respectively, in our investment account that are pledged as collateral with clearing organizations which are reported in other
investments in our consolidated statements of financial condition. These clearing organizations have the ability by contract or cus-
tom to sell or re-pledge this collateral.
Furniture, Equipment and Leasehold Improvements, Net
Furniture, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is
recognized on a straight-line basis over the estimated useful lives of eight years for furniture and three to six years for equipment and
software. Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the terms of
the related leases.
Goodwill
In 2000, AB acquired SCB Inc., an investment research and management company formerly known as Sanford C. Bernstein Inc.
(“Bernstein”). The Bernstein acquisition was accounted for under the purchase method and the cost of the acquisition was allocated
on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The excess of the purchase price over the
fair value of identifiable assets acquired, net of liabilities assumed, resulted in the recognition of goodwill of approximately
$3.0 billion.
As of December 31, 2018, goodwill of $3.1 billion on the consolidated statement of financial condition included $2.8 billion as a
result of the Bernstein acquisition and $266 million in regard to various smaller acquisitions. We have determined that AB has only
one reporting segment and reporting unit.
We test our goodwill annually, as of September 30, for impairment. As of September 30, 2018, the impairment test indicated that
goodwill was not impaired. We also review the carrying value of goodwill if facts and circumstances occur that suggest possible
impairment, such as significant declines in AUM, revenues, earnings or the price of an AB Holding Unit. There were no facts or
circumstances occurring in the fourth quarter of 2018 suggesting possible impairment.
Intangible Assets, Net
Intangible assets consist primarily of costs assigned to acquired investment management contracts of Bernstein based on their esti-
mated fair value at the time of acquisition, less accumulated amortization. Intangible assets are recognized at fair value and generally
are amortized on a straight-line basis over their estimated useful life ranging from six years to 20 years.
As of December 31, 2018, intangible assets, net of accumulated amortization, of $79.4 million on the consolidated statement of
financial condition consists of $65.9 million of finite-lived intangible assets subject to amortization, of which $36.2 million relates to
the Bernstein acquisition, and $13.5 million of indefinite-lived intangible assets not subject to amortization in regard to other
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Notes to Consolidated Financial Statements (continued)
acquisitions. As of December 31, 2017, intangible assets, net of accumulated amortization, of $105.8 million on the consolidated
statement of financial condition consisted of $92.3 million of finite-lived intangible assets subject to amortization, of which
$56.9 million related to the Bernstein acquisition, and $13.5 million of indefinite-lived intangible assets not subject to amortization
in regard to other acquisitions. The gross carrying amount of finite-lived intangible assets totaled $475.1 million as of December 31,
2018 and $473.7 million as of December 31, 2017, and accumulated amortization was $409.2 million as of December 31, 2018 and
$381.4 million as of December 31, 2017. Amortization expense was $27.8 million for 2018, $27.9 million for 2017 and
$26.3 million for 2016. Estimated annual amortization expense for 2019 is approximately $28 million, $21 million in year two,
$5 million for year three, then approximately $4 million in years four and five.
We periodically review indefinite-lived intangible assets for impairment as events or changes in circumstances indicate that the carry-
ing value may not be recoverable. If the carrying value exceeds fair value, we perform additional impairment tests to measure the
amount of the impairment loss, if any.
Deferred Sales Commissions, Net
We pay commissions to financial intermediaries in connection with the sale of shares of open-end company-sponsored mutual funds
sold without a front-end sales charge (“back-end load shares”). These commissions are capitalized as deferred sales commissions
and amortized over periods not exceeding five and one-half years for U.S. fund shares and four years for Non-U.S. Fund shares, the
periods of time during which deferred sales commissions generally are recovered. We recover these commissions from distribution
services fees received from those funds and from contingent deferred sales commissions (“CDSC”) received from shareholders of
those funds upon the redemption of their shares. CDSC cash recoveries are recorded as reductions of unamortized deferred sales
commissions when received. Since January 31, 2009, our U.S. mutual funds have not offered back-end load shares to new investors.
As of December 31, 2016, our Non-U.S. Funds are no longer offering back-end load shares, except in isolated instances.
We periodically review the deferred sales commission asset for impairment as events or changes in circumstances indicate that the
carrying value may not be recoverable. If these factors indicate impairment in value, we compare the carrying value to the undis-
counted cash flows expected to be generated by the asset over its remaining life. If we determine the deferred sales commission asset
is not fully recoverable, the asset will be deemed impaired and a loss will be recorded in the amount by which the recorded amount
of the asset exceeds its estimated fair value. There were no impairment charges recorded during 2018 or 2017.
Loss Contingencies
With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of
a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected
outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of
the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the
possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because
litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages. Such is also the
case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose
that we are unable to predict the outcome or estimate a possible loss or range of loss.
Contingent Payment Arrangements
We periodically enter into contingent payment arrangements in connection with our business combinations. In these arrangements,
we agree to pay additional consideration to the sellers to the extent that certain performance targets are achieved. We estimate the
fair value of these potential future obligations at the time a business combination is consummated and record a liability on our con-
solidated statements of financial condition. We then accrete the obligation to its expected payment amount over the measurement
period. If our expected payment amount subsequently changes, the obligation is modified in the current period resulting in a gain
or loss. Both gains and losses resulting from changes to expected payments and the accretion of these obligations to their expected
payment amounts are reflected within contingent payment arrangements in our consolidated statements of income.
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Notes to Consolidated Financial Statements (continued)
Mutual Fund Underwriting Activities
Purchases and sales of shares of company-sponsored mutual funds in connection with the underwriting activities of our subsidiaries,
including related commission income, are recorded on the trade date. Receivables from brokers and dealers for sale of shares of
company-sponsored mutual funds generally are realized within three business days from the trade date, in conjunction with the set-
tlement of the related payables to company-sponsored mutual funds for share purchases. Distribution plan and other promotion and
servicing payments are recognized as expense when incurred.
Long-term Incentive Compensation Plans
We maintain several unfunded, non-qualified long-term incentive compensation plans, under which we grant annual awards to
employees, generally in the fourth quarter, and to members of the Board of Directors of the General Partner, who are not
employed by our company or by and of our affiliates (“Eligible Directors”).
Awards granted in December 2018, 2017 and 2016 allowed employee participants to allocate their awards between restricted AB
Holding Units and deferred cash. Participants (except certain members of senior management) generally could allocate up to 50% of
their awards to deferred cash, not to exceed a total of $250,000 per award. Each of our employees based outside of the United
States (other than expatriates), who received an award of $100,000 or less, could have allocated up to 100% of his or her award to
deferred cash. Participants allocated their awards prior to the date on which the Compensation Committee granted awards in
December 2018, 2017 and 2016. For these awards, the number of AB Holding Units awarded was based on the closing price of an
AB Holding Unit on the grant date. For awards granted in 2018, 2017 and 2016:
• We engage in open-market purchases of AB Holding Units or purchase newly-issued AB Holding Units from AB Holding that
are awarded to participants and keep them in a consolidated rabbi trust.
• Quarterly distributions on vested and unvested AB Holding Units are paid currently to participants, regardless of whether or not
a long-term deferral election has been made.
•
Interest on deferred cash is accrued monthly based on our monthly weighted average cost of funds.
We recognize compensation expense related to equity compensation grants in the financial statements using the fair value method.
Fair value of restricted AB Holding Unit awards is the closing price of an AB Holding Unit on the grant date; fair value of options
is determined using the Black-Scholes option valuation model. Under the fair value method, compensatory expense is measured at
the grant date based on the estimated fair value of the award and is recognized over the required service period. For year-end long-
term incentive compensation awards, employees who resign or are terminated without cause may retain their awards, subject to
compliance with certain agreements and restrictive covenants set forth in the applicable award agreement, including restrictions on
competition and employee and client solicitation, and a claw-back for failing to follow existing risk management policies. Because
there is no service requirement, we fully expense these awards on the grant date. Most equity replacement, sign-on or similar
deferred compensation awards included in separate employment agreements or arrangements include a required service period.
Regardless of whether or not the award agreement includes employee service requirements, AB Holding Units typically are deliv-
ered to employees ratably over four years, unless the employee has made a long-term deferral election.
Grants of restricted AB Holding Units can be awarded to Eligible Directors. Generally, these restricted AB Holding Units vest ratably
over four years. These restricted AB Holding Units are not forfeitable (except if the Eligible Director is terminated for “Cause,” as that
term is defined in the applicable award agreement). We fully expense these awards on grant date, as there is no service requirement.
We fund our restricted AB Holding Unit awards either by purchasing AB Holding Units on the open market or purchasing newly-
issued AB Holding Units from AB Holding, and then keeping all of these AB Holding Units in a consolidated rabbi trust until
delivering them or retiring them. In accordance with the Amended and Restated Agreement of Limited Partnership of AB (“AB
Partnership Agreement”), when AB purchases newly-issued AB Holding Units from AB Holding, AB Holding is required to use
the proceeds it receives from AB to purchase the equivalent number of newly-issued AB Units, thus increasing its percentage
ownership interest in AB. AB Holding Units held in the consolidated rabbi trust are corporate assets in the name of the trust and are
available to the general creditors of AB.
Annual Report 2018
93
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During each of 2018 and 2017, we purchased 9.3 million AB Holding Units for $268.0 million and $220.2 million, respectively (on
a trade date basis). These amounts reflect open-market purchases of 6.5 million and 5.2 million AB Holding Units for
$183.2 million and $117.1 million, respectively, with the remainder relating to purchases of AB Holding Units from employees to
allow them to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards.
Purchases of AB Holding Units reflected on the consolidated statements of cash flows are net of AB Holding Units purchased by
employees as part of a distribution reinvestment election.
Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18
under the Securities Exchange Act of 1934, as amended (“Exchange Act”). A plan of this type allows a company to repurchase its
shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it
possesses material non-public information. Each broker we select has the authority under the terms and limitations specified in the
plan to repurchase AB Holding Units on our behalf in accordance with the terms of the plan. Repurchases are subject to regulations
promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted
during the fourth quarter of 2018 expired at the close of business on February 12, 2019. We may adopt additional plans in the
future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive
compensation award program and for other corporate purposes.
During 2018, we granted to employees and Eligible Directors 8.7 million restricted AB Holding Units (including 6.2 million
granted in December for 2018 year-end awards to employees). During 2017, we granted to employees and Eligible Directors
8.6 million restricted AB Holding Units (including 6.4 million granted in December for 2017 year-end awards to employees).
During 2018 and 2017, AB Holding issued 0.9 million and 1.2 million AB Holding Units, respectively, upon exercise of options to
buy AB Holding Units. AB Holding used the proceeds of $16.6 million and $20.1 million, respectively, received from employees as
payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.
Foreign Currency Translation and Transactions
Assets and liabilities of foreign subsidiaries are translated from functional currencies into United States dollars (“US$”) at exchange
rates in effect at the balance sheet dates, and related revenues and expenses are translated into US$ at average exchange rates in effect
during each period. Net foreign currency gains and losses resulting from the translation of assets and liabilities of foreign operations
into US$ are reported as a separate component of other comprehensive income in the consolidated statements of comprehensive
income. Net foreign currency transaction gains (losses) were $0.6 million, $(2.9) million, and $1.6 million for 2018, 2017 and 2016,
respectively, and are reported in general and administrative expenses on the consolidated statements of income.
Cash Distributions
AB is required to distribute all of its Available Cash Flow, as defined in the AB Partnership Agreement, to its Unitholders and to the
General Partner. Available Cash Flow can be summarized as the cash flow received by AB from operations minus such amounts as
the General Partner determines, in its sole discretion, should be retained by AB for use in its business, or plus such amounts as the
General Partner determines, in its sole discretion, should be released from previously retained cash flow.
Typically, Available Cash Flow has been the adjusted diluted net income per unit for the quarter multiplied by the number of gen-
eral and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow
will be based on adjusted diluted net income per unit, unless management determines, with the concurrence of the Board of Direc-
tors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash
Flow calculation.
On February 13, 2019, the General Partner declared a distribution of $0.71 per AB Unit, representing a distribution of Available
Cash Flow for the three months ended December 31, 2018. The General Partner, as a result of its 1% general partnership interest, is
entitled to receive 1% of each distribution. The distribution is payable on March 7, 2019 to holders of record on February 25, 2019.
94
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Total cash distributions per Unit paid to the General Partner and Unitholders during 2018, 2017 and 2016 were $3.16, $2.39 and
$1.98, respectively.
Comprehensive Income
We report all changes in comprehensive income in the consolidated statements of comprehensive income. Comprehensive income
includes net income, as well as unrealized gains and losses on investments classified as available-for-sale (for 2017 and 2016), foreign
currency translation adjustments, actuarial gains (losses) and prior service cost. Deferred taxes were not recognized on foreign cur-
rency translation adjustments for foreign subsidiaries which had earnings that were considered permanently invested outside the
United States.
3. Revenue Recognition
See Note 2, Significant Accounting Policies, Revenue Recognition, for descriptions of revenues presented in the table below. The adoption
of ASC 606 had no significant impact on revenue recognition during 2018, except for the recognition of $12.9 million of
performance-based fees in 2018 from a fund in liquidation, which recognition was not probable of significant reversal. Under the
previous revenue accounting standard, these performance-based fees would not have been recognized until final liquidation of the
fund. Revenues for the years ended December 31, 2018, 2017 and 2016 consisted of the following:
Subject to contracts with customers:
Investment advisory and services fees
Base fees
Performance-based fees
Bernstein research services
Distribution revenues
All-in-management fees
12b-1 fees
Other
Other revenues
Shareholder servicing fees
Other
Not subject to contracts with customers:
Dividend and interest income, net of interest expense
Investment gains (losses)
Other revenues
Total net revenues
Year Ended December 31,
2017
2018
2016
(in thousands)
$ 2,244,068
$ 2,106,525
$ 1,900,719
118,143
439,432
254,477
87,166
76,919
75,974
19,211
94,780
449,919
245,367
94,972
71,724
75,024
17,838
32,752
479,875
197,766
114,641
71,998
77,690
16,703
3,315,390
3,156,149
2,892,144
45,827
2,653
3,491
51,971
45,997
92,102
4,273
142,372
37,816
93,353
5,466
136,635
$3,367,361
$3,298,521
$3,028,779
Annual Report 2018
95
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Real Estate Charges
Since 2010, we have sub-leased over one million square feet of office space. The activity in the liability account relating to our
global space consolidation initiatives for the following periods is:
Balance as of January 1,
Expense incurred
Deferred rent
Payments made (net)
Interest accretion
Balance as of end of period
5. Net Income Per Unit
Year Ended December 31,
2018
2017
(in thousands)
$113,635
$ 112,932
7,122
—
(39,345)
4,412
28,507
7,083
(39,122)
4,235
$ 85,824
$113,635
Basic net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99%
by the basic weighted average number of units outstanding for each year. Diluted net income per unit is derived by reducing net
income for the 1% general partnership interest and dividing the remaining 99% by the total of the diluted weighted average number
of units outstanding for each year.
Net income attributable to AB Unitholders
Weighted average units outstanding—basic
Dilutive effect of compensatory options to buy AB Holding Units
Weighted average units outstanding—diluted
Basic net income per AB Unit
Diluted net income per AB Unit
Year Ended December 31,
2017
2016
2018
(in thousands, except per unit amounts)
$757,588
269,236
251
269,487
$
$
2.79
2.78
$662,403
266,955
430
267,385
$
$
2.46
2.45
$673,358
269,084
554
269,638
$
$
2.48
2.47
We excluded 49,784 options in 2018, 1,970,741 options in 2017 and 2,873,106 options in 2016, from the diluted net income per
unit computation due to their anti-dilutive effect.
6. Cash and Securities Segregated Under Federal Regulations and Other Requirements
As of December 31, 2018 and 2017, $1.2 billion and $0.8 billion, respectively, of U.S. Treasury Bills were segregated in a special
reserve bank custody account for the exclusive benefit of our brokerage customers under Rule 15c3-3 of the Exchange Act.
96
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Investments
Investments consist of:
U.S. Treasury Bills
Equity securities:
Long-term incentive compensation-related
Seed capital
Other
Exchange-traded options
Investments in limited partnership hedge funds:
Long-term incentive compensation-related
Seed capital
Private equity (seed capital)
Time deposits
Other
Total investments
December 31,
2018
2017
(in thousands)
$ 392,424
$ 52,609
38,883
105,951
73,409
2,568
13,546
67,153
—
8,783
11,627
51,758
160,672
81,154
4,981
14,276
22,923
38,186
5,138
11,892
$714,344
$443,589
Total investments related to long-term incentive compensation obligations of $52.4 million and $66.0 million as of December 31,
2018 and 2017, respectively, consist of company-sponsored mutual funds and hedge funds. For long-term incentive compensation
awards granted before 2009, we typically made investments in company-sponsored mutual funds and hedge funds that were notion-
ally elected by plan participants and maintained them (and continue to maintain them) in a consolidated rabbi trust or separate
custodial account. The rabbi trust and custodial account enable us to hold such investments separate from our other assets for the
purpose of settling our obligations to participants. The investments held in the rabbi trust and custodial account remain available to
the general creditors of AB.
The underlying investments of hedge funds in which we invest include long and short positions in equity securities, fixed income
securities (including various agency and non-agency asset-based securities), currencies, commodities and derivatives (including vari-
ous swaps and forward contracts). These investments are valued at quoted market prices or, where quoted market prices are not
available, are fair valued based on the pricing policies and procedures of the underlying funds.
We allocate seed capital to our investment teams to help develop new products and services for our clients. A portion of our seed
capital trading investments are equity and fixed income products, primarily in the form of separately-managed account portfolios,
U.S. mutual funds, Luxembourg funds, Japanese investment trust management funds or Delaware business trusts. We also may allo-
cate seed capital to investments in private equity funds. During the fourth quarter of 2018, we sold our ownership in a private
equity investment ($37.2 million as of December 31, 2017) to a third-party. In regard to our seed capital investments, the amounts
above reflect those funds in which we are not the primary beneficiary of a VIE or hold a controlling financial interest in a VOE.
During 2018, our seed capital in limited partnership hedge funds increased $44.2 million primarily due to the deconsolidation of a
fund in which we have a seed investment of $42.5 million due to no longer having a controlling financial interest. See Note 15,
Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidated. As of
December 31, 2018 and 2017, our total seed capital investments were $391.6 million and $523.2 million, respectively. Seed capital
investments in unconsolidated company-sponsored investment funds are valued using published net asset values or non-published
net asset values if they are not listed on an active exchange but have net asset values that are comparable to funds with published net
asset values and have no redemption restrictions.
In addition, we also have long positions in corporate equities and long exchange-traded options traded through our options desk.
Annual Report 2018
97
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The portion of unrealized gains (losses) related to equity securities, as defined by ASU 2016-01, held as of December 31, 2018 and
2017 were as follows:
Net (loss) gain recognized during the period
Less: net gains recognized during the period on equity securities sold during the period
Unrealized losses recognized during the period on equity securities held
December 31,
2018
2017
(in thousands)
$ (21,797)
1,515
$(23,312)
$20,873
24,594
$(3,721)
8. Derivative Instruments
See Note 15, Consolidated Company-Sponsored Investment Funds, for disclosure of derivative instruments held by our consolidated
company-sponsored investment funds.
We enter into various futures, forwards, options and swaps to economically hedge certain seed capital investments. Also, we have
currency forwards that help us to economically hedge certain balance sheet exposures. In addition, our options desk trades long and
short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10,
Derivatives and Hedging.
The notional value, fair value and gains and losses recognized in investment gains (losses) as of December 31, 2018 and 2017 for
derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below) not designated
as hedging instruments were as follows:
December 31, 2018
Exchange-traded futures
Currency forwards
Interest rate swaps
Credit default swaps
Total return swaps
Total derivatives
December 31, 2017
Exchange-traded futures
Currency forwards
Interest rate swaps
Credit default swaps
Total return swaps
Total derivatives
Notional
Value
Derivative
Assets
Derivative
Liabilities
Gains
(Losses)
(in thousands)
$ 218,657
$ 1,594
$ 2,534
$
3,515
87,019
112,658
94,657
99,038
7,647
1,649
2,888
3,301
7,582
1,959
2,685
62
379
(125)
335
8,246
$612,029
$17,079
$14,822
$ 12,350
$ 242,355
126,503
43,309
74,600
68,106
$
948
$ 2,540
$ (15,343)
8,306
951
1,247
167
8,058
870
2,465
390
(457)
(137)
(1,757)
(6,167)
$554,873
$11,619
$14,323
$(23,861)
As of December 31, 2018 and 2017, the derivative assets and liabilities are included in both receivables and payables to brokers and
dealers on our consolidated statements of financial condition. Gains and losses on derivative instruments are reported in investment
gains (losses) on the consolidated statements of income.
We may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We mini-
mize our counterparty exposure through a credit review and approval process. In addition, we have executed various collateral arrangements
with counterparties to the over-the-counter derivative transactions that require both pledging and accepting collateral in the form of cash. As
of December 31, 2018 and 2017, we held $4.8 million and $0.5 million, respectively, of cash collateral payable to trade counterparties. This
obligation to return cash is reported in payables to brokers and dealers in our consolidated statements of financial condition.
98
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Although notional amount is the most commonly used measure of volume in the derivatives market, it is not used as a measure of
credit risk. Generally, the current credit exposure of our derivative contracts is limited to the net positive estimated fair value of
derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral
received. A derivative with positive value (a derivative asset) indicates existence of credit risk because the counterparty would owe
us if the contract were closed. Alternatively, a derivative contract with negative value (a derivative liability) indicates we would owe
money to the counterparty if the contract were closed. Generally, if there is more than one derivative transaction with a single
counterparty, a master netting arrangement exists with respect to derivative transactions with that counterparty to provide for
aggregate net settlement.
Certain of our standardized contracts for over-the-counter derivative transactions (“ISDA Master Agreements”) contain credit risk
related contingent provisions pertaining to each counterparty’s credit rating. In some ISDA Master Agreements, if the counter-
party’s credit rating, or in some agreements, our AUM, falls below a specified threshold, either a default or a termination event
permitting the counterparty to terminate the ISDA Master Agreement would be triggered. In all agreements that provide for collat-
eralization, various levels of collateralization of net liability positions are applicable, depending on the credit rating of the counter-
party. As of December 31, 2018 and 2017, we delivered $4.5 million and $8.8 million, respectively, of cash collateral into brokerage
accounts. We report this cash collateral in cash and cash equivalents in our consolidated statements of financial condition.
As of December 31, 2018 and 2017, we held $2.6 million and $5.0 million, respectively, of long exchange-traded equity options,
which are included in other investments on our consolidated statements of financial condition. In addition, as of December 31,
2018 and 2017, we held $3.8 million and $13.6 million, respectively, of short exchange-traded equity options, which are included
in securities sold not yet purchased on our consolidated statements of financial condition. Our options desk provides our clients
with equity derivative strategies and execution for exchange-traded options on single stocks, exchange-traded funds and indices.
While predominately agency-based, the options desk may commit capital to facilitate a client’s transaction. Our options desk hedges
the risk associated with this activity by taking offsetting positions in equities. For the years ended December 31, 2018 and 2017 we
recognized $7.9 million and $27.8 million, respectively, of losses on equity options activity. These losses are recognized in invest-
ment gains (losses) in the consolidated statements of income.
9. Offsetting Assets and Liabilities
See Note 15, Consolidated Company-Sponsored Investment Funds, for disclosure of offsetting assets and liabilities of our consolidated
company-sponsored investment funds.
Offsetting of assets as of December 31, 2018 and 2017 was as follows:
Gross
Amounts of
Recognized
Assets
Gross
Amounts
Offset in the
Statement
of Financial
Condition
Net Amounts
of Assets
Presented in
the Statement
of Financial
Condition
(in thousands)
Financial
Instruments
Cash
Collateral
Received
Net
Amount
$64,856
$17,079
$ 2,568
$85,371
$11,619
$ 4,981
$ —
$ —
$ —
$ —
$ —
$ —
$64,856
$17,079
$ 2,568
$85,371
$11,619
$ 4,981
$(64,217)
$ —
$ —
$(82,353)
$ —
$ —
$ —
$(4,831)
$ —
$ —
$ (519)
$ —
$
639
$12,248
$ 2,568
$ 3,018
$11,100
$ 4,981
December 31, 2018
Securities borrowed
Derivatives
Long exchange-traded options
December 31, 2017
Securities borrowed
Derivatives
Long exchange-traded options
Annual Report 2018
99
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Offsetting of liabilities as of December 31, 2018 and 2017 was as follows:
Gross
Amounts of
Recognized
Liabilities
Gross
Amounts
Offset in the
Statement of
Financial
Condition
Net Amounts
of Liabilities
Presented in
the Statement
of Financial
Condition
(in thousands)
Financial
Instruments
Cash
Collateral
Pledged
Net
Amount
$59,526
$14,822
$ 3,782
$37,960
$14,323
$13,585
$—
$—
$—
$—
$—
$—
$59,526
$14,822
$ 3,782
$37,960
$14,323
$13,585
$(59,526)
$ —
$ —
$(37,922)
$ —
$ —
$ —
$(4,458)
$ —
$ —
$(8,794)
$ —
$ —
$10,364
$ 3,782
$
38
$ 5,529
$13,585
December 31, 2018
Securities loaned
Derivatives
Short exchange-traded options
December 31, 2017
Securities loaned
Derivatives
Short exchange-traded options
Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed
by counterparty.
10. Fair Value
See Note 15, Consolidated Company-Sponsored Investment Funds, for disclosure of fair value of our consolidated company-sponsored
investment funds.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an
orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows:
• Level 1—Quoted prices in active markets are available for identical assets or liabilities as of the reported date.
• Level 2—Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as
of the reported date.
• Level 3—Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the
reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of
fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
100
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AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Valuation of our financial instruments by pricing observability levels as of December 31, 2018 and 2017 was as follows (in thousands):
Total assets measured at fair value
$320,733
$1,585,835
$
Securities sold not yet purchased
Short equities-corporate
Short exchange-traded options
Derivatives
Contingent payment arrangements
$
4,841
3,782
2,534
—
Total liabilities measured at fair value
$ 11,157
$
$
$
—
—
12,288
—
12,288
$ —
$ —
$ —
—
—
7,336
$ 7,336
—
—
—
—
—
—
$ —
$ —
—
$ —
$ —
$ —
December 31, 2018:
Money markets
Securities segregated (U.S. Treasury Bills)
Derivatives
Investments
U.S. Treasury Bills
Equity securities
Long exchange-traded options
Limited partnership hedge funds(2)
Time deposits(3)
Other investments
Total investments
December 31, 2017:
Money markets
Securities segregated (U.S. Treasury Bills)
Derivatives
Investments
U.S. Treasury Bills
Equity securities
Long exchange-traded options
Limited partnership hedge funds(2)
Private equity
Time deposits(3)
Other investments
Total investments
Total assets measured at fair value
Securities sold not yet purchased
Short equities-corporate
Short exchange-traded options
Derivatives
Contingent payment arrangements
Level 1
Level 2
Level 3
NAV
Expedient(1)
Other
Total
$ 102,888
$
—
$ —
$ —
$ —
$
102,888
—
1,594
—
209,414
2,568
—
—
4,269
216,251
1,169,554
15,485
392,424
8,372
—
—
—
—
400,796
—
—
—
142
—
—
—
—
142
142
—
—
—
315
—
—
—
—
315
315
$
—
—
—
—
—
80,699
8,783
7,358
96,840
$96,840
—
—
—
94
—
—
37,232
—
—
37,326
$37,326
—
—
—
—
—
37,199
—
5,138
11,892
54,229
$ 62,071
—
948
—
273,674
4,981
—
—
—
—
816,350
10,671
52,609
19,699
—
—
—
—
—
—
—
—
117
—
—
954
—
—
278,655
$341,674
72,308
$ 899,329
1,071
$ 1,071
$ 16,376
$
13,585
2,540
—
—
—
11,783
—
—
—
10,855
$10,855
$54,229
$1,333,629
$ —
$ —
$ —
$
—
—
—
—
—
—
1,169,554
17,079
392,424
218,243
2,568
80,699
8,783
11,627
714,344
$2,003,865
$
$
$
4,841
3,782
14,822
7,336
30,781
62,071
816,350
11,619
52,609
293,584
4,981
37,199
38,186
5,138
11,892
443,589
16,376
13,585
14,323
10,855
Total liabilities measured at fair value
$ 32,501
$
11,783
$ —
$ —
$
55,139
(1)
Investments measured at fair value using NAV (or its equivalent) as a practical expedient.
(2)
Investments in equity method investees that are not measured at fair value in accordance with GAAP.
(3)
Investments carried at amortized cost that are not measured at fair value in accordance with GAAP.
Annual Report 2018
101
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During 2018, we sold one of our private equity investments (which had previously been measured using NAV as a practical
expedient), which was a venture capital fund. This fund had a fair value of $37.2 million at December 31, 2017. This partnership
invested in communications, consumer, digital media, healthcare and information technology markets. The fair value of this
investment was estimated using the capital account balances provided by the partnership.
Other investments include (i) an investment in a start-up company that does not have a readily available fair value ($0.9 million and
$4.6 million as of December 31, 2018 and 2017, respectively), (ii) an investment in an equity method investee that is not measured
at fair value in accordance with GAAP ($3.4 million and $4.1 million as of December 31, 2018 and 2017, respectively), and
(iii) broker dealer exchange memberships ($3.1 million and $3.2 million as of December 31, 2018 and 2017, respectively).
We provide below a description of the fair value methodologies used for instruments measured at fair value, as well as the general clas-
sification of such instruments pursuant to the valuation hierarchy:
• Money markets: We invest excess cash in various money market funds that are valued based on quoted prices in active markets;
these are included in Level 1 of the valuation hierarchy.
• Treasury Bills: We hold U.S. Treasury Bills, which are primarily segregated in a special reserve bank custody account as
required by Rule 15c3-3 of the Exchange Act. These securities are valued based on quoted yields in secondary markets and are
included in Level 2 of the valuation hierarchy.
• Equity securities: Our equity securities consist principally of company-sponsored mutual funds with NAVs and various
separately-managed portfolios consisting primarily of equity and fixed income mutual funds with quoted prices in active mar-
kets, which are included in Level 1 of the valuation hierarchy. In addition, some securities are valued based on observable
inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.
• Derivatives: We hold exchange-traded futures with counterparties that are included in Level 1 of the valuation hierarchy. In
addition, we also hold currency forward contracts, interest rate swaps, credit default swaps, option swaps and total return swaps
with counterparties that are valued based on observable inputs from recognized pricing vendors, which are included in Level 2
of the valuation hierarchy.
• Options: We hold long exchange-traded options that are included in Level 1 of the valuation hierarchy.
• Private equity: Generally, the valuation of private equity investments requires significant management judgment due to the
absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. Private equity
investments are valued initially at cost. The carrying values of private equity investments are adjusted either up or down from
cost to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a
valuation adjustment is confirmed through ongoing review in accordance with our valuation policies and procedures. A variety
of factors are reviewed and monitored to assess positive and negative changes in valuation, including current operating
performance and future expectations of investee companies, industry valuations of comparable public companies, changes in
market outlooks, and the third party financing environment over time. In determining valuation adjustments resulting from the
investment review process, particular emphasis is placed on current company performance and market conditions. For these
reasons, which make the fair value of private equity investments unobservable, equity investments are included in Level 3 of the
valuation hierarchy. If private equity investments become publicly traded, they are included in Level 1 of the valuation hier-
archy; provided, however, if they contain trading restrictions, publicly-traded equity investments are included in Level 2 of the
valuation hierarchy until the trading restrictions expire.
• Securities sold not yet purchased: Securities sold not yet purchased, primarily reflecting short positions in equities and exchange-
traded options, are included in Level 1 of the valuation hierarchy.
• Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with
various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid
upon probability-weighted AUM and revenue projections, using observable market data inputs, which are included in Level 3
of the valuation hierarchy.
102
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During the years ended December 31, 2018 and 2017, there were no transfers between Level 1 and Level 2 securities nor between
Level 2 and Level 3 securities.
The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as private equity and equity
securities, is as follows:
Balance as of beginning of period
Purchases
Sales
Realized gains, net
Unrealized (losses) gains, net
Balance as of end of period
December 31,
2018
2017
(in thousands)
$1,071
$ 5,023
—
—
—
—
—
—
(929)
$ 142
(3,952)
$1,071
Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. Realized and unrealized gains
and losses on Level 3 financial instruments are recorded in investment gains and losses in the consolidated statements of income.
As of December 31, 2017, we had an investment in a private equity fund focused exclusively on the energy sector (fair value of $1.0
million) that was classified as Level 3 and written off during the second quarter of 2018. This investment’s valuation was based on a
market approach, considering recent transactions in the fund and the industry.
We acquired Ramius Alternative Solutions LLC in 2016, CPH Capital Fondsmaeglerselskab A/S in 2014 and SunAmerica’s alter-
native investment group in 2010, all of which included contingent consideration arrangements as part of the purchase price. The
change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment
arrangements, is as follows:
Balance as of beginning of period
Addition
Accretion
Changes in estimates
Payments
Balance as of end of period
December 31,
2018
2017
(in thousands)
$10,855
$ 17,589
—
210
(2,429)
(1,300)
—
460
(193)
(7,001)
$ 7,336
$10,855
During 2017, we made the final contingent consideration payment relating to our 2014 acquisition and recorded a change in esti-
mate and wrote off the remaining contingent consideration payable relating to our 2010 acquisition.
During 2018, we amended the contingent payment relating to our 2016 acquisition by modifying the earnout structure and extend-
ing it one year. As part of this amendment, we recorded a change in estimate and wrote off $2.4 million related to the contingent
consideration. As of December 31, 2018 and 2017, one acquisition-related contingent consideration liability of $7.3 million and
$10.9 million, respectively, remains relating to our 2016 acquisition, which was valued as of December 31, 2018 using a revenue
growth rate of 18% and a discount rate ranging from 3.2% to 3.7%. This acquisition was valued as of December 31, 2017 using a
revenue growth rate of 31% and a discount rate ranging from 1.4% to 2.3%.
Annual Report 2018
103
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We did not have any material assets or liabilities that were measured at fair value for impairment on a nonrecurring basis during the
years ended December 31, 2018 or 2017.
11. Furniture, Equipment and Leasehold Improvements, Net
Furniture, equipment and leasehold improvements, net consist of:
Furniture and equipment
Leasehold improvements
Less: Accumulated depreciation and amortization
Furniture, equipment and leasehold improvements, net
December 31,
2018
2017
(in thousands)
$ 561,816
$ 551,502
253,439
815,255
(659,736)
$155,519
245,841
797,343
(639,774)
$157,569
Depreciation and amortization expense on furniture, equipment and leasehold improvements were $34.2 million, $32.8 million and
$29.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.
During 2018, 2017 and 2016, we recorded $7.2 million, $36.7 million and $17.7 million, respectively, in pre-tax real estate charges.
See Note 4 for further discussion of the real estate charges.
12. Deferred Sales Commissions, Net
The components of deferred sales commissions, net for the years ended December 31, 2018 and 2017 were as follows (excluding
amounts related to fully amortized deferred sales commissions):
Carrying amount of deferred sales commissions
Less: Accumulated amortization
Cumulative CDSC received
Deferred sales commissions, net
December 31,
2018
2017
(in thousands)
$ 926,188
(618,910)
(290,130)
$ 17,148
$ 911,852
(597,566)
(284,160)
$ 30,126
Amortization expense was $21.3 million, $31.9 million and $41.1 million for the years ended December 31, 2018, 2017 and 2016,
respectively. Estimated future amortization expense related to the December 31, 2018 net asset balance, assuming no additional
CDSC is received in future periods, is as follows (in thousands):
2019
2020
2021
2022
2023
2024
104
$ 9,675
4,561
2,608
237
51
16
$17,148
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Debt
As of December 31, 2018 and 2017, AB had $523.2 million and $491.8 million, respectively, in commercial paper outstanding with
weighted average interest rates of approximately 2.7% and 1.6%, respectively. Debt included in the statement of financial condition
is presented net of issuance costs of $1.9 million and $1.1 million as of December 31, 2018 and 2017, respectively. The commercial
paper is short term in nature, and as such, recorded value is estimated to approximate fair value (and considered a Level 2 security in
the fair value hierarchy). Average daily borrowings of commercial paper during 2018 and 2017 were $350.3 million and
$482.2 million, respectively, with weighted average interest rates of approximately 2.0% and 1.2%, respectively.
On September 27, 2018, AB amended and restated the existing $1.0 billion committed, unsecured senior revolving credit facility
(the “Credit Facility”) with a group of commercial banks and other lenders, reducing the principal amount to $800.0 million and
extending the maturity to September 27, 2023. The Credit Facility provides for possible increases in the principal amount by up to
an aggregate incremental amount of $200.0 million; any such increase is subject to the consent of the affected lenders. The Credit
Facility is available for AB and Sanford C. Bernstein & Co., LLC (“SCB LLC”) business purposes, including the support of AB’s
commercial paper program. Both AB and SCB LLC can draw directly under the Credit Facility and management may draw on the
Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Credit Facility.
The Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including
restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of
December 31, 2018, we were in compliance with these covenants. The Credit Facility also includes customary events of default
(with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all
outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the
occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the Credit Facility would
automatically become immediately due and payable, and the lender’s commitments automatically would terminate.
Amounts under the Credit Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the
facility. Voluntary prepayments and commitment reductions requested by us are permitted at any time without a fee (other than
customary breakage costs relating to the prepayment of any drawn loans) upon proper notice and subject to a minimum dollar
requirement. Borrowings under the Credit Facility bear interest at a rate per annum, which will be, at our option, a rate equal to an
applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indices: London
Interbank Offered Rate; a floating base rate; or the Federal Funds rate.
As of December 31, 2018 and 2017, we had no amounts outstanding under the Credit Facility. During 2018 and 2017, we did not
draw upon the Credit Facility.
On November 16, 2018, AB amended and restated its existing $200.0 million committed, unsecured senior revolving credit facility
(the “Revolver”) with a leading international bank, extending the maturity date from November 28, 2018 to November 16, 2021.
There were no other material changes included in the amendment. The Revolver is available for AB’s and SCB LLC’s business
purposes, including the provision of additional liquidity to meet funding requirements primarily related to SCB LLC’s operations.
Both AB and SCB LLC can draw directly under the Revolver and management expects to draw on the Revolver from time to
time. AB has agreed to guarantee the obligations of SCB LLC under the Revolver. The Revolver contains affirmative, negative and
financial covenants which are identical to those of the Credit Facility. As of December 31, 2018 and December 31, 2017, we had
$25.0 million and $75.0 million outstanding under the Revolver, respectively, with interest rates of 3.4% and 2.4%, respectively.
Average daily borrowings for 2018 and 2017 were $19.4 million and $21.4 million, respectively, with weighted average interest
rates of 2.8% and 2.0%, respectively.
In addition, SCB LLC currently has three uncommitted lines of credit with three financial institutions. Two of these lines of credit
permit us to borrow up to an aggregate of approximately $175.0 million, with AB named as an additional borrower, while the other
line has no stated limit. As of December 31, 2018 and 2017, SCB LLC had no bank loans outstanding. Average daily borrowings of
bank loans during 2018 and 2017 were $2.7 million and $4.5 million, respectively, with weighted average interest rates of approx-
imately 1.6% and 1.4%, respectively.
Annual Report 2018
105
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Commitments and Contingencies
Operating Leases
We lease office space, furniture and office equipment under various operating leases. The future minimum payments under
non-cancelable leases, sublease commitments and related payments we are obligated to make, net of sublease commitments of third-
party lessees to make payments to us, as of December 31, 2018, are as follows:
2019
2020
2021
2022
2023
2024 and thereafter
Total future minimum payments
Payments
Sublease
Receipts
(in millions)
Net
Payments
$ 131.4
112.6
111.7
99.5
92.8
227.5
$775.5
$ 47.1
34.1
31.8
28.4
27.9
27.4
$196.7
$ 84.3
78.5
79.9
71.1
64.9
200.1
$578.8
Office leases contain escalation clauses that provide for the pass through of increases in operating expenses and real estate taxes. Rent
expense, which is amortized on a straight-line basis over the life of the lease, was $60.6 million, $65.2 million and $68.1 million,
respectively, for the years ended December 31, 2018, 2017 and 2016, net of sublease income of $0.5 million, $0.5 million and
$2.5 million, respectively, for the years ended December 31, 2018, 2017 and 2016. See Note 4 for further discussion of the real
estate charges.
Legal Proceedings
AB may be involved in various matters, including regulatory inquires, administrative proceedings and litigation, some of which may
allege significant damages. It is reasonably possible that we could incur losses pertaining to these matters, but we cannot currently
estimate any such losses.
Management, after consultation with legal counsel, currently believes that the outcome of any individual matter that is pending or
threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or
liquidity. However, any inquiry, proceeding or litigation has an element of uncertainty; management cannot determine whether
further developments relating to any individual matter that is pending or threatened, or all of them combined, will have a material
adverse effect on our results of operation, financial condition or liquidity in any future reporting period.
Other
As general partner of AllianceBernstein U.S. Real Estate L.P. (“Real Estate Fund”), we committed to invest $25.0 million in the
Real Estate Fund. As of December 31, 2018, we had funded $22.4 million of this commitment. As general partner of AllianceBern-
stein U.S. Real Estate II L.P. (“Real Estate Fund II”), we committed to invest $28.0 million in the Real Estate Fund II. As of
December 31, 2018, we had funded $15.3 million of this commitment.
15. Consolidated Company-Sponsored Investment Funds
We regularly provide seed capital to new company-sponsored investment funds. As such, we may consolidate or de-consolidate a
variety of company-sponsored investment funds each quarter. Due to the similarity of risks related to our involvement with each
company-sponsored investment fund, disclosures required under the VIE model are aggregated, such as disclosures regarding the
carrying amount and classification of assets.
106
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
We are not required to provide financial support to company-sponsored investment funds and only the assets of such funds are avail-
able to settle each fund’s own liabilities. Our exposure to loss in regard to consolidated company-sponsored investment funds is lim-
ited to our investment in, and our management fee earned from, such funds. Equity and debt holders of such funds have no
recourse to AB’s assets or to the general credit of AB.
The balances of consolidated VIEs and VOEs included in our consolidated statements of financial condition were as follows:
Cash and cash equivalents
Investments
Other assets
Total assets
Liabilities
Redeemable non-controlling interest
Partners’ capital attributable to AB Unitholders
Non-redeemable non-controlling interests in consolidated entities
Total liabilities, redeemable non-controlling interest and
December 31, 2018
December 31, 2017
VIEs
$ 11,880
217,840
6,024
$235,744
$
5,215
117,523
113,006
—
VOEs
$
1,238
133,856
16,816
$151,910
$ 17,395
28,398
106,117
—
(in thousands)
Total
$ 13,118
351,696
22,840
$387,654
$ 22,610
145,921
219,123
—
$
VIEs
326,158
1,189,835
33,931
$1,549,924
$
695,997
596,241
256,929
757
VOEs
$
360
56,448
1,466
$58,274
$ 2,104
(18)
56,188
—
$
Total
326,518
1,246,283
35,397
$1,608,198
$
698,101
596,223
313,117
757
partners’ capital
$235,744
$151,910
$387,654
$1,549,924
$58,274
$1,608,198
During 2018, we deconsolidated a fund in which we have a seed investment of $42.5 million due to no longer having a controlling
financial interest. This VIE had significant consolidated assets and liabilities as of December 31, 2017.
Fair Value
Cash and cash equivalents include cash on hand, demand deposits, overnight commercial paper and highly liquid investments with
original maturities of three months or less. Due to the short-term nature of these instruments, the recorded value has been
determined to approximate fair value.
Valuation of consolidated company-sponsored investment funds’ financial instruments by pricing observability levels as of
December 31, 2018 and 2017 was as follows (in thousands):
Level 1
Level 2
Level 3
NAV
Expedient
Total
December 31, 2018:
Investments - VIEs
Investments - VOEs
Derivatives - VIEs
Derivatives - VOEs
Total assets measured at fair value
Derivatives - VIEs
Derivatives - VOEs
Total liabilities measured at fair value
December 31, 2017:
Investments - VIEs
Investments - VOEs
Derivatives - VIEs
Derivatives - VOEs
Total assets measured at fair value
Short equities - VIEs
Derivatives - VIEs
Derivatives - VOEs
Total liabilities measured at fair value
$
$
$
$
22,149
68,063
1,486
124
91,822
72
197
269
$ 1,053,824
5,491
252
49
$1,059,616
$
669,258
421
12
$ 669,691
$ 187,626
65,485
1,924
3,692
$258,727
$
3,819
3,633
$ 7,452
$ 133,796
50,898
30,384
251
$215,329
$
—
21,820
619
$ 22,439
$ 8,065
308
—
—
$8,373
$ —
—
$ —
$ 2,205
59
—
—
$2,264
$ —
—
—
$ —
$—
—
—
—
$—
$—
—
$—
$ 10
—
—
—
$10
$—
—
—
$—
$
217,840
133,856
3,410
3,816
$ 358,922
$
$
3,891
3,830
7,721
$ 1,189,835
56,448
30,636
300
$1,277,219
$
669,258
22,241
631
$ 692,130
Annual Report 2018
107
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
See Note 10 for a description of the fair value methodologies used for instruments measured at fair value, as well as the general classi-
fication of such instruments pursuant to the valuation hierarchy.
The change in carrying value associated with Level 3 financial instruments carried at fair value within consolidated company-
sponsored investment funds was as follows:
Balance as of beginning of period
Deconsolidated funds
Transfers in
Purchases
Sales
Realized (losses) gains, net
Unrealized (losses) gains, net
Accrued discounts
Balance as of end of period
December 31,
2018
2017
(in thousands)
$ 2,264
—
259
9,354
(3,086)
(100)
(331)
13
$ 5,741
(7,267)
480
6,127
(3,120)
2
286
15
$8,373
$2,264
The Level 3 securities primarily consist of corporate bonds that are vendor priced with no ratings available, bank loans, non-agency
collateralized mortgage obligations and asset-backed securities.
Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. Realized and unrealized gains
and losses on Level 3 financial instruments are recorded in investment gains and losses in the consolidated statements of income.
Derivative Instruments
As of December 31, 2018 and 2017, the VIEs held $0.5 million and $8.4 million (net), respectively, of futures, forwards, options and
swaps within their portfolios. For the years ended December 31, 2018 and 2017, respectively we recognized $1.5 million and
$21.5 million of gains on these derivatives. These gains and losses are recognized in investment gains (losses) in the consolidated state-
ments of income. As of December 31, 2018 and 2017, the VIEs held $0.9 million and $0.2 million, respectively, of cash collateral
payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored invest-
ment funds in our consolidated statements of financial condition. As of December 31, 2018 and 2017, the VIEs delivered $0.8 million
and $2.9 million, respectively, of cash collateral into brokerage accounts. The VIEs report this cash collateral in the consolidated
company-sponsored investment funds cash and cash equivalents in our consolidated statements of financial condition.
As of December 31, 2018 and 2017, the VOEs held $14.0 thousand and $0.3 million (net), respectively, of futures, forwards,
options and swaps within their portfolios. For the years ended December 31, 2018 and 2017, we recognized a gain of $1.9 million
and a loss of $0.4 million, respectively, on these derivatives. These gains and losses are recognized in the investment gains (losses) in
the consolidated statements of income. As of December 31, 2018, the VOEs held $0.2 million of cash collateral payable to trade
counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in
our consolidated statements of financial condition. As of December 31, 2018 and 2017, the VOEs delivered $0.5 million and
$0.2 million, respectively, of cash collateral into brokerage accounts. The VOEs report this cash collateral in the consolidated
company-sponsored investment funds cash and cash equivalents in our consolidated statements of financial condition
108
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Offsetting Assets and Liabilities
Offsetting of derivative assets of consolidated company-sponsored investment funds as of December 31, 2018 and 2017 was as follows:
Gross
Amounts of
Recognized
Assets
Gross
Amounts
Offset in the
Statement
of Financial
Condition
Net Amounts
of Assets
Presented in
the Statement
of Financial
Condition
(in thousands)
Financial
Instruments
Cash
Collateral
Received
Net
Amount
$ 3,410
$ 3,816
$30,636
$
300
$—
$—
$—
$—
$ 3,410
$ 3,816
$30,636
$
300
$—
$—
$—
$—
$(856)
$(225)
$(194)
$ (37)
$ 2,554
$ 3,591
$30,442
$
263
December 31, 2018:
Derivatives - VIEs
Derivatives - VOEs
December 31, 2017:
Derivatives - VIEs
Derivatives - VOEs
Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of December 31, 2018 and 2017 was as
follows:
Gross
Amounts of
Recognized
Liabilities
Gross
Amounts
Offset in the
Statement of
Financial
Condition
Net Amounts
of Liabilities
Presented in
the Statement
of Financial
Condition
(in thousands)
Financial
Instruments
Cash
Collateral
Pledged
Net
Amount
$ 3,891
$ 3,830
$22,241
$
631
$—
$—
$—
$—
$ 3,891
$ 3,830
$22,241
$
631
$—
$—
$—
$—
$ (829)
$ (547)
$(2,884)
$ (228)
$ 3,062
$ 3,283
$19,357
$
403
December 31, 2018:
Derivatives - VIEs
Derivatives - VOEs
December 31, 2017:
Derivatives - VIEs
Derivatives - VOEs
Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed
by counterparty.
Non-Consolidated VIEs
As of December 31, 2018, the net assets of company-sponsored investment products that are non-consolidated VIEs are
approximately $44.3 billion, and our maximum risk of loss is our investment of $5.7 million in these VIEs and advisory fee
receivables from these VIEs, which are not material.
16. Net Capital
SCB LLC is registered as a broker-dealer under the Exchange Act and is subject to the minimum net capital requirements imposed
by the U.S. Securities and Exchange Commission (“SEC”). SCB LLC computes its net capital under the alternative method
permitted by the applicable rule, which requires that minimum net capital, as defined, equals the greater of $1 million or two per-
cent of aggregate debit items arising from customer transactions, as defined. As of December 31, 2018, SCB LLC had net capital of
$258.4 million, which was $223.5 million in excess of the minimum net capital requirement of $34.9 million. Advances, dividend
payments and other equity withdrawals by SCB LLC are restricted by regulations imposed by the SEC, the Financial Industry
Regulatory Authority, Inc., and other securities agencies.
Annual Report 2018
109
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Our U.K.-based broker-dealer is a member of the London Stock Exchange. As of December 31, 2018, it was subject to financial
resources requirements of $23.2 million imposed by the Financial Conduct Authority of the United Kingdom and had aggregate
regulatory financial resources of $56.4 million, an excess of $33.2 million.
AllianceBernstein Investments, Inc., another one of our subsidiaries and the distributor and/or underwriter for certain company-
sponsored mutual funds, is registered as a broker-dealer under the Exchange Act and is subject to the minimum net capital require-
ments imposed by the SEC. As of December 31, 2018, it had net capital of $23.9 million, which was $23.6 million in excess of its
required net capital of $0.3 million.
Many of our subsidiaries around the world are subject to minimum net capital requirements by the local laws and regulations to
which they are subject. As of December 31, 2018, each of our subsidiaries subject to a minimum net capital requirement satisfied
the applicable requirement.
17. Counterparty Risk
Customer Activities
In the normal course of business, brokerage activities involve the execution, settlement and financing of various customer securities
trades, which may expose our broker-dealer operations to off-balance sheet risk by requiring us to purchase or sell securities at pre-
vailing market prices in the event the customer is unable to fulfill its contractual obligations.
Our customer securities activities are transacted on either a cash or margin basis. In margin transactions, we extend credit to the
customer, subject to various regulatory and internal margin requirements. These transactions are collateralized by cash or securities
in the customer’s account. In connection with these activities, we may execute and clear customer transactions involving the sale of
securities not yet purchased. We seek to control the risks associated with margin transactions by requiring customers to maintain
collateral in compliance with the aforementioned regulatory and internal guidelines. We monitor required margin levels daily and,
pursuant to such guidelines, require customers to deposit additional collateral, or reduce positions, when necessary. A majority of
our customer margin accounts are managed on a discretionary basis whereby we maintain control over the investment activity in
the accounts. For these discretionary accounts, our margin deficiency exposure is minimized through maintaining a diversified port-
folio of securities in the accounts and by virtue of our discretionary authority and our U.S-based broker-dealer’s role as custodian.
In accordance with industry practice, we record customer transactions on a settlement date basis, which generally is two business
days after trade date for our U.K. and U.S. operations. We are exposed to risk of loss on these transactions in the event of the cus-
tomer’s or broker’s inability to meet the terms of their contracts, in which case we may have to purchase or sell financial instru-
ments at prevailing market prices. The risks we assume in connection with these transactions are not expected to have a material
adverse effect on our financial condition or results of operations.
Other Counterparties
We are engaged in various brokerage activities on behalf of clients, in which counterparties primarily include broker-dealers, banks
and other financial institutions. In the event these counterparties do not fulfill their obligations, we may be exposed to loss. The risk
of default depends on the creditworthiness of the counterparty or issuer of the instrument. It is our policy to review, as necessary,
each counterparty’s creditworthiness.
In connection with security borrowing and lending arrangements, we enter into collateralized agreements, which may result in
potential loss in the event the counterparty to a transaction is unable to fulfill its contractual obligations. Security borrowing
arrangements require us to deposit cash collateral with the lender. With respect to security lending arrangements, we receive
collateral in the form of cash in amounts generally in excess of the market value of the securities loaned. We attempt to mitigate
credit risk associated with these activities by establishing credit limits for each broker and monitoring these limits on a daily basis.
Additionally, security borrowing and lending collateral is marked to market on a daily basis, and additional collateral is deposited by
or returned to us as necessary.
110
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AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
We enter into various futures, forwards, options and swaps primarily to economically hedge certain of our seed money investments.
We may be exposed to credit losses in the event of nonperformance by counterparties to these derivative financial instruments. See
Note 8, Derivative Instruments for further discussion.
18. Qualified Employee Benefit Plans
We maintain a qualified profit sharing plan covering U.S. employees and certain foreign employees. Employer contributions are
discretionary and generally limited to the maximum amount deductible for federal income tax purposes. Aggregate contributions for
2018, 2017 and 2016 were $15.0 million, $14.4 million and $14.3 million, respectively.
We maintain several defined contribution plans for foreign employees working for our subsidiaries in the United Kingdom,
Australia, Japan and other locations outside the United States. Employer contributions generally are consistent with regulatory
requirements and tax limits. Defined contribution expense for foreign entities was $7.1 million, $6.8 million and $6.8 million in
2018, 2017 and 2016, respectively.
We maintain a qualified, noncontributory, defined benefit retirement plan (“Retirement Plan”) covering current and former
employees who were employed by AB in the United States prior to October 2, 2000. Benefits are based on years of credited serv-
ice, average final base salary (as defined in the Retirement Plan) and primary Social Security benefits. Service and compensation
after December 31, 2008 are not taken into account in determining participants’ retirement benefits.
Our policy is to satisfy our funding obligation for each year in an amount not less than the minimum required by the Employee
Retirement Income Security Act of 1974, as amended, and not greater than the maximum amount we can deduct for federal
income tax purposes. We contributed $5.0 million to the Retirement Plan during 2018. We currently estimate that we will
contribute $4.0 million to the Retirement Plan during 2019. Contribution estimates, which are subject to change, are based on
regulatory requirements, future market conditions and assumptions used for actuarial computations of the Retirement Plan’s obliga-
tions and assets. Management, at the present time, has not determined the amount, if any, of additional future contributions that
may be required.
The Retirement Plan’s projected benefit obligation, fair value of plan assets, and funded status (amounts recognized in the con-
solidated statements of financial condition) were as follows:
Changeinprojectedbenefitobligation:
Projected benefit obligation at beginning of year
Interest cost
Actuarial (gain) loss
Benefits paid
Projected benefit obligation at end of year
Changeinplanassets:
Plan assets at fair value at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Plan assets at fair value at end of year
Funded status
Years Ended December 31,
2018
2017
(in thousands)
$125,200
$111,315
4,771
(9,918)
(3,820)
4,999
12,617
(3,731)
116,233
125,200
100,706
(3,302)
5,000
(3,820)
98,584
86,699
13,738
4,000
(3,731)
100,706
$(17,649)
$(24,494)
Effective December 31, 2015, the Retirement Plan was amended to change the actuarial basis used for converting a life annuity
benefit to optional forms of payment and converting benefits payable at age 65 to earlier commencement dates. This prior service
cost will be amortized over future years.
Annual Report 2018
111
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The amounts recognized in other comprehensive income (loss) for the Retirement Plan for 2018, 2017 and 2016 were as follows:
2018
2017
2016
(in thousands)
Unrecognized net gain (loss) from experience different from that assumed and effects of changes and assumptions
$ 1,870
$ (3,043)
$ (3,115)
Prior service cost
Income tax expense
Other comprehensive income (loss)
24
1,894
(207)
24
(3,019)
(49)
93
(3,022)
(10)
$1,687
$(3,068)
$(3,032)
The gain of $1.7 million recognized in 2018 primarily was due to changes in the discount rate and lump sum interest rates ($9.7
million), the recognized actuarial loss ($1.1 million) and changes in the mortality assumption ($0.4 million), offset by actual earnings
exceeding expected earnings on plan assets ($9.2 million) and changes in the census data ($0.2 million). The loss of $3.1 million
recognized in 2017 primarily was due to changes in the discount rate and lump sum interest rates ($11.9 million) and changes in the
census data ($1.4 million), offset by actual earnings exceeding expected earnings on plan assets ($8.5 million), the recognized actua-
rial loss ($1.1 million) and changes in the mortality assumption ($0.7 million). The loss of $3.0 million recognized in 2016 primarily
was due to expected earnings on plan assets exceeding actual earnings ($1.8 million) and changes in the discount rate and lump sum
interest rates ($3.5 million), offset by changes in the mortality assumption ($1.7 million).
Foreign retirement plans and an individual’s retirement plan maintained by AB are not material to AB’s consolidated financial state-
ments. As such, disclosure for these plans is not necessary. The reconciliation of the 2018 amounts recognized in other compre-
hensive income for the Retirement Plan as compared to the consolidated statement of comprehensive income (“OCI Statement”)
is as follows:
Recognized actuarial gain (loss)
Amortization of prior service cost
Changes in employee benefit related items
Income tax (expense) benefit
Employee benefit related items, net of tax
Retirement
Plan
$ 1,870
24
1,894
(207)
$1,687
Retired
Individual
Plan
Foreign
Retirement
Plans
(in thousands)
$ 53
—
53
(2)
$51
$ (337)
—
(337)
70
$(267)
OCI
Statement
$ 1,586
24
1,610
(139)
$1,471
The amounts included in accumulated other comprehensive income (loss) for the Retirement Plan as of December 31, 2018 and
2017 were as follows:
2018
2017
(in thousands)
Unrecognized net loss from experience different from that assumed and effects of changes and assumptions
$ (47,603)
$ (49,473)
Prior service cost
Income tax benefit
Accumulated other comprehensive loss
(755)
(48,358)
201
$(48,157)
(779)
(50,252)
408
$(49,844)
The amortization period over which we are amortizing the loss for the Retirement Plan from accumulated other comprehensive
income is 31.6 years. The estimated prior service cost and amortization of loss for the Retirement Plan that will be amortized from
accumulated other comprehensive income over the next year are $24 thousand and $1.1 million, respectively.
112
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The accumulated benefit obligation for the plan was $116.2 million and $125.2 million as of December 31, 2018 and 2017,
respectively.
The discount rates used to determine benefit obligations as of December 31, 2018 and 2017 (measurement dates) were 4.40% and
3.90%, respectively.
Benefit payments are expected to be paid as follows (in thousands):
2019
2020
2021
2022
2023
2024-2028
Net expense under the Retirement Plan consisted of:
Interest cost on projected benefit obligations
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial loss
Net pension expense
$ 7,309
6,138
6,126
7,942
6,473
40,196
Year Ended December 31,
2017
2018
2016
(in thousands)
$ 4,771
(5,893)
24
1,146
$
48
$ 4,999
(5,261)
24
1,097
$ 859
$ 4,972
(5,407)
24
959
$ 548
Actuarial computations used to determine net periodic costs were made utilizing the following weighted-average assumptions:
Years Ended December 31,
2017
2018
2016
Discount rate on benefit obligations
Expected long-term rate of return on plan assets
3.90%
5.75
4.55%
6.00
4.75%
6.50
In developing the expected long-term rate of return on plan assets of 5.75%, management considered the historical returns and
future expectations for returns for each asset category, as well as the target asset allocation of the portfolio. The expected long-term
rate of return on assets is based on weighted average expected returns for each asset class.
As of December 31, 2018, the mortality projection assumption has been updated to use the generational MP-2018 improvement
scale. Previously, mortality was projected generationally using the MP-2017 improvements scale. The base mortality assumption
remains at the RP-2014 white-collar mortality table for males and females adjusted back to 2006 using the MP-2014 improvement
scale.
The Internal Revenue Service (“IRS”) recently updated the mortality tables used to determine lump sums. For fiscal year-end
2018, we reflected the most recently published IRS table for lump sums assumed to be paid in 2019. We projected future mortality
for lump sums assumed to be paid after 2019 using the current base mortality tables (RP-2014 backed off to 2006) and projection
scales of MP-2018.
Annual Report 2018
113
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Retirement Plan’s asset allocation percentages consisted of:
Equity
Debt securities
Other
December 31,
2018
2017
43%
41
16
66%
15
19
100%
100%
The guidelines regarding allocation of assets are formalized in the Investment Policy Statement adopted by the Investment Committee
for the Retirement Plan. The objective of the investment program is to enhance the portfolio of the Retirement Plan through total
return (capital appreciation and income), thereby promoting the ongoing ability of the plan to meet future liabilities and obligations,
while minimizing the need for additional contributions. The guidelines specify an allocation weighting of 10% to 35% for liability
hedging investments (target of 20%), 15% to 40% for return seeking investments (target of 27%), 5% to 35% for risk mitigating invest-
ments (target of 14%), 10% to 35% for diversifying investments (target of 21%) and 5% to 35% for dynamic asset allocation (target of
18%). Investments in mutual funds, hedge funds (and other alternative investments), and other commingled investment vehicles are
permitted under the guidelines. Investments are permitted in overlay portfolios (regulated mutual funds), which are designed to manage
short-term portfolio risk and mitigate the effect of extreme outcomes by varying the asset allocation of a portfolio.
See Note 10, Fair Value for a description of how we measure the fair value of our plan assets.
The valuation of our Retirement Plan assets by pricing observability levels as of December 31, 2018 and 2017 was as follows (in
thousands):
December 31, 2018
Cash
U.S. Treasury Strips
Fixed income mutual funds
Equity mutual fund
Equity securities
Total assets in the fair value hierarchy
Investments measured at net assets value
Investments at fair value
December 31, 2017
Cash
Fixed income mutual funds
Equity mutual fund
Equity securities
Total assets in the fair value hierarchy
Investments measured at net assets value
Investments at fair value
Level 1
Level 2
Level 3
Total
$
238
—
18,362
26,508
8,970
54,078
—
$ —
22,355
—
—
—
22,355
—
$—
$
238
—
—
—
—
—
—
22,355
18,362
26,508
8,970
76,433
22,151
$54,078
$22,355
$—
$ 98,584
$
91
$ —
$—
$
91
23,696
29,352
25,191
78,330
—
—
—
—
—
—
—
—
—
—
—
23,696
29,352
25,191
78,330
22,376
$78,330
$ —
$—
$100,706
During 2018, the Retirement Plan’s investments include the following:
• U.S. Treasury strips;
•
two fixed income mutual funds which seek to generate income consistent with preservation of capital. One fund invests in a
portfolio of investment-grade securities primarily in the U.S. with additional non-U.S. securities. The second fund invests in
inflation-indexed fixed-income securities and similar bonds issued by non-U.S. governments and various commodities;
114
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
•
•
seven equity mutual funds, four of which focus on U.S.-based equity securities of various capitalization sizes ranging from small
to large capitalizations and diversified portfolios within those capitalization ranges; and three funds which focus on non-U.S.
based equity securities of various capitalization sizes ranging from small to large capitalizations and diversified portfolios therein
across non-U.S. regions;
separate equity and fixed income mutual funds, which seek to moderate the volatility of equity and fixed income oriented asset
allocation over the long term, as part of the overall asset allocation managed by AB;
• a multi-style, multi-cap integrated portfolio adding U.S. equity diversification to its value and growth equity selections,
designed to deliver a long-term premium to the S&P 500 with greater consistency across a range of market environments; and
•
investments measured at net asset value, including three hedge funds which seek to provide attractive risk-adjusted returns over
full market cycles with less volatility than the broad equity markets by allocating all or substantially all of their assets among
portfolio managers through portfolio funds that employ a broad range of investment strategies; one private investment trust
which invests primarily in equity securities of non-U.S. companies located in emerging market countries; and one collective
investment trust which invests in U.S. and non-U.S. equities of various capitalization sizes.
During 2017, the Retirement Plan’s investments included the following:
•
•
•
two fixed income mutual funds, each of which seeks to generate income consistent with preservation of capital. One mutual
fund invests in a portfolio of fixed income securities of U.S. and non-U.S. companies and U.S. and non-U.S. government
securities and supranational entities, including lower-rated securities, while the second fund invests in a broad range of fixed
income securities in both developed and emerging markets with a range of maturities from short- to long-term;
three equity mutual funds, one of which invests primarily in a diversified portfolio of equity securities of small- to
mid-capitalization U.S. companies, the second which invests primarily in a diversified portfolio of equity securities with rela-
tively smaller capitalizations as compared to the overall U.S market, and the third which primarily invests in equity securities of
small capitalization companies or other securities or instruments with similar economic characteristics;
separate equity and fixed income mutual funds, which seek to moderate the volatility of equity and fixed income oriented asset
allocation over the long term, as part of the overall asset allocation managed by AB;
• a multi-style, multi-cap integrated portfolio adding U.S. equity diversification to its value and growth equity selections,
designed to deliver a long-term premium to the S&P 500 with greater consistency across a range of market environments; and
•
investments measured at net asset value, including two equity private investment trusts, one of which invests primarily in equity
securities of non-U.S. companies located in emerging market countries, and the other of which invests in equity securities of estab-
lished non-U.S. companies located in the countries comprising the MSCI EAFE Index, plus Canada; and a hedge fund that seeks
to provide attractive risk-adjusted returns over full market cycles with less volatility than the broad equity markets by allocating all
or substantially all of its assets among portfolio managers through portfolio funds that employ a broad range of investment strategies.
19. Long-term Incentive Compensation Plans
We maintain an unfunded, non-qualified incentive compensation program known as the AllianceBernstein Incentive Compensation
Award Program (“Incentive Compensation Program”), under which annual awards may be granted to eligible employees. See
Note 2, “Summary of Significant Accounting Policies—Long-Term Incentive Compensation Plans” for a discussion of the award provisions.
Under the Incentive Compensation Program, we made awards in 2018, 2017 and 2016 aggregating $183.3 million, $168.2 million
and $157.8 million, respectively. The amounts charged to employee compensation and benefits for the years ended December 31,
2018, 2017 and 2016 were $161.0 million, $172.8 million and $153.8 million, respectively.
Effective as of September 30, 2017, we established the AB 2017 Long Term Incentive Plan (“2017 Plan”), which was adopted at a
special meeting of AB Holding Unitholders held on September 29, 2017. The following forms of awards may be granted to
Annual Report 2018
115
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
employees and Eligible Directors under the 2017 Plan: (i) restricted AB Holding Units or phantom restricted AB Holding Units (a
“phantom” award is a contractual right to receive AB Holding Units at a later date or upon a specified event); (ii) options to buy
AB Holding Units; and (iii) other AB Holding Unit-based awards (including, without limitation, AB Holding Unit appreciation
rights and performance awards). The purpose of the 2017 Plan is to promote the interest of AB by: (i) attracting and retaining tal-
ented officers, employees and directors, (ii) motivating such officers, employees and directors by means of performance-related
incentives to achieve longer-range business and operational goals, (iii) enabling such officers, employees and directors to participate
in the long-term growth and financial success of AB, and (iv) aligning the interests of such officers, employees and directors with
those of AB Holding Unitholders. The 2017 Plan will expire on September 30, 2027, and no awards under the 2017 Plan will be
made after that date. Under the 2017 Plan, the aggregate number of AB Holding Units with respect to which awards may be
granted is 60 million, including no more than 30 million newly-issued AB Holding Units.
As of December 31, 2018, no options to buy AB Holding Units had been granted and 14,352,740 AB Holding Units, net of with-
holding tax requirements, were subject to other AB Holding Unit awards made under the 2017 Plan, or the AllianceBernstein 2010
Long Term Incentive Plan, as amended, an equity compensation plan with similar terms that was canceled on September 30, 2017.
AB Holding Unit-based awards (including options) in respect of 45,647,260 AB Holding Units were available for grant under the
2017 Plan as of December 31, 2018.
Option Awards
We did not grant any options to buy AB Holding Units during 2018 or 2017. Historically, options granted to employees generally
were exercisable at a rate of 20% of the AB Holding Units subject to such options on each of the first five anniversary dates of the date
of grant; options granted to Eligible Directors generally were exercisable at a rate of 33.3% of the AB Holding Units subject to such
options on each of the first three anniversary dates of the date of grant. During 2016, we granted 54,546 options to Eligible Directors
with a grant date value of $2.75, determined using the Black-Scholes option valuation model with the following assumptions:
Risk-free interest rate
Expected cash distribution yield
Historical volatility factor
Expected term
2016
1.3%
7.1%
31.0%
6.0 years
The risk-free interest rate is based on the U.S. Treasury Bond yield for the appropriate expected term. The expected cash dis-
tribution yield is based on the average of our distribution yield over the past four quarters. The historical volatility factor represents
our historical Unit price over the same period as our expected term. Due to a lack of sufficient historical data, we have chosen to
use the simplified method to calculate the expected term of options.
The option-related activity in our equity compensation plans during 2018 is as follows:
Options
to Buy
AB Holding
Units
Weighted
Average
Exercise Price
Per Option
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding as of December 31, 2017
3,082,470
$52.37
1.2
Granted
Exercised
Forfeited
Expired
Outstanding as of December 31, 2018
Exercisable as of December 31, 2018
Vested or expected to vest as of December 31, 2018
—
(889,119)
—
(1,522,108)
671,243
634,877
671,243
—
18.66
—
85.09
22.83
22.84
22.83
1.6
1.5
1.6
$3.0
2.8
3.0
116
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The total intrinsic value of options exercised during 2018, 2017 and 2016 was $8.9 million, $8.3 million and $2.1 million, respectively.
Under the fair value method, compensation expense is measured at the grant date based on the estimated fair value of the options
awarded (determined using the Black-Scholes option valuation model) and is recognized over the required service period. We
recorded no compensation expense related to option grants in 2018 and 2017 as no options were granted. We recorded compensa-
tion expense relating to option grants of $0.2 million in 2016. As of December 31, 2018, there was no compensation expense
related to unvested option grants not yet recognized in the consolidated statement of income.
Restricted AB Holding Unit Awards
In 2018, 2017 and 2016, the Board granted restricted AB Holding Unit awards to Eligible Directors. These AB Holding Units give
the Eligible Directors, in most instances, all the rights of other AB Holding Unitholders, subject to such restrictions on transfer as
the Board may impose. We awarded 53,720, 50,252 and 46,382 restricted AB Holding Units, respectively, in 2018, 2017 and 2016
with grant date fair values per restricted AB Holding Unit of $26.90 in 2018, $21.25 and $24.80 in 2017 and $22.64 in 2016. All of
the restricted AB Holding Units vest ratably over three or four years. We fully expensed these awards on each grant date, as there is
no service requirement. We recorded compensation expense relating to these awards of $1.4 million, $1.1 million and $1.1 million,
respectively, for the years ended December 31, 2018, 2017 and 2016.
On April 28, 2017, the Board removed Peter S. Kraus from his position as Chairman of the Board and Chief Executive Officer
(“CEO”). As part of his June 2012 employment agreement he was granted 2.7 million restricted AB Holding Units, which were
scheduled to vest ratably over the employment term (January 3, 2014 through January 2, 2019). Under US GAAP, the compensa-
tion expense for the AB Holding Unit award under the June 2012 employment agreement of $33.1 million (based on the $12.17
grant date AB Holding Unit price) was being amortized on a straight-line basis over 6.5 years, beginning on the grant date. As a
result of his removal we accelerated the vesting on his remaining two tranches and delivered the AB Holding Units to him in June
2017. We recorded compensation expense relating to Mr. Kraus’s restricted AB Holding Unit grants of $10.2 million and
$5.1 million for the years ended December 31, 2017 and 2016, respectively.
On April 28, 2017, Seth P. Bernstein was appointed President and CEO to provide services pursuant to an employment agreement,
effective May 1, 2017. In connection with the commencement of his employment, Mr. Bernstein was granted restricted AB Hold-
ing Units with a grant date fair value of $3.5 million (164,706 AB Holding Units based on the $21.25 grant date AB Holding Unit
price on May 16, 2017) and a four-year service requirement. Mr. Bernstein’s restricted AB Holding Units vest ratably on each of
the first four anniversaries of his commencement date and will be delivered to Mr. Bernstein as soon as administratively feasible after
May 1, 2021, subject to accelerated vesting clauses in his employment agreement. We recorded compensation expense relating to
Mr. Bernstein’s restricted AB Holding Unit grants of $0.9 million and $0.6 million for the years ended December 31, 2018 and
2017, respectively.
Under the Incentive Compensation Program, we awarded 6.5 million restricted AB Holding Units in 2018 (which included
6.2 million restricted AB Holding Units in December for the 2018 year-end awards as well as 0.3 million additional restricted AB
Holding Units granted earlier during the year relating to the 2017 year-end awards), 6.3 million restricted AB Holding Units in
2017 (which included 6.1 million restricted AB Holding Units in December for the 2017 year-end awards as well as 0.2 million
additional restricted AB Holding Units granted earlier during the year relating to the 2016 year-end awards), and 6.1 million
restricted AB Holding Units in 2016 (substantially all of which were restricted AB Holding Units granted in December for the 2016
year-end awards as well as minimal restricted AB Holding Units granted earlier during the year relating to the 2015 year-end
awards). The grant date fair values per restricted AB Holding Unit ranged between $24.95 and $26.69 in 2018, $23.00 and $24.95
in 2017, and were $19.45 and $23.20 in 2016. Restricted AB Holding Units awarded under the Incentive Compensation Program
generally vest in 25% increments on December 1st of each of the four years immediately following the year in which the award is
granted.
We also award restricted AB Holding Units in connection with certain employment and separation agreements, as well as
relocation-related performance awards, with vesting schedules ranging between two and five years. The fair value of the restricted
AB Holding Units is amortized over the required service period as employee compensation expense. We awarded 2.6 million,
Annual Report 2018
117
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1.8 million and 1.0 million restricted AB Holding Units in 2018, 2017 and 2016, respectively, with grant date fair values per
restricted AB Holding Unit ranging between $25.05 and $30.25 in 2018, $21.25 and $25.65 in 2017 and $18.67 and $25.34 in
2016. We recorded compensation expense relating to restricted AB Holding Unit grants in connection with certain employment
and separation agreements of $32.2 million, $21.6 million and $11.2 million, respectively, for the years ended December 31, 2018,
2017 and 2016.
Changes in unvested restricted AB Holding Units during 2018 are as follows:
Unvested as of December 31, 2017
Granted
Vested
Forfeited
Unvested as of December 31, 2018
Weighted Average
Grant Date Fair
Value per
AB Holding
Unit
$23.82
26.64
23.72
24.02
25.12
AB Holding
Units
19,072,910
9,123,321
(7,128,611)
(853,231)
20,214,389
The total grant date fair value of restricted AB Holding Units that vested during 2018, 2017 and 2016 was $169.1 million,
$177.0 million and $159.4 million, respectively. As of December 31, 2018, the 20,214,389 unvested restricted AB Holding Units
consist of 15,380,549 restricted AB Holding Units that do not have a service requirement and have been fully expensed on the
grant date and 4,883,840 restricted AB Holding Units that have a service requirement and will be expensed over the required serv-
ice period. As of December 31, 2018, there was $87.1 million of compensation expense related to unvested restricted AB Holding
Unit awards granted and not yet recognized in the consolidated statement of income. We expect to recognize the expense over a
weighted average period of 3.6 years.
20. Units Outstanding
Changes in AB Units outstanding for the years ended December 31, 2018 and 2017 were as follows:
Outstanding as of January 1,
Options exercised
Units issued
Units retired(1)
Outstanding as of December 31,
2018
2017
268,659,333
268,893,534
889,119
6,153,320
(6,851,496)
1,179,860
5,546,695
(6,960,756)
268,850,276
268,659,333
(1) During 2018 and 2017, we purchased 5,346 and 44,000 AB Units, respectively, in private transactions and retired them.
21. Income Taxes
AB is a private partnership for federal income tax purposes and, accordingly, is not subject to federal or state corporate income
taxes. However, AB is subject to a 4.0% New York City unincorporated business tax (“UBT”). Domestic corporate subsidiaries of
AB, which are subject to federal, state and local income taxes, generally are included in the filing of a consolidated federal income
tax return with separate state and local income tax returns being filed. Foreign corporate subsidiaries are generally subject to taxes in
the foreign jurisdictions where they are located.
In order to preserve AB’s status as a private partnership for federal income tax purposes, AB Units must not be considered publicly
traded. The AB Partnership Agreement provides that all transfers of AB Units must be approved by AXA Equitable Life Insurance
118
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Company (a subsidiary of EQH, “AXA Equitable”) and the General Partner; AXA Equitable and the General Partner approve only
those transfers permitted pursuant to one or more of the safe harbors contained in the relevant Treasury regulations. If AB Units were
considered readily tradable, AB’s net income would be subject to federal and state corporate income tax, significantly reducing its quar-
terly distributions to AB Holding. Furthermore, should AB enter into a substantial new line of business, AB Holding, by virtue of its
ownership of AB, would lose its status as a “grandfathered” publicly-traded partnership and would become subject to corporate income
tax, which would reduce materially AB Holding’s net income and its quarterly distributions to AB Holding Unitholders.
The 2017 Tax Act was enacted in the U.S. on December 22, 2017. The 2017 Tax Act reduced the U.S. federal corporate income tax
rate to 21% from 35%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were pre-
viously tax deferred and created new taxes on certain foreign-sourced earnings. In 2017, we recorded provisional amounts for certain
enactment-date effects of the 2017 Tax Act by applying the guidance in SAB 118 because we had not yet completed our enactment-
date accounting for these effects. In 2018, we completed our assessment and recorded adjustments to our initial provisional amounts.
The provisions of the 2017 Tax Act that had a significant impact on our income tax balance sheet and income statement accounts
are as follows:
• We recorded an approximate $22.5 million charge to our 2017 income tax expense to account for deemed repatriation of for-
eign earnings. As a result of our completed analysis in 2018, we recorded an additional $1.1 million to our income tax expense.
Management elected to pay the federal transition tax over a period of eight years as permitted by the 2017 Tax Act. During
2018, we paid $1.8 million of the $23.6 million transition tax. The remaining $21.8 million is recorded to income tax payable
on our consolidated statement of financial condition and will be paid out over the next seven years.
• We recorded an approximate $3.3 million charge to our 2017 income tax expense to reduce our net deferred tax assets due to
the lower corporate income tax rate. We completed our analysis in 2018 and determined no adjustment was necessary.
• We analyzed the impact of the tax on global intangible low-taxed income (“GILTI”) and elected to treat GILTI as a period
cost. In 2018, management’s estimate of tax on GILTI income was fully offset by available foreign tax credits. As a result of our
completed analysis in 2018, there was no period cost required.
• We analyzed the impact of the base erosion anti-abuse tax (“BEAT”), which taxes certain payments between a U.S. corpo-
ration and its foreign subsidiaries. Based on current guidance in 2018, it was determined that we will not be subject to BEAT.
• We recorded a $2.3 million charge to our 2018 income tax expense as a result of our evaluation of the reversal of the indefinite
reinvestments assertions for certain non-U.S. corporate subsidiaries.
Earnings before income taxes and income tax expense consist of:
Earnings before income taxes:
United States
Foreign
Total
Income tax expense:
Partnership UBT
Corporate subsidiaries:
Federal
State and local
Foreign
Current tax expense
Deferred tax (benefit)
Income tax expense
Annual Report 2018
Years Ended December 31,
2017
2018
2016
(in thousands)
$ 672,221
153,093
$825,314
$ 634,515
139,395
$773,910
$ 614,261
108,904
$723,165
$
5,251
$
2,986
$
5,363
(4,030)
2,888
36,529
40,638
5,178
18,079
803
29,365
51,233
1,877
291
1,064
28,158
34,876
(6,557)
$ 45,816
$ 53,110
$ 28,319
119
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The principal reasons for the difference between the effective tax rates and the UBT statutory tax rate of 4.0% are as follows:
UBT statutory rate
Corporate subsidiaries’ federal, state, and local
Foreign subsidiaries taxed at different rates
2017 Tax Act
FIN 48 release
UBT business allocation percentage rate change
Deferred tax and payable write-offs
Foreign outside basis difference
2018
Years Ended December 31,
2017
(in thousands)
2016
$ 33,012
4.0%
$ 30,956
4.0%
$ 28,927
4.0%
1,522
30,689
1,155
(5,177)
2,657
2,932
2,273
0.2
3.7
0.1
(0.6)
0.3
0.4
0.3
2,558
25,406
25,846
(3,318)
—
(9,542)
—
1,903
0.3
3.3
3.3
(0.4)
—
(1.2)
—
0.2
(2.6)
6.9
5,820
23,646
—
—
—
(14,883)
—
2,254
(17,445)
$28,319
0.8
3.3
—
—
—
(2.1)
—
0.3
(2.4)
3.9
Effect of ASC 740 adjustments, miscellaneous taxes, and other
(2,521)
(0.3)
Income not taxable resulting from use of UBT business apportionment factors and effect
of compensation charge
Income tax expense and effective tax rate
(20,726)
$45,816
(2.5)
5.6
(20,699)
$53,110
We recognize the effects of a tax position in the financial statements only if, as of the reporting date, it is “more likely than not” to
be sustained based on its technical merits and their applicability to the facts and circumstances of the tax position. In making this
assessment, we assume that the taxing authority will examine the tax position and have full knowledge of all relevant information.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Years Ended December 31,
2017
2016
2018
Balance as of beginning of period
Additions for prior year tax positions
Reductions for prior year tax positions
Additions for current year tax positions
Reductions for current year tax positions
Reductions related to closed years/settlements with tax authorities
Balance as of end of period
(in thousands)
$8,478
$12,596
$12,004
—
—
—
—
(4,585)
$3,893
—
(1,849)
—
—
(2,269)
—
—
592
—
—
$ 8,478
$12,596
The amount of unrecognized tax benefits as of December 31, 2018, 2017 and 2016, when recognized, is recorded as a reduction to
income tax expense and reduces the company’s effective tax rate.
Interest and penalties, if any, relating to tax positions are recorded in income tax expense on the consolidated statements of income.
The total amount of interest expense (credit) recorded in income tax expense during 2018, 2017 and 2016 was $0.1 million,
$0.3 million and $0.7 million, respectively. The total amount of accrued interest recorded on the consolidated statements of finan-
cial condition as of December 31, 2018, 2017 and 2016 is $0.3 million, $0.7 million and $1.7 million, respectively. There were no
accrued penalties as of December 31, 2018, 2017 or 2016.
Generally, the company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for any year
prior to 2014, except as set forth below.
During the third quarter of 2018, the City of New York notified us of an examination of AB’s UBT returns for the years 2013
through 2016. The examination is ongoing.
As a result of the expiration of the statute of limitations on an acquisition goodwill reserve, the full gross unrecognized tax benefit of
approximately $4.6 million was released. The company also released the full accrued interest amount of $0.6 million.
120
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Currently, there are no income tax examinations at our significant non-U.S. subsidiaries. Years that remain open and may be sub-
ject to examination vary under local law, and range from one to seven years.
At December 31, 2018, it is not reasonably possible that any of our unrecognized tax benefits will change within the next twelve
months due to completion of tax authority exams.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The tax effect of significant items comprising the net
deferred tax asset (liability) is as follows:
Deferred tax asset:
Differences between book and tax basis:
Benefits from net operating loss carryforwards
Long-term incentive compensation plans
Investment basis differences
Depreciation and amortization
Other, primarily accrued expenses deductible when paid
Less: valuation allowance
Deferred tax asset
Deferred tax liability:
Differences between book and tax basis:
Intangible assets
Investment in foreign subsidiaries
Other
Deferred tax liability
Net deferred tax asset
December 31,
2018
2017
(in thousands)
$ 2,518
22,342
$ 3,405
21,204
3,606
1,248
3,903
33,617
(490)
33,127
6,852
1,653
1,758
10,263
$22,864
5,967
2,214
3,601
36,391
(497)
35,894
6,286
—
1,007
7,293
$28,601
Valuation allowances of $0.5 million were established as of both December 31, 2018 and 2017, primarily due to realizing certain
deferred compensation awards and the uncertainty of net operating loss (“NOL”) carryforwards given the future losses expected to
be incurred by the applicable subsidiaries. We had NOL carryforwards at December 31, 2018 and December 31, 2017 of approx-
imately $32.4 million and $38.7 million, respectively, in certain foreign locations with an indefinite expiration.
The net deferred tax asset is included in other assets on the consolidated statement of financial condition. Management has
determined that realization of the net deferred tax asset is more likely than not based on anticipated future taxable income.
The company provides income taxes on the unremitted earnings of non-U.S. corporate subsidiaries except to the extent that such
earnings are indefinitely reinvested outside the United States. As of December 31, 2018, $28.6 million of undistributed earnings of
non-U.S. corporate subsidiaries were permanently invested outside the U.S. At existing applicable income tax rates, additional taxes
of approximately $6.0 million would need to be provided if such earnings are remitted.
Annual Report 2018
121
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
22. Business Segment Information
Management has assessed the requirements of ASC 280, Segment Reporting, and determined that, because we utilize a consolidated
approach to assess performance and allocate resources, we have only one operating segment. Enterprise-wide disclosures as of and
for the years ended December 31, 2018, 2017 and 2016 were as follows:
Services
Net revenues derived from our investment management, research and related services were as follows:
Institutions
Retail
Private Wealth Management
Bernstein Research Services
Other
Total revenues
Less: Interest expense
Net revenues
Years Ended December 31,
2017
2018
2016
(in thousands)
$
479,068
$
477,140
$
422,060
1,494,445
1,423,890
1,261,907
883,234
439,432
123,581
3,419,760
52,399
787,362
449,919
185,375
3,323,686
25,165
711,599
479,875
162,461
3,037,902
9,123
$3,367,361
$3,298,521
$3,028,779
Our AllianceBernstein Global High Yield Portfolio, an open-end fund incorporated in Luxembourg (ACATEUH: LX), generated
approximately 10%, 11% and 10% of our investment advisory and service fees and 10%, 12% and 10% of our net revenues during
2018, 2017 and 2016, respectively.
Geographic Information
Net revenues and long-lived assets, related to our U.S. and international operations, as of and for the years ended December 31,
were as follows:
Net revenues:
United States
International
Total
Long-lived assets:
United States
International
Total
Major Customers
2018
2017
2016
(in thousands)
$ 1,901,571
1,127,208
$3,028,779
$ 1,940,267
1,427,094
$3,367,361
$ 3,262,722
56,069
$3,318,791
$ 1,958,844
1,339,677
$3,298,521
$ 3,313,958
46,221
$3,360,179
Company-sponsored mutual funds are distributed to individual investors through broker-dealers, insurance sales representatives,
banks, registered investment advisers, financial planners and other financial intermediaries. Certain subsidiaries of AXA and EQH,
including AXA Advisors, LLC, have entered into selected dealer agreements with AllianceBernstein Investments and have been
responsible for 1%, 1% and 2% of our open-end mutual fund sales in 2018, 2017 and 2016, respectively. HSBC was responsible for
approximately 7%, 9% and 12% of our open-end mutual fund sales in 2018, 2017 and 2016, respectively. Neither AXA, EQH nor
HSBC is under any obligation to sell a specific amount of AB Fund shares and each also sells shares of mutual funds that it sponsors
and that are sponsored by unaffiliated organizations.
122
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
AXA, EQH and the general and separate accounts of AXA Equitable (including investments by the separate accounts of AXA Equi-
table in the funding vehicle EQ Advisors Trust) accounted for approximately 5% of our total revenues for each of the years ended
December 31, 2018, 2017 and 2016. No single institutional client other than AXA, EQH and their respective subsidiaries
accounted for more than 1% of our total revenues for the years ended December 31, 2018, 2017 and 2016.
23. Related Party Transactions
Mutual Funds
We provide investment management, distribution, shareholder, administrative and brokerage services to individual investors by
means of retail mutual funds sponsored by our company, our subsidiaries and our affiliated joint venture companies. We provide
substantially all of these services under contracts that specify the services to be provided and the fees to be charged. The contracts
are subject to annual review and approval by each mutual fund’s board of directors or trustees and, in certain circumstances, by the
mutual fund’s shareholders. Revenues for services provided or related to the mutual funds are as follows:
Investment advisory and services fees
Distribution revenues
Shareholder servicing fees
Other revenues
Bernstein Research Services
AXA, EQH and their Subsidiaries
Years Ended December 31,
2017
2018
2016
$1,207,086
403,965
74,019
7,262
33
(in thousands)
$1,148,467
397,674
73,310
6,942
13
$998,892
371,604
76,201
6,253
5
We provide investment management and certain administration services to AXA, EQH and their subsidiaries. In addition, AXA,
EQH and their subsidiaries distribute company-sponsored mutual funds, for which they receive commissions and distribution pay-
ments. Sales of company-sponsored mutual funds through AXA, EQH and their subsidiaries aggregated approximately $0.4 billion,
$0.5 billion and $0.8 billion for the years ended December 31, 2018, 2017 and 2016, respectively. Also, we are covered by various
insurance policies maintained by EQH and its subsidiaries and we pay fees for technology and other services provided by AXA,
EQH and their subsidiaries. Aggregate amounts included in the consolidated financial statements for transactions with AXA, EQH
and their subsidiaries, as of and for the years ended December 31, are as follows:
Revenues:
Investment advisory and services fees
Bernstein Research Services
Distribution revenues
Other revenues
Expenses:
Commissions and distribution payments to financial intermediaries
General and administrative
Other
Balance Sheet:
Institutional investment advisory and services fees receivable
Prepaid expenses
Other due to AXA, EQH and their subsidiaries
2018
2017
2016
(in thousands)
$ 150,016
583
12,145
969
$163,713
$ 16,077
16,315
1,653
$ 34,045
$ 169,157
134
13,897
1,729
$184,917
$ 21,567
15,006
1,485
$ 38,058
$ 17,612
364
(7,259)
$ 10,717
$ 157,430
403
13,387
1,130
$172,350
$ 19,202
12,428
1,696
$ 33,326
$ 13,806
2,905
(19,666)
$ (2,955)
Annual Report 2018
123
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Other Related Parties
The consolidated statements of financial condition include a net receivable from AB Holding as a result of cash transactions for fees
and expense reimbursements. The net receivable balance included in the consolidated statements of financial condition as of
December 31, 2018 and 2017 was $11.4 million and $11.1 million, respectively.
24. Acquisitions
Acquisitions are accounted for under ASC 805, Business Combinations.
On November 20, 2018, we made an offer to acquire 100% of the partnership interests in Autonomous Research (“Autonomous”),
an institutional research firm. The acquisition is expected to close in the second quarter of 2019.
On September 23, 2016, we acquired a 100% ownership interest in Ramius Alternative Solutions LLC (“RASL”), a global alter-
native investment management business that, as of the acquisition date, had approximately $2.5 billion in AUM. RASL offers a
range of customized alternative investment and advisory solutions to a global institutional client base. On the acquisition date, we
made a cash payment of $20.5 million and recorded a contingent consideration payable of $11.9 million based on projected fee
revenues over a five-year measurement period. The excess of the purchase price over the current fair value of identifiable net assets
acquired resulted in the recognition of $21.9 million of goodwill. We recorded $10.0 million of finite-lived intangible assets relating
to investment management contracts.
On June 20, 2014, we acquired an 81.7% ownership interest in CPH Capital Fondsmaeglerselskab A/S (“CPH”), a Danish asset
management firm that managed approximately $3 billion in global core equity assets for institutional investors, for a cash payment of
$64.4 million and a contingent consideration payable of $9.4 million based on projected assets under management levels over a
three-year measurement period. The excess of the purchase price over the fair value of identifiable assets acquired resulted in the
recognition of $58.1 million of goodwill. We recorded $24.1 million of finite-lived intangible assets relating to separately-managed
account relationships and $3.5 million of indefinite-lived intangible assets relating to an acquired fund’s investment contract. We
also recorded redeemable non-controlling interests of $16.5 million relating to the fair value of the portion of CPH we did not
own. During 2018, 2017, and 2016, we purchased additional shares of CPH, bringing our ownership interest to 96.8% as of
December 31, 2018.
The 2016 acquisition haas not had a significant impact on 2018, 2017 or 2016 revenues and earnings. As a result, we have not pro-
vided supplemental pro forma information.
25. Non-controlling Interests
Non-controlling interest in net income for the years ended December 31, 2018, 2017 and 2016 consisted of the following:
Non-redeemable non-controlling interests:
Consolidated company-sponsored investment funds
Other
Total non-redeemable non-controlling interest
Redeemable non-controlling interests:
Consolidated company-sponsored investment funds
Total non-controlling interest in net income (loss)
2018
2017
2016
(in thousands)
$
(119)
$ 9,353
$ 11,086
188
69
279
9,632
312
11,398
21,841
$21,910
48,765
$58,397
10,090
$21,488
124
AB
AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Non-redeemable non-controlling interest as of December 31, 2018 and 2017 consisted of the following:
Consolidated company-sponsored investment funds
CPH
Total non-redeemable non-controlling interest
Redeemable non-controlling interest as of December 31, 2018 and 2017 consisted of the following:
2018
2017
(in thousands)
$ —
949
$949
$ 757
807
$1,564
2018
2017
(in thousands)
$ 145,921
$ 596,223
2,888
5,364
$148,809
$601,587
Quarters Ended 2018
December 31
September 30
June 30
March 31
(in thousands, except per unit amounts)
$804,660
$188,053
$
$
$
0.70
0.70
0.71
$850,176
$203,674
$
$
$
0.75
0.75
0.76
$844,738
$181,665
$
$
$
0.66
0.66
0.69
$867,787
$184,196
$
$
$
0.68
0.68
0.80
Quarters Ended 2017
December 31
September 30
June 30
March 31
(in thousands, except per unit amounts)
$919,141
$246,409
$
$
$
0.92
0.92
0.91
$812,150
$140,954
$
$
$
0.53
0.52
0.58
$802,313
$135,103
$
$
$
0.50
0.50
0.56
$764,917
$139,937
$
$
$
0.52
0.51
0.52
Consolidated company-sponsored investment funds
CPH
Total redeemable non-controlling interest
26. Quarterly Financial Data (Unaudited)
Net revenues
Net income attributable to AB Unitholders
Basic net income per AB Unit(1)
Diluted net income per AB Unit(1)
Cash distributions per AB Unit(2)(3)
Net revenues
Net income attributable to AB Unitholders
Basic net income per AB Unit(1)
Diluted net income per AB Unit(1)
Cash distributions per AB Unit(2)(3)
(1) Basic and diluted net income per unit are computed independently for each of the periods presented. Accordingly, the sum of the quarterly net income per unit
amounts may not agree to the total for the year.
(2) Declared and paid during the following quarter.
(3) Cash distributions reflect the impact of our non-GAAP adjustments.
Annual Report 2018
125
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Neither AB nor AB Holding had any changes in or disagreements with accountants in respect of accounting or financial disclosure.
126
AB
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Each of AB Holding and AB maintains a system of disclosure controls and procedures that is designed to ensure that information
required to be disclosed in our reports under the Exchange Act is (i) recorded, processed, summarized and reported in a timely
manner, and (ii) accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and the Chief
Financial Officer (“CFO”), to permit timely decisions regarding our disclosure.
As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the partic-
ipation of the CEO and the CFO, of the effectiveness of the design and operation of disclosure controls and procedures. Based on
this evaluation, the CEO and the CFO concluded that the disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Management acknowledges its responsibility for establishing and maintaining adequate internal control over financial reporting for
each of AB Holding and AB.
Internal control over financial reporting is a process designed by, or under the supervision of, a company’s CEO and CFO, to pro-
vide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external pur-
poses in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and includes
those policies and procedures that:
• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accord-
ance with US GAAP and receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those internal control systems
determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and
presentation. Because of these inherent limitations, internal control over financial reporting may not prevent or detect misstate-
ments. Projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deterio-
rate.
Management assessed the effectiveness of AB Holding’s and AB’s internal control over financial reporting as of December 31, 2018.
In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (2013) (“COSO criteria”).
Based on its assessment, management concluded that, as of December 31, 2018, each of AB Holding and AB maintained effective
internal control over financial reporting based on the COSO criteria.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the 2018 financial statements included
in this Form 10-K, has issued an attestation report on the effectiveness of each of AB Holding’s and AB’s internal control over
financial reporting as of December 31, 2018. These reports can be found in Item 8.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting occurred during the fourth quarter of 2018 that materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
Annual Report 2018
127
Item 9B. Other Information
Both AB and AB Holding reported all information required to be disclosed on Form 8-K during the fourth quarter of 2018.
128
AB
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
We use “Internet Site” in Items 10 and 11 to refer to our company’s internet site, www.alliancebernstein.com.
To contact our company’s Corporate Secretary, you may send an email to corporate_secretary@alliancebernstein.com or write to Corpo-
rate Secretary, AllianceBernstein L.P., 1345 Avenue of the Americas, New York, New York 10105.
General Partner
The Partnerships’ activities are managed and controlled by the General Partner. The Board of the General Partner acts as the Board
of each of the Partnerships. Neither AB Unitholders nor AB Holding Unitholders have any rights to manage or control the
Partnerships or to elect directors of the General Partner. The General Partner is a subsidiary of EQH.
The General Partner does not receive any compensation from the Partnerships for services rendered to them as their general part-
ner. The General Partner holds a 1% general partnership interest in AB and 100,000 units of general partnership interest in AB
Holding. Each general partnership unit in AB Holding is entitled to receive distributions equal to those received by each AB Hold-
ing Unit.
The General Partner is entitled to reimbursement by AB for any expenses it incurs in carrying out its activities as general partner of
the Partnerships, including compensation paid by the General Partner to its directors and officers (to the extent such persons are not
compensated directly by AB).
Board of Directors
Our Board currently consists of 11 directors, including our President and CEO, our Chairman of the Board, the Chairman of the
Board of AXA, two senior executives of EQH, and six independent directors. While we do not have a formal, written diversity
policy in place, we believe that an effective board consists of a diverse group of individuals who collectively possess a variety of
complementary skills and perspectives and who will work together to provide a board with the needed leadership and experience to
successfully guide our company. As set forth in its charter, the Corporate Governance Committee of the Board (“Governance
Committee”) assists the Board in identifying and evaluating such candidates, determining Board composition, developing and
monitoring a process to assess Board effectiveness, developing and implementing corporate governance guidelines, and reviewing
programs relating to matters of corporate responsibility.
As we indicate below, our directors have a combined wealth of leadership experience derived from extensive service leading large,
complex organizations in their roles as either senior executives or board members, as well as in government and academia. Each of
our directors has the integrity, business judgment, collegiality and commitment that are among the essential characteristics for a
member of our Board. Collectively, they have substantive knowledge and skills applicable to our business, including expertise in
areas such as regulation; public accounting and financial reporting; finance; risk management; business development; operations;
information technology; strategic planning; management development, succession planning and compensation; corporate gover-
nance; public policy; and international matters.
As of February 13, 2019, our directors are as follows:
Robert B. Zoellick
Mr. Zoellick, age 65, was appointed Non-Executive Chairman of the Board in April 2017. He also serves as a Senior Counselor of the
Brunswick Group and on the boards of Temasek (a sovereign fund of Singapore) and Twitter. He is a member of the Swiss Re
International Advisers and a Senior Fellow at The Belfer Center at Harvard University. From 2013 to 2016, Mr. Zoellick chaired
Goldman Sachs Group’s International Advisors. From 2007 to 2012, he served as the 11th president of the World Bank, and from 2006
to 2007, was vice chairman, international, of Goldman Sachs Group and chairman of Goldman Sachs’s International Advisors.
Mr. Zoellick served as Deputy Secretary of the U.S. Department of State from 2005 to 2006, and was U.S. Trade Representative from
2001 to 2005. He also held several positions in the Reagan and George H. W. Bush administrations, serving as Under Secretary of
State for Economic and Agricultural Affairs, Counselor of the State Department, White House Deputy Chief of Staff, Counselor to the
Annual Report 2018
129
Secretary of the Treasury, and Deputy Assistant Secretary of the Treasury for Financial Institutions Policy. From 1993 to 1997,
Mr. Zoellick was executive vice president for Housing and Law at Fannie Mae. Mr. Zoellick has served on the Board of Directors of
Temasek, since 2013, and as a Senior Fellow at The Belfer Center, since 2012.
Mr. Zoellick brings to the Board the in-depth knowledge of world affairs and financial services he has developed through his years
of service with the U.S. government, as the former president of the World Bank and through the various positions he held with
Goldman Sachs.
Seth P. Bernstein
Mr. Bernstein, age 57, was appointed President and Chief Executive Officer in April 2017 and began serving in this role on May 1,
2017. Prior to his appointment, he had a distinguished 32 year career at JPMorgan Chase, most recently as managing director and
global head of Managed Solutions and Strategy at J.P. Morgan Asset Management. In this role, Mr. Bernstein was responsible for
the management of all discretionary assets within the Private Banking client segment. Among other roles, he served as managing
director and global head of Fixed Income and Currency for 10 years, concluding in 2012. Prior to that, Mr. Bernstein held the
position of chief financial officer at JPMorgan Chase’s Investment Management and Private Banking division. Mr. Bernstein is a
member of the Management Committee of EQH and the Board of Managers of Haverford College, Pennsylvania.
Mr. Bernstein brings to the Board the diverse financial services experience he developed through his extensive service at JPMorgan
Chase.
Paul L. Audet
Mr. Audet, age 65, was appointed a director of AB in November 2017. He is the Co-Founder and Managing Member of Sym-
metrical Ventures LLC, a venture capital firm organized in 2015 and specializing in capital investments in start-ups and development
stage companies. The firm evaluates investment opportunities in enterprises that aim to transform traditional business models
through disruptive technologies. Previously, Mr. Audet served as a senior managing director at BlackRock, retiring in 2014 after a
35-year career in the financial services industry. During his BlackRock tenure, he held a number of executive leadership roles,
including chief financial officer for nine years and head of the company’s U.S. active mutual funds, global real estate and global
cash-management businesses. Mr. Audet’s affiliation with BlackRock started in 1994 when, as director of mergers and acquisitions
for PNC Financial Services, he led the acquisition of BlackRock. He began his professional career in 1977 at Pricewaterhou-
seCoopers and worked at PaineWebber and First Fidelity Bancorporation before moving on to BlackRock and PNC.
Mr. Audet brings to the Board the extensive financial services experience he has developed through his executive leadership roles at
BlackRock.
Ramon de Oliveira
Mr. de Oliveira, age 64, was appointed a director of AB in April 2017. He has been a director of EQH since April 2018, AXA
since 2010, and AXA Equitable and MONY Life Insurance Company of America since 2011. Additionally, he serves as Managing
Director of the consulting firm Investment Audit Practice. Previously, Mr. de Oliveira held several executive positions at J.P.
Morgan & Co. over the course of a 24-year tenure, including five years as chairman and chief executive officer of J.P. Morgan
Investment Management. He was also a member of J.P. Morgan’s Management Committee from its inception in 1995.
Mr. de Oliveira brings to the Board the extensive buy-side and sell-side financial services experience he has developed through his
executive leadership roles at JPMorgan Chase and Investment Audit Practice.
Denis Duverne
Mr. Duverne, age 65, was elected a director of AB in February 1996. On September 1, 2016, he was appointed Chairman of the
Board of AXA after having served as Deputy CEO of AXA and a member of the Board of Directors of AXA since April 2010,
when AXA changed its governance structure. Mr. Duverne was a member of the AXA Management Board from February 2003
through April 2010. He was CFO of AXA from May 2003 through December 2009. From January 2000 to May 2003,
Mr. Duverne served as Group Executive Vice President-Finance, Control and Strategy. Mr. Duverne joined AXA as Senior Vice
President in 1995.
Mr. Duverne brings to the Board the highly diverse experience he has attained from the many key roles he has served for AXA.
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Barbara Fallon-Walsh
Ms. Fallon-Walsh, age 66, was appointed a director of AB in April 2017, and has been a director Banc of California since Sep-
tember 2018. She also has served as a director of MONY Life Insurance Company of America since 2012, and she previously served
as a director of AXA Investment Managers, AXA IM and AXA Rosenberg Group. Before that, Ms. Fallon-Walsh held several
executive positions at the Vanguard Group between 1995 and her retirement in 2012. She began her career and held various execu-
tive positions at Security Pacific Bank, which was acquired by Bank of America in 1992.
Ms. Fallon-Walsh brings to the Board the extensive financial services and insurance experience she has developed through her
executive leadership roles at various AXA subsidiaries and the Vanguard Group.
Daniel G. Kaye
Mr. Kaye, age 64, was appointed a director of AB in April 2017. He has been a director of AXA Equitable Holdings since April
2018 and a director of AXA Equitable and MONY Life Insurance Company of America since 2015. From January 2013 to May
2014, he served as interim chief financial officer and treasurer of HealthEast Care System. Mr. Kaye retired from Ernst & Young in
2012 after a 35-year career, including 25 years as an audit partner. During his tenure at E&Y, Mr. Kaye served as the New England
Area Managing Partner and the Midwest Area Managing Partner of Assurance. Mr. Kaye is a Certified Public Accountant and a
National Association of Corporate Directors Board Leadership Fellow.
Mr. Kaye brings to the Board the extensive financial expertise he developed through his career at Ernst & Young and his director-
ships at EQH and certain of its subsidiaries.
Shelley B. Leibowitz
Ms. Leibowitz, age 57, was appointed a director of AB in November 2017. A leader among technology professionals, she currently
serves as an advisor to senior executives and boards of directors in the areas of technology oversight and cybersecurity best practices.
Prior to starting her current firm, SL Advisory, she served as group chief information officer for the World Bank, where she
directed all aspects of technology (including strategy, innovation and support) across the bank’s more than 180 group offices based in
Washington, DC, and around the world. Ms. Leibowitz has also served as chief information officer at Investment Risk Manage-
ment, Morgan Stanley, Greenwich Capital Markets and other financial institutions. She currently sits on the board, as well as the
Risk Oversight and Governance Committees, of E*TRADE Financial Corp. and serves as an Advisor to security intelligence firm
Endgame. Ms. Leibowitz is a member of the Council on Foreign Relations, and on the Visiting Committee for the Center for
Development Economics at Williams College.
Ms. Leibowitz brings to the Board her extensive experience in financial services as a seasoned chief information officer and her track
record of strategy formulation and effective execution in the public and private sectors.
Anders Malmstrom
Mr. Malmstrom, age 51, was appointed a director of AB in April 2017. He is Senior Executive Vice President and Chief Financial
Officer of AXA Equitable Holdings and AXA Equitable. Mr. Malmstrom is also a member of EQH’s Management Committee. He
joined AXA in 2012 from AXA Winterthur in Switzerland, where he was a member of the Executive Board and head of the Life
Department. Before joining AXA Winterthur in 2009, Mr. Malmstrom was head of product management, Group Life Insurance, at
Swiss Life in Zurich.
Mr. Malmstrom brings to the Board the significant experience in insurance and financial services he has developed in senior execu-
tive roles with various AXA entities and at Swiss Life.
Das Narayandas
Mr. Narayandas, age 58, was appointed a director of AB in November 2017. He is the Edsel Bryant Ford Professor of Business
Administration at Harvard Business School (“HBS”), where he has been a faculty member since 1994. Mr. Narayandas also cur-
rently serves as the Senior Associate Dean and Chairman of Harvard Business School Publishing, and as the Senior Associate Dean
of HBS External Relations. He previously served as the senior associate dean of HBS Executive Education, and as chair of the HBS
Executive Education Advanced Management Program and the Program for Leadership Development, as well as course head of the
required first-year marketing course in the MBA program. Mr. Narayandas has received the award for teaching excellence from the
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131
graduating HBS MBA class on several occasions. Other awards he has received include the Robert F. Greenhill Award for Out-
standing Service to the HBS Community, the Charles M. Williams Award for Excellence in Teaching and the Apgar Award for
Innovation in Teaching. His scholarship has focused on market-facing issues in traditional business-to-business marketing and pro-
fessional service firms, including client management strategies, delivering service excellence, product-line management and channel
design. Mr. Narayandas currently serves on the board of Titan Company Limited, a leading Indian brand marketer operating in the
watch, jewelry, eyewear and wearable accessories segments.
Mr. Narayandas brings to the Board his wealth of experience at the highest level of academia in the U.S.
Mark Pearson
Mr. Pearson, age 60, was elected a director of AB in February 2011. In January 2011, he became director of AXA Equitable Hold-
ings and currently serves as President and Chief Executive Officer. Mr. Pearson also serves as Chairman and CEO of AXA Equi-
table and as a member of EQH’s Management Committee. Additionally, he has been a director of MONY Life Insurance
Company of America since January 2011.
Mr. Pearson joined AXA in 1995 when AXA acquired National Mutual Funds Management Limited (presently AXA Asia Pacific
Holdings Limited) and was appointed Regional Chief Executive of AXA Asia Life in 2001. From 2008 to 2011, Mr. Pearson was
named President and CEO of AXA Japan Holding Co., Ltd. (“AXA Japan”). Prior to joining AXA, Mr. Pearson spent approx-
imately 20 years in the insurance sector, holding several senior management positions at Hill Samuel, Schroders, National Mutual
Holdings and Friends Provident. Mr. Pearson is a Fellow of the Chartered Public Association of Certified Public Accountants and is
a director of the American Council of Life Insurers.
Mr. Pearson brings to the Board the diverse financial services experience he has developed through his service as an executive,
including as CEO, with EQH, AXA Japan and other AXA affiliates.
Executive Officers (other than Mr. Bernstein)
Kate C. Burke, Head of Human Capital and Chief Talent Officer
Ms. Burke, age 47, has been Head of Human Capital and Chief Talent Officer since February 2016. She joined our firm in 2004 as
an institutional equity salesperson with Bernstein Research Services and has held various managerial roles since that time. Prior to
joining AB, Ms. Burke was a consultant at A.T. Kearney, where she focused on strategy, organizational design and change
management.
Laurence E. Cranch, General Counsel
Mr. Cranch, age 72, has been our General Counsel since he joined our firm in 2004. Prior to joining AB, Mr. Cranch was a part-
ner of Clifford Chance, an international law firm. Mr. Cranch joined Clifford Chance in 2000 when Rogers & Wells, a New York
law firm of which he was Managing Partner, merged with Clifford Chance.
James A. Gingrich, COO
Mr. Gingrich, age 60, joined our firm in 1999 as a senior research analyst with Bernstein Research Services and has been our firm’s
COO since December 2011. Prior to becoming COO, Mr. Gingrich held senior managerial positions in Bernstein Research Serv-
ices, including Chairman and CEO from February 2007 to November 2011 and Global Director of Research from December 2002
to January 2007.
John C. Weisenseel, CFO
Mr. Weisenseel, age 59, joined our firm in May 2012 as Senior Vice President and CFO. From 2004 to April 2012, he worked at The
McGraw Hill Companies (“McGraw Hill”), where he served initially as Senior Vice President and Corporate Treasurer and, from
2007 to April 2012, as CFO of the firm’s Standard & Poor’s subsidiary. Prior to joining McGraw Hill, Mr. Weisenseel was Vice Presi-
dent and Corporate Treasurer for Barnes & Noble, Inc. Prior to joining Barnes & Noble, he spent ten years in various derivatives trad-
ing and financial positions at Citigroup. A Certified Public Accountant, Mr. Weisenseel also has worked at KPMG LLP.
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Changes in Directors and Executive Officers
There have been no changes in our directors and executive officers since we filed our Form 10-K for the year ended December 31, 2017.
Board Meetings
In 2018, the Board held:
•
regular meetings in February, April, May, July, September and November; and
• a special meeting in December.
Generally, the Board holds six meetings annually: in February, April, May, July or August, September or October, and November.
In addition, the Board holds special meetings or takes action by unanimous written consent as circumstances warrant. The Board has
standing Executive, Audit and Risk, Compensation and Workplace Practices, and Governance Committees, each of which is
described in further detail below. Each member of the Board, except for Mr. Malmstrom, attended 75% or more of the aggregate of all
Board and committee meetings that he or she was entitled to attend in 2018.
Committees of the Board
The Executive Committee of the Board (“Executive Committee”) consists of Messrs. Bernstein, de Oliveira, Duverne, Pearson
and Zoellick (Chair).
The Executive Committee exercises all of the powers and authority of the Board (with limited exceptions) when the Board is not
in session, or when it is impractical to assemble the full Board. The Executive Committee held three meetings in 2018.
The Audit and Risk Committee of the Board (“Audit Committee”) consists of Ms. Leibowitz and Messrs. Audet and Kaye
(Chair). The primary purposes of the Audit Committee are to:
• assist the Board in its oversight of:
•
•
•
•
•
the integrity of the financial statements of the Partnerships;
the effectiveness of the Partnerships’ internal control over financial reporting and the Partnerships’ risk management
framework and risk mitigation processes;
the Partnerships’ status and system of compliance with legal and regulatory requirements and business conduct;
the independent registered public accounting firm’s qualification and independence; and
the performance of the Partnerships’ internal audit function; and
• oversee the appointment, retention, compensation, evaluation and termination of the Partnerships’ independent registered pub-
lic accounting firm.
Consistent with these functions, the Audit Committee encourages continuous improvement of, and fosters adherence to, the Part-
nerships’ policies, procedures and practices at all levels. With respect to these matters, the Audit Committee provides an open ave-
nue of communication among the independent registered public accounting firm, senior management, the Internal Audit
Department, the Chief Compliance Officer, the Chief Risk Officer and the Board. The Audit Committee held seven regular meet-
ings and one special meeting in 2018.
The Compensation Committee consists of Ms. Fallon- Walsh (Chair) and Messrs. Audet, de Oliveira, Kaye, Pearson and Zoellick;
Mr. Pearson replaced Denis Duverne on the Compensation Committee as of February 12, 2019. The Compensation Committee
held three regular meetings and two special meetings in 2018. For additional information about the Compensation Committee, see
“Compensation Discussion and Analysis—Compensation Committee” in Item 11.
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133
Also, in February 2019 the Compensation Committee established the Section 16 Subcommittee to ensure we can continue to uti-
lize the short-swing trading exemption set forth in Section 16b-3 under the Exchange Act. Under this exemption, equity grants to
our firm’s executive officers are exempt from short-swing trading rules if each such grant is approved by the full Board or a
committee of the Board consisting entirely of “non-employee” directors (generally, directors who are not officers of the company
or an affiliate). The Section 16 Subcommittee consists of Ms. Fallon-Walsh (Chair) and Messrs. Audet, de Oliveira and Kaye.
The Governance Committee consists of Ms. Fallon-Walsh (Chair) and Messrs. Bernstein, Duverne, Narayandas and Zoellick. The
Governance Committee:
• assists the Board and the sole stockholder of the General Partner in:
•
identifying and evaluating qualified individuals to become Board members; and
• determining the composition of the Board and its committees, and
• assists the Board in:
• developing and monitoring a process to assess Board effectiveness;
• developing and implementing our Corporate Governance Guidelines; and
•
reviewing our policies and programs that relate to matters of corporate responsibility of the General Partner and the
Partnerships.
The Governance Committee held two meetings in 2018.
The functions of each of the Board committees discussed above are more fully described in each committee’s charter. The charters are
available on our Internet Site.
Audit Committee Financial Experts; Financial Literacy
In January 2018, the Governance Committee, after reviewing materials prepared by management, recommended that the Board
determine that each of Messrs. Audet and Kaye was an “audit committee financial expert” within the meaning of Item 407(d) of
Regulation S-K. The Board so determined at its regular meeting held in February 2018.
In January 2019, the Governance Committee, after reviewing material prepared by management, recommended that the Board
determine that each of Messrs. Audet and Kaye is an “audit committee financial expert” within the meaning of Item 407(d) of
Regulation S-K. The Board so determined at its regular meeting held in February 2019.
In January 2018, the Governance Committee, after reviewing materials prepared by management, recommended that the Board
determine that each of Mses. Fallon-Walsh and Leibowitz and Messrs. Audet and Kaye is financially literate and possesses account-
ing or related financial management expertise, as contemplated by Section 303A.07(a) of the NYSE Listed Company Manual
(“Financially Literate”). The Board so determined at its regular meeting held in February 2018.
In January 2019, the Governance Committee, after reviewing materials prepared by management, recommended that the Board
determine that each of Ms. Leibowitz and Messrs. Audet and Kaye is Financially Literate. The Board so determined at its regular
meeting held in February 2019.
Independence of Certain Directors
In January 2018, the Governance Committee, after reviewing materials prepared by management, recommended that the Board
determine that each of Mses. Fallon-Walsh and Leibowitz and Messrs. Audet, de Oliveira, Kaye and Narayandas is independent.
The Board determined, at its February 2018 regular meeting, that each of Mses. Fallon-Walsh and Leibowitz and Messrs. Audet, de
Oliveira, Kaye and Narayandas is independent within the meaning of the relevant rules.
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In January 2019, the Governance Committee, after reviewing material prepared by management, recommended that the Board
determine that each of Mses. Fallon-Walsh and Leibowitz and Messrs. Audet, de Oliveira, Kaye and Narayandas is independent.
The Board determined, at its February 2019 regular meeting, that each of Mses. Fallon-Walsh and Leibowitz and Messrs. Audet, de
Oliveira, Kaye and Narayandas is independent within the meaning of the relevant rules.
Board Leadership Structure and Role in Risk Oversight
Leadership
The Board, together with the Governance Committee, is responsible for reviewing the Board’s leadership structure. In determining
the appropriate individuals to serve as our Chairman and our CEO, the Board and the Governance Committee consider, among
other things, the composition of the Board, our company’s strong corporate governance practices, and the challenges and oppor-
tunities specific to AB.
Contacting our Board
Interested parties wishing to communicate directly with our Chairman or the other members of our Board may send an e-mail,
with “confidential” in the subject line, to our Corporate Secretary or address mail to Mr. Zoellick in care of our Corporate Secre-
tary. Our Corporate Secretary will promptly forward such e-mail or mail to Mr. Zoellick. We have posted this information in the
“Management & Governance” section of our Internet Site.
Risk Oversight
The Board, together with the Audit Committee, has oversight for our company’s risk management framework, which includes invest-
ment risk, credit and counterparty risk, and operational risk (includes legal/regulatory risk and cyber security risk), and is responsible for
helping to ensure that these risks are managed in a sound manner. The Board has delegated to the Audit Committee, which consists
entirely of independent directors, the responsibility to consider our company’s policies and practices with respect to investment, credit
and counterparty, and operational risk assessment and risk management, including discussing with management the major financial,
operational and reputational risk exposures and the steps taken to monitor and control such exposures. Members of the compa-
ny’s risk management team (including our Chief Information Security Officer), who are responsible for identifying, managing and
controlling the array of risks inherent in our company’s business and operations, make quarterly reports to the Audit Committee, which
address investment, credit and counterparty, and operational risk identification, assessment and monitoring. The Chief Risk Officer,
whose expertise encompasses both quantitative research and associated investment risks, makes periodic presentations to the Board and/
or the Audit Committee. He reports directly to our CEO and, since 2013, has had a reporting line to the Audit Committee.
The Board has determined that its leadership and risk oversight are appropriate for our company. Mr. Bernstein’s in-depth knowledge
of financial services and extensive executive experience in the investment management industry make him suited to serve as our Presi-
dent and CEO, while Mr. Zoellick’s in-depth knowledge of world affairs and financial services developed through his years of service
with the U.S. government have proved invaluable at enhancing the overall functioning of the Board. The Board believes that the
combination of a separate Chairman and CEO, the Audit Committee, a specialized risk management team and significant involvement
from our largest Unitholder (EQH) provide the appropriate leadership to help ensure effective risk oversight by the Board.
Code of Ethics and Related Policies
All of our directors, officers and employees are subject to our Code of Business Conduct and Ethics. The code is intended to com-
ply with Section 303A.10 of the NYSE Listed Company Manual, Rule 204A-1 under the Investment Advisers Act and Rule 17j-1
under the Investment Company Act, as well as with recommendations issued by the Investment Company Institute regarding,
Annual Report 2018
135
among other things, practices and standards with respect to securities transactions of investment professionals. The Code of Business
Conduct and Ethics establishes certain guiding principles for all of our employees, including sensitivity to our fiduciary obligations
and ensuring that we meet those obligations. In addition, the Code, together with our firm’s insider trading policy, restricts
employees from trading when in possession of material non-public information of any kind, which can include the existence of a
significant cybersecurity incident at our firm. Our Code of Business Conduct and Ethics may be found in the “Management &
Governance” section of our Internet Site.
We have adopted a Code of Ethics for the CEO and Senior Financial Officers, which is intended to comply with Section 406 of
the Sarbanes-Oxley Act of 2002 (“Item 406 Code”). The Item 406 Code, which may be found in the “Management & Gover-
nance” section of our Internet Site, was adopted in October 2004 by the Executive Committee. We intend to satisfy the disclosure
requirements under Item 5.05 of Form 8-K regarding certain amendments to, or waivers from, provisions of the Item 406 Code
that apply to the CEO, the CFO and the Chief Accounting Officer by posting such information on our Internet Site. To date,
there have been no such amendments or waivers.
NYSE Governance Matters
Section 303A.00 of the NYSE Listed Company Manual exempts limited partnerships from compliance with the following sections
of the Manual, some of which we comply with voluntarily: Section 303A.01 (board must have a majority of independent directors),
303A.04 (corporate governance committee must have only independent directors as its members and must have a charter that
addresses, among other things, the committee’s purpose and responsibilities), and 303A.05 (compensation committee must have
only independent directors as its members and must have a charter that addresses, among other things, the committee’s purpose and
responsibilities).
AB Holding is a limited partnership (as is AB). In addition, because the General Partner is a subsidiary of EQH, and the General
Partner controls AB Holding (and AB), we believe we also would qualify for the “controlled company” exemption. However, we
comply voluntarily with the charter requirements set forth in Sections 303A.04 and 303A.05.
Our Corporate Governance Guidelines (“Guidelines”) promote the effective functioning of the Board and its committees, promote
the interests of the Partnerships’ respective Unitholders (with appropriate regard to the Board’s duties to the sole stockholder of the
General Partner), and set forth a common set of expectations as to how the Board, its various committees, individual directors and
management should perform their functions. The Guidelines may be found in the “Management & Governance” section of our
Internet Site.
The Governance Committee is responsible for considering any request for a waiver under the Code of Business Conduct and Eth-
ics, the Item 406 Code, the AXA Group Compliance and Ethics Guide, and the EQH Policy Statement on Ethics from any direc-
tor or executive officer of the General Partner. No such waiver has been granted to date and, if a waiver is granted in the future,
such waiver would be described in the “Management & Governance” section of our Internet Site.
Our Internet Site, under the heading “Contact our Directors,” provides an e-mail address for any interested party, including Unit-
holders, to communicate with the Board. Our Corporate Secretary reviews e-mails sent to that address and has some discretion in
determining how or whether to respond, and in determining to whom such e-mails should be forwarded. In our experience, sub-
stantially all of the e-mails received are ordinary client requests for administrative assistance that are best addressed by management,
or solicitations of various kinds.
Certifications by our CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been furnished as exhibits to
this Form 10-K.
AB Holding Unitholders and AB Unitholders may request a copy of any committee charter, the Guidelines, the Code of Business
Conduct and Ethics, and the Item 406 Code by contacting our Corporate Secretary. The charters and memberships of the Execu-
tive, Audit, Governance and Compensation Committees may be found in the “Management & Governance” section of our Inter-
net Site.
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AB
Fiduciary Culture
We maintain a robust fiduciary culture and, as a fiduciary, we place the interests of our clients first and foremost. We are committed
to the fair and equitable treatment of all our clients, and to compliance with all applicable rules and regulations and internal policies
to which our business is subject. We pursue these goals through education of our employees to promote awareness of our fiduciary
obligations, incentives that align employees’ interests with those of our clients, and a range of measures, including active monitor-
ing, to ensure regulatory compliance. Our compliance framework includes:
•
the Code of Ethics Oversight Committee (“Ethics Committee”) and the Internal Compliance Controls Committee
(“Compliance Committee”), each of which consists of our executive officers and other senior executives;
• an ombudsman office, where employees and others can voice concerns on a confidential basis;
•
firm-wide compliance and ethics training programs; and
• a Conflicts Officer and a Conflicts Committee, which help to identify and mitigate conflicts of interest.
The Ethics Committee oversees all matters relating to issues arising under our Code of Business Conduct and Ethics and meets on a
quarterly basis and at such other times as circumstances warrant. The Ethics Committee and its subcommittee, the Personal Trading
Subcommittee, have oversight of personal trading by our employees.
The Compliance Committee reviews compliance issues throughout our firm, endeavors to develop solutions to those issues as they
may arise from time to time and oversees implementation of those solutions. The Compliance Committee meets on a quarterly basis
and at such other times as circumstances warrant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors of the General Partner and executive officers of the Partnerships, and persons
who own more than 10% of the AB Holding Units or AB Units, to file with the SEC initial reports of ownership and reports of
changes in ownership of AB Holding Units or AB Units. To the best of our knowledge, during 2018, we complied with all Sec-
tion 16(a) filing requirements, except that Forms 4 relating to year-end AB Holding Unit awards to Mr. Bernstein, Ms. Burke,
Mr. Cranch, Mr. Weisenseel and William R. Siemers (our firm’s Chief Accounting Officer) were filed late. Our Section 16 filings
can be found under “Investor & Media Relations” / “Reports & SEC Filings” on our Internet Site.
Annual Report 2018
137
Item 11.
Executive Compensation
Compensation Discussion and Analysis (“CD&A”)
Compensation Philosophy and Goals
The intellectual capital of our employees is collectively the most important asset of our firm. We invest in people – we hire quali-
fied people, train them, encourage them to give their best thinking to the firm and our clients, and compensate them in a manner
designed to motivate, reward and retain them while aligning their interests with the interests of our Unitholders.
We structure our named executive officer compensation programs with the intent of enhancing firm-wide and individual perform-
ance and Unitholder value. Our “named executive officers” are:
Chief Executive Officer (“CEO”)
Chief Financial Officer (“CFO”)
Three other most highly-compensated executive officers
Seth P. Bernstein
John C. Weisenseel
James A. Gingrich, Chief Operating Officer (“COO”)
Kate C. Burke, Head of Human Capital and Chief Talent Officer Laurence E.
Cranch, General Counsel
We also are focused on ensuring that our compensation practices are competitive with industry peers and provide sufficient poten-
tial for wealth creation for our named executive officers and our employees generally, which we believe will enable us to meet the
following key compensation goals:
• attract, motivate and retain highly-qualified executive talent;
•
•
•
reward prior year performance;
incentivize future performance;
recognize and support outstanding individual performance and behaviors that demonstrate and foster our firm’s culture of
“Relentless Ingenuity,” which includes the core competencies of relentlessness, ingeniousness, collaboration and accountability;
and
• align our executives’ long-term interests with those of our Unitholders and clients.
Compensation Elements for Named Executive Officers
We utilize a variety of compensation elements to achieve the goals described above, consisting of base salary, annual short-term
incentive compensation awards (cash bonuses), a long-term incentive compensation award program, a defined contribution plan and
certain other benefits, each of which we discuss in detail below:
Base Salaries
Base salaries comprise a relatively small portion of our named executive officers’ total compensation. We consider individual experi-
ence, responsibilities and tenure with the firm when determining the narrow range of base salaries paid to our named executive
officers (please refer to “Overview of Our President and CEO’s Compensation” below for information relating to Mr. Bernstein’s base sal-
ary and other compensation elements).
Annual Short-Term Incentive Compensation Awards (Cash Bonuses)
We provide our named executive officers with annual short-term incentive compensation awards in the form of cash bonuses.
We believe that annual cash bonuses, which generally reflect individual performance and the firm’s current year financial perform-
ance, provide a short-term retention mechanism for our named executive officers because such bonuses typically are paid during the
last week of the year.
Annual cash bonuses in respect of 2018 performance for each named executive officer (other than Mr. Bernstein) were determined
and paid in late December 2018. These bonuses, and the 2018 long-term incentive compensation awards described immediately below,
were based on management’s evaluation, subject to the Compensation Committee’s review and approval, of each named executive
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officer’s performance during the year, the performance of the named executive officer’s business unit or function compared to busi-
ness and operational goals established at the beginning of the year, and the firm’s current-year financial performance. For more
information regarding the factors considered when determining cash bonuses for named executive officers, see “Other Factors Consid-
ered When Determining Named Executive Officer Compensation” below.
In respect of 2018, Mr. Bernstein received a cash bonus of $3,500,000 in accordance with the terms of the employment agreement
into which he entered with the General Partner, AB and AB Holding as of May 1, 2017 (“CEO Employment Agreement”) and
after review of Mr. Bernstein’s performance during 2018 by the Compensation Committee and other directors. Please refer to
“Overview of Our President and CEO’s Compensation” below for additional information relating to Mr. Bernstein’s cash bonus and
other compensation elements.
On February 13, 2017, the Board approved a grant to Mr. Gingrich of 883,653 restricted AB Holding Units with a grant date fair
value of approximately $21 million, in lieu of cash bonus and year-end long-term incentive compensation awards for 2017, 2018
and 2019 for which Mr. Gingrich otherwise would have been eligible under our firm’s Incentive Compensation Award Program
(“ICAP”); provided, Mr. Gingrich is eligible to receive at the end of each such year an additional cash bonus, but only to the extent
approved by the Compensation Committee. The Compensation Committee determined that a special cash bonus was warranted for
Mr. Gingrich’s performance in 2018 and awarded him a $1,000,000 cash bonus in recognition of his achievements during 2018, as
described below in “Other Factors Considered When Determining Named Executive Officer Compensation.”
Long-Term Incentive Compensation Awards
Long-term incentive compensation awards generally are denominated in restricted AB Holding Units. We utilize this structure to
align our named executive officers’ long-term interests directly with the interests of our Unitholders and indirectly with the interests
of our clients, as strong performance for our clients generally contributes directly to increases in assets under management and
improved financial performance for the firm.
We believe that annual long-term incentive compensation awards provide a long-term retention mechanism for our named executive
officers because such awards generally vest ratably over four years. For 2018 performance, these awards were granted in December
2018 to each of Ms. Burke and Messrs. Bernstein, Cranch and Weisenseel pursuant to ICAP, an unfunded, non-qualified incentive
compensation plan, and the AB 2017 Long Term Incentive Plan, our equity compensation plan (“2017 Plan”). Mr. Gingrich did not
receive a year-end award in December 2018 due to the terms set forth in his agreement relating to the above-described equity award he
was granted in February 2017; please see “Chief Operating Officer Equity Award” below regarding an award he was granted in April 2018.
Prior to the date on which an award vests, the AB Holding Units underlying an award are restricted and are not permitted to be
transferred. Upon vesting, the AB Holding Units underlying an award generally are distributed, unless the award recipient has, in
advance, voluntarily elected to defer receipt to future periods or the award is structured with a delayed delivery date. Quarterly cash
distributions on vested and unvested restricted AB Holding Units are delivered to award recipients when cash distributions are paid
generally to Unitholders.
An award recipient who resigns or is terminated without cause prior to the vesting date is eligible to continue to vest in his or her
long-term incentive compensation award subject to compliance with the restrictive covenants set forth in the applicable award
agreement, including restrictions on competition, and restrictions on employee and client solicitation. In addition, the award
agreement permits AB to claw-back an award if the recipient fails to adhere to our risk management policies. As such, for account-
ing purposes, there is no employee service requirement and awards are fully expensed when granted. As used in this Item 11, “vest”
refers to the time at which the awards are no longer subject to forfeiture for breach of these restrictions or risk management policies,
which we discuss further below in “Consideration of Risk Matters in Determining Compensation.”
Chief Operating Officer Equity Award
In April 2018, Mr. Gingrich was granted a special restricted AB Holding Unit award with a grant date fair value of $14,000,000 in
recognition of Mr. Gingrich’s continuing efforts to manage AB’s operations in a cost-effective manner, including his continuing
leadership role in relocating our firm’s headquarters to Nashville. Mr. Gingrich’s special award vests in four equal installments on
December 1 of each of 2019, 2020, 2021 and 2022 based on Mr. Gingrich’s continued service to AB and his moving to, and estab-
lishing his principal residence in Nashville, TN (subject to certain exceptions set forth in his award agreement), but no AB Holding
Units are delivered until after December 1, 2022.
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139
Relocation-related Performance Awards
In April 2018, Ms. Burke, Mr. Cranch and Mr. Weisenseel each was granted a special restricted AB Holding Unit award with a
grant date fair value of $4,000,000. Each award vests on December 1, 2022 and the underlying AB Holding Units are delivered
promptly thereafter, provided each executive continues to be employed by AB and each executive moves to and establishes his or
her principal residence in Nashville. Vesting of each executive’s AB Holding Units also is contingent on an assessment by the
Compensation Committee, with appropriate input from the CEO, as to whether, and the extent to which:
• our firm’s headquarters relocation initiative is executed without significant disruption or reputational damage to AB;
• AB’s targets for cost savings and implementation costs for the relocation have been achieved; and
•
the level of workplace talent and diversity in Nashville is satisfactory.
With respect to each of the above-referenced factors, the Compensation Committee, with appropriate input from our CEO, shall
assess achievement of the factors both within the executive’s business unit and with respect to our firm overall. The Compensation
Committee shall, in each of December 2019, 2020 and 2021, advise each executive as to whether his or her performance is on track
for the executive to receive the full number of restricted AB Holding Units awarded.
Defined Contribution Plan
U.S. employees of AB, including each of our named executive officers, are eligible to participate in the Profit Sharing Plan for
Employees of AB (as amended and restated as of January 1, 2015, as further amended as of January 1, 2017 and as further amended
as of April 1, 2018, the “Profit Sharing Plan”), a tax-qualified retirement plan. The Compensation Committee determines the
amount of company contributions (both the level of annual matching by the firm of an employee’s pre-tax salary deferral con-
tributions and the annual company profit sharing contribution, if any).
With respect to 2018, the Compensation Committee determined that employee deferral contributions would be matched on a
dollar-for-dollar basis up to 5% of eligible compensation and that there would be no profit sharing contribution.
Other Benefits
Our firm pays the premiums associated with life insurance policies purchased on behalf of our named executive officers.
Overview of 2018 Incentive Compensation Program
In respect of 2018 performance, each of our named executive officers who was employed on December 31, 2018 (other than
Mr. Gingrich) received a portion of his or her year-end incentive compensation in the form of an annual cash bonus and a portion
in the form of long-term incentive compensation awards. The split between the annual cash bonus and long-term incentive
compensation varied depending on the named executive officer’s total compensation, with lower-paid executives receiving a greater
percentage of their incentive compensation as cash bonuses than more highly-paid executives. (For additional information about
these compensatory elements, see “Compensation Elements for Named Executive Officers” above.) For Mr. Bernstein, his 2018 incentive
compensation components were based generally on the terms set forth in the CEO Employment Agreement and review of his per-
formance during 2018 by the Compensation Committee and other directors.
Although estimates are developed for budgeting and strategic planning purposes, our named executive officers’ incentive compensation
is not correlated with meeting any specific targets. Instead, the aggregate amount of incentive compensation paid to our named execu-
tive officers, other than Messrs. Bernstein and Gingrich for 2018, generally is determined on a discretionary basis and primarily is a
function of our firm’s current year financial performance but takes into account the performance goals described below. Amounts are
awarded to help us achieve our goal of attracting, motivating and retaining top talent while also helping to ensure that our named
executive officers’ goals are appropriately aligned with the goal of increasing our Unitholders’ return on their investment.
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AB
Senior management, with the approval of the Compensation Committee, confirmed that the appropriate metric to consider in
determining the amount of incentive compensation paid to all employees, including our named executive officers, in respect of
2018 performance is the ratio of adjusted employee compensation and benefits expense to adjusted net revenues, which terms are
described immediately below:
• Adjusted employee compensation and benefits expense is our total employee compensation and benefits expense minus
other employment costs such as recruitment, training, temporary help and meals, and excludes the impact of mark-to-market
vesting expense, as well as dividends and interest expense, associated with employee long-term incentive compensation-related
investments
• Adjusted net revenues (see our discussion of “Management Operating Metrics” in Item 7) exclude investment gains and losses and
dividends and interest on employee long-term incentive compensation-related investments. In addition, adjusted net revenues
offset distribution-related payments to third parties as well as amortization of deferred sales commissions against distribution
revenues. We also exclude additional pass-through expenses we incur (primarily through our transfer agent) that are reimbursed
and recorded as fees in revenues. Additionally, we adjust for the revenue impact of consolidating company-sponsored invest-
ment funds by eliminating the consolidated company-sponsored investment funds’ revenues and including AB’s fees from such
funds, and AB’s investment gains and losses on its investment in such funds, that were eliminated in consolidation. Lastly, we
include the impact of adoption of a revenue recognition accounting standard.
In addition, senior management, with the approval of the Compensation Committee, determined that the firm’s adjusted employee
compensation and benefits expense generally should not exceed 50.0% of our adjusted net revenues, except in unexpected or
unusual circumstances. As the table below indicates, in 2018, adjusted employee compensation and benefits expense amounted to
approximately 47.5% of our adjusted net revenues (in thousands):
Net Revenues
Adjustments (seeabove)
Adjusted Net Revenues
Employee Compensation & Benefits Expense
Adjustments (seeabove)
Adjusted Employee Compensation & Benefits Expense
Adjusted Compensation Ratio
$ 3,367,361
(441,757)
$2,925,604
$ 1,378,811
9,551
$1,388,362
47.5%
Our 2018 adjusted compensation ratio of approximately 47.5% reflects the need to keep compensation levels competitive with
industry peers in order to attract, motivate and retain highly-qualified talent.
Benchmarking
In 2018, management engaged McLagan Partners (“McLagan”) to provide compensation benchmarking data for our named execu-
tive officers (“2018 Benchmarking Data”). The 2018 Benchmarking Data summarized 2017 compensation levels and 2018 salaries
at selected asset management companies and banks comparable to ours in terms of size and business mix (“Comparable
Companies”), to assist us in determining the appropriate level of compensation for the firm’s named executive officers.
The 2018 Benchmarking Data provided ranges of compensation levels at the Comparable Companies for executive positions similar
to those held by each of our named executive officers, including base salary and total compensation.
Mr. Bernstein’s 2018 compensation was established pursuant to the CEO Employment Agreement and review of his performance
during 2018 by the Compensation Committee and other directors (as discussed more fully below in “Overview of Our President and
CEO’s Compensation”). Mr. Gingrich’s 2018 long-term incentive compensation was established in connection with his relocation-
related performance award, as discussed more fully above in “Long-Term Incentive Compensation Awards—Relocation-related Performance
Awards.
Annual Report 2018
141
The Comparable Companies, which management selected with input from McLagan, included:
Eaton Vance Corp.
Invesco Ltd.
MFS Investment Management
Oppenheimer Funds Distributor, Inc.
T. Rowe Price Group, Inc.
Franklin Resources, Inc.
JPMorgan Asset Management Inc.
Morgan Stanley Investment Management Inc.
PIMCO LLC
TIAA Group / Nuveen Investments
Goldman Sachs Asset Management, L.P.
Legg Mason, Inc.
Neuberger Berman LLC
Prudential Investments
The Vanguard Group, Inc.
The 2018 Benchmarking Data indicated that the total compensation paid to our named executive officers in 2018 generally fell
within or below the ranges of total compensation paid to executives at the Comparable Companies.
The Compensation Committee considered this information in concluding that the compensation levels paid in 2018 to our named
executive officers were appropriate and reasonable.
Other Factors Considered When Determining Named Executive Officer Compensation
For 2018, we based decisions about the incentive compensation of our named executive officers primarily on our assessment of each
executive’s leadership, operational performance, and potential to enhance investment returns and service for our clients, all of which
contribute to long-term Unitholder value. We do not utilize quantitative formulas when determining the incentive compensation
of our named executive officers. Instead, we rely on our judgment about each executive’s performance in light of business and
operational goals established at the beginning of the year and reviewed in the context of the current-year financial performance of
the firm. We begin the award determination process, which is conducted by our CEO and COO working with other members of
senior management, by determining the total incentive compensation amounts available for a particular year (as more fully explained
above in “Overview of 2018 Incentive Compensation Program”).
Our CEO and COO, as well as the Compensation Committee, then consider a number of key factors for each of the named execu-
tive officers, other than for our CEO. Specific factors will vary among business units, among individuals and during different busi-
ness cycles, so we do not adopt any specific weighting or formula under which these metrics are applied. Key factors are:
•
•
•
•
•
•
•
•
•
the firm’s financial performance in the current year;
the named executive officer’s performance compared to individual business and operational goals established at the beginning of
the year;
the firm’s strategic and operational considerations;
total compensation awarded to the named executive officer in the previous year;
the increase or decrease in the current year’s total incentive compensation amounts available;
the contribution of the named executive officer to our overall financial results;
the nature, scope and level of responsibilities of the named executive officer;
the named executive officer’s execution of our firm’s culture of Relentless Ingenuity; and
the named executive officer’s management effectiveness, talent development, and adherence to risk management and regulatory
compliance.
Our CEO and COO then provided specific incentive compensation recommendations to the Compensation Committee, which
recommendations were supported by the factors listed above. They also provided the Compensation Committee with the 2018
Benchmarking Data, which was not used in a formulaic or mechanical way to determine named executive officer compensation
levels, but rather, as noted above, provided the Compensation Committee with a reference point for the compensation levels paid to
executives at the Comparable Companies. The Compensation Committee then made the final incentive compensation decisions for
Ms. Burke and Messrs. Gingrich, Cranch and Weisenseel. In addition, the Compensation Committee, as described above in “Annual
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AB
Short-Term Incentive Compensation Awards (Cash Bonuses),” determined to award Mr. Gingrich a cash bonus of $1,000,000 in recog-
nition of his achievements during 2018, as described below in the table below.
We have described in the table below the business and operational goals established at the beginning of 2018 for our named executive
officers, other than Mr. Bernstein, and their achievements during 2018:
Named Executive Officer
2018 Business and Operational Goals
2018 Achievements
James A. Gingrich
COO
1. increase operating efficiency/margins;
2. optimize strategy and sales efforts of Retail,
1. improved and diversified client flows across
channels and services;
Institutions and Private Wealth;
2. contained operating costs and improved
3. enhance planning and organizational processes;
4. optimize revenue and profitability of Bernstein
Research Services;
5. foster a culture of meritocracy, empowerment
and accountability among business leaders; and
6. recruit and retain top talent.
adjusted operating margin;
3. conceived and led relocation of corporate
headquarters, and identified significant new
opportunities to improve cost structure
both in 2018 and future years;
4. oversaw development and commercializa-
tion of previously acquired alternatives
teams (e.g., Arya Partners); and
5. oversaw organizational, technology and
process changes within distribution func-
tions designed to enhance effectiveness and
productivity.
Kate C. Burke
Head of Human Capital and Chief Talent Officer
1. implement initial phase of headquarters
1. successfully built talent acquisition and local
relocation initiative, including communication,
recruiting, compensation, culture and commun-
ity relations strategies;
Human Capital team to support head-
quarters relocation initiative;
2. maintained low voluntary turnover among
2. enhance recognition culture to drive engage-
high-performing employees;
ment;
3. develop and retain high performing talent;
4. review U.S. medical and pharmacy plans to
ensure competitiveness and attractiveness of
AB’s benefit offerings;
5. incorporate more formalized diversity and
inclusion strategies across Human Capital
Department processes to foster an environment
in which diverse talent thrives and progresses;
6. expand performance rating pilot to improve
transparency and performance culture; and
7. continue to refine the firm’s Human Capital
operating model.
3. implemented development programs to
provide coaching and skill enhancement to
select employees;
4. implemented new mobile employee recog-
nition program that enables employees
across the firm to assess the contributions
of colleagues in real time;
5. completed a comprehensive review of U.S.
medical plans, resulting in a change of car-
riers, improved benefits and cost savings;
6. implemented diversity and inclusion best
practices in talent acquisition, development
and benefits, and completed inclusiveness
training to global SVP population;
7. expanded performance rating pilot globally
to multiple business units; and
8. continued to strengthen key processes and
systems under “Center of Excellence”
model.
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143
Named Executive Officer
2018 Business and Operational Goals
2018 Achievements
Laurence E. Cranch
General Counsel
1. address new compliance challenges and main-
tain and improve the firm’s good compliance
record;
2. improve the level of service to internal clients at
1. provided leadership in successfully
implementing compliance solutions in
response to each new compliance require-
ment that became effective in 2018;
AB;
3. proactively manage AB’s various legal and regu-
latory risks;
4. continue to develop and retain high quality
talent in the Legal and Compliance Depart-
ment; and
5. continue aggressive expense management.
2. received complementary feedback from AB
business leaders relating to the level and qual-
ity of service of the Legal and Compliance
Department, particularly relating to work
supporting the firm’s headquarters relocation
initiative and legal work required to help facili-
tate the EQH’s IPO and secondary offering;
3. underwent several significant regulatory
examinations, none of which resulted in
any significant adverse findings or
enforcements proceedings;
4. remained free of significant litigation,
reflecting our pragmatic and aggressive
program to avoid situations that could
produce disputes and, where disputes do
arise, resolve them on favorable terms;
5. conducted extensive work on the selection
and retention process required to form the
group of employees relocating to Nashville
and on the recruitment of qualified
individuals locally to staff open positions;
and
6. overall, with respect to ongoing and routine
legal matters, successfully maintained out-
side counsel expense within a tight budget
set at the beginning of 2018.
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AB
Named Executive Officer
2018 Business and Operational Goals
2018 Achievements
John C. Weisenseel
CFO
1. increase the firm’s profitability by controlling
1. increased adjusted operating margin by 140
expenses;
2. assess capital requirements across domestic and
international entities and reduce excess capital
where warranted, thereby increasing the effi-
ciency of the firm’s global cash utilization;
3. manage business funding requirements within
the context of the firm’s capital and liquidity;
4. continue to streamline the firm’s office foot-
print and related cost structure;
5. evaluate and support new business develop-
ment opportunities;
6. continue communications with the firm’s
investors and credit rating agencies; and
7. identify and develop the next generation of
leaders in the Finance and Administrative Serv-
ices Departments.
basis points compared to 2017;
2. increased cash utilization by reducing capital
held in legal entities and repatriating foreign
cash dividends to the U.S. without a sig-
nificant increase in taxes and reducing aver-
age debt outstanding by over $130 million, or
approximately 27%, to $350 million;
3. renewed and decreased to $800 million the
credit facility supporting the firm’s
commercial paper program, resulting in
lower upfront and ongoing fees while
securing sufficient funding liquidity;
4. played a key role in the firm’s relocation
initiative, including selection of the perma-
nent site in Nashville, negotiation of state
and city incentives, modeling the trans-
action costs and ongoing expense savings,
and proactively leading the relocation of
the Accounting and Tax Departments;
5. provided accounting and tax guidance
related to our firm’s expected acquisition of
an institutional research firm;
6. maintained active discussion with AB’s
investor community and credit rating agen-
cies and participated in asset management
industry investor conferences; and
7. implemented several staffing changes, par-
ticularly relating to the relocation initiative,
resulting in selectively upgrading the talent
pool and diversity within the pool, while
ultimately reducing the associated
compensation costs.
As indicated in the table above, each of the named executive officers included in the table successfully achieved his or her goals in
2018. The compensation of each of these named executive officers reflected Mr. Bernstein’s and the Compensation Committee’s
judgment in assessing the importance of the officer’s achievements to our firm’s financial results.
Overview of Our President and CEO’s Compensation
Pursuant to the CEO Employment Agreement, Mr. Bernstein is serving as our President and CEO for a term that commenced on
May 1, 2017 and ends on May 1, 2020, provided that the term shall automatically extend for one additional year on May 1, 2020
and each anniversary thereafter, unless the CEO Employment Agreement is terminated in accordance with its terms (“Employment
Term”).
The terms of the CEO Employment Agreement were the result of arm’s length negotiations between Mr. Bernstein and senior
executives at AXA. The Board then approved the CEO Employment Agreement after having considered, among other things, the
compensation package provided to Mr. Bernstein’s predecessor, the 2016 compensation and 2017 expected compensation of AB’s
other executive officers and Mr. Bernstein’s compensation at his former employer.
The Compensation Committee, during its regular meeting held on December 11, 2018, amended Mr. Bernstein’s employment
agreement such that, notwithstanding any contrary or inconsistent provision set forth in the employment agreement, any annual
equity award granted to Mr. Bernstein under Section 4(c)(ii) of the employment agreement, which section relates to equity awards
Annual Report 2018
145
made in 2018 and subsequent years during the Employment Term, shall be granted in all respects in accordance with AB’s compen-
sation practices and policies generally applicable to AB’s executive officers as in effect from time to time (“SPB Amendment”).
Elements of Mr. Bernstein’s Compensation
Base Salary
Mr. Bernstein’s annual base salary under the CEO Employment Agreement has been, and continues to be, $500,000. This amount
is consistent with our firm’s policy to keep base salaries of executives and other highly-compensated employees low in relation to
total compensation. Any future increase to Mr. Bernstein’s base salary is entirely in the discretion of the Compensation Committee.
Cash Bonus
Under the CEO Employment Agreement, Mr. Bernstein was entitled to be paid a cash bonus at a target level of $3,000,000 in
2018, subject to review and increase from time to time by the Compensation Committee, in its sole discretion. As a result of a
review of Mr. Bernstein’s performance during 2018 by the Compensation Committee and other directors, Mr. Bernstein was paid a
cash bonus of $3,500,000. In determining Mr. Bernstein’s cash bonus, the Compensation Committee considered the progress AB
made across its three firm-wide initiatives in 2018, which are:
• deliver differentiated return streams to clients;
• commercialize and scale our suite of services; and
• continue our rigorous focus on expense management.
The firm’s highlights during 2018 included active equity net inflows in our retail and institutional channels, the highest amount of
gross sales in our private wealth channel in 10 years, and an expansion of our firm’s adjusted operating margin by 140 bps to 29.1%.
The Compensation Committee also considered Mr. Bernstein’s leadership in our firm’s continuing process of relocating its head-
quarters to Nashville, TN.
Restricted AB Holding Units
Commencing in 2018 and during the remainder of the Employment Term, Mr. Bernstein is eligible to receive annual equity
awards with a grant date fair value equal to $3,500,000, subject to review and increase by the Compensation Committee, in its sole
discretion, in accordance with AB’s compensation practices and policies generally applicable to the firm’s executive officers as in
effect from time to time. The Compensation Committee approved an equity award to Mr. Bernstein with a grant date fair value
equal to $4,000,000 during its regular meeting held on December 11, 2018. The Compensation Committee determined
Mr. Bernstein’s equity award based on the review process described immediately above.
Perquisites and Benefits
Under the CEO Employment Agreement, Mr. Bernstein is eligible to participate in all benefit plans available to executive officers
and, for his safety and accessibility, a company car and driver for business and personal use.
Severance and Change in Control Benefits
The CEO Employment Agreement includes severance and change-in-control provisions, which are highlighted below and also
described below under the heading “Potential Payments upon Termination or Change in Control.” We believe that these severance and
change-in-control provisions assist in retaining our CEO and in the event of a change in control, provide protection to
Mr. Bernstein so he is not distracted by personal or financial situations at a time when AB needs him to remain focused on his
responsibilities.
If Mr. Bernstein is terminated without “cause” or resigns for “good reason” (as such terms are defined in the CEO Employment
Agreement), and he signs and does not revoke a waiver and release of claims, he will receive the following:
• a cash payment equal to the sum of (a) his current base salary and (b) his bonus opportunity amount;
• a pro rata bonus based on actual performance for the fiscal year in which the termination occurs;
•
immediate vesting of the outstanding portion of the equity award he was granted in May 2017;
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AB
• delivery of AB Holding Units in respect of the equity award he was granted in May 2017 (subject to any withholding
requirements);
• monthly payments equal to the cost of COBRA coverage for the COBRA coverage period; and
•
following the COBRA coverage period, access to participation in AB’s medical plans as in effect from time to time at
Mr. Bernstein’s (or his spouse’s) sole expense.
As a result of the SPB Amendment, the equity award granted to Mr. Bernstein in December 2018 is subject to the same ICAP-
related terms and conditions as awards granted to other executive officers at that time, which terms and conditions are described above
in “Compensation Elements for Named Executive Officers—Long-Term Incentive Compensation Awards.”
If, during the 12 months following a change in control, Mr. Bernstein is terminated without cause or resigns for good reason, he
will receive the amounts described above, except that he will receive a cash payment equal to two times the sum of (a) his current
base salary and (b) his bonus opportunity amount.
In the event of a change in control or in the event that Mr. Bernstein’s employment is terminated because the CEO Employment
Agreement is not renewed (other than for cause), the equity award he was granted in May 2017 will immediately vest and AB
Holding Units in respect of any such award shall be delivered by AB to him (subject to any withholding obligations).
In the event any payments constitute “golden parachute payments” within the meaning of Section 280G of the Code and would be
subject to an excise tax imposed by Section 4999 of the Code, such payments shall be reduced to the maximum amount that does
not result in the imposition of such excise tax, but only if such reduction results in Mr. Bernstein receiving a higher net-after tax
amount than he would receive absent such reduction. If a change in control occurs prior to January 1, 2020, to the extent that
payments to Mr. Bernstein would be subject to the excise tax under Section 4999 of the Code, Mr. Bernstein shall be entitled to a
gross-up payment to ensure that he will retain an amount equal to the excise tax imposed upon such payments, but if the payments
do not exceed 110% of the statutory limit imposed by Section 280G of the Code, the payments shall be reduced to the maximum
amount that does not result in the imposition of such excise tax.
Mr. Bernstein is subject to a confidentiality provision, in addition to covenants with respect to non-competition during his employment
and six months thereafter and non-solicitation of customers and employees for 12 months following his termination of employment.
A change in control is defined as, among other things:
• EQH and its majority-owned subsidiaries ceasing to control the election of a majority of the Board; or
• AB Holding, or any successor thereto, ceasing to be a publicly traded entity.
Mr. Bernstein negotiated the severance and change-in-control provisions described immediately above to have the security and flexi-
bility to focus on the business and preserve the value of his long-term incentive compensation. The Board and AXA determined
that these provisions were reasonable and appropriate because they were necessary to recruit and retain Mr. Bernstein and provided
Mr. Bernstein with effective incentives for future performance. The Board and AXA determined to limit the applicability of the
excise tax gross-up provision as the application of the excise tax is more burdensome on newly hired employees.
The Board and AXA also concluded that the change-in-control and termination provisions in the CEO Employment Agreement fit
within AB’s overall compensation objectives because these provisions, which align with AB’s goal of providing its executives with
effective incentives for future performance, also:
• permitted AB to recruit and retain a highly-qualified CEO;
• aligned Mr. Bernstein’s long-term interests with those of AB’s Unitholders and clients;
• were consistent with AXA’s and the Board’s expectations with respect to the manner in which AB and AB Holding would be
operated during Mr. Bernstein’s tenure; and
• were consistent with the Board’s expectations that Mr. Bernstein would not be terminated without cause and that no steps
would be taken that would provide him with the ability to terminate the agreement for good reason.
Annual Report 2018
147
AXA Equitable Holdings Compensation
The board of directors of EQH granted to Mr. Bernstein in 2018 a transaction incentive award with a grant date fair value of
$740,000 in connection with EQH’s IPO and Mr. Bernstein’s membership on the EQH Management Committee. Mr. Bernstein
may receive additional equity or cash compensation from AXA Equitable Holdings in the future related to his service on the
Executive Committee. Any amounts paid to Mr. Bernstein by AXA Equitable Holdings, including the 2018 award, do not impact
AB’s compensation expenses.
CEO Pay Ratio
In 2018, the compensation of Mr. Bernstein, our President and CEO, was approximately 58 times the median pay of our employ-
ees, resulting in a 58: 1 CEO Pay Ratio.
We identified our median employee by examining 2018 total compensation for all individuals, excluding Mr. Bernstein, who were
employed by our firm as of December 31, 2018, the last day of our payroll year. We included all of our employees in this process,
whether employed on a full-time or part-time basis. We did not make any assumptions or estimates with respect to total compensa-
tion, but we did adjust compensation paid to our non-U.S. employees during our 2018 fiscal year based on the average monthly
exchange rates for the 12-month period ending September 30, 2018 between the local currencies in which such employees are paid
and U.S dollars. We define “total compensation” as the aggregate of base salary (plus overtime, as applicable), commissions (as
applicable), cash bonus and the grant date fair value of long-term incentive compensation awards.
After identifying the median employee based on total compensation, we calculated total compensation in 2018 for such employee
using the same methodology we use for our named executive officers as set forth below in the Summary Compensation Table for 2018.
As illustrated in the table below, our 2018 CEO Pay Ratio is 58: 1:
Base salary ($)
Cash bonus ($)
Stock awards ($)
All other compensation ($)(1)
Total ($)
2018 CEO Pay Ratio
Seth Bernstein
Median Employee
500,000
3,500,000
4,740,000
344,847
9,084,847
142,835
13,093
—
—
155,928
58: 1
(1) For a description of Mr. Bernstein’s other compensation, please refer to the Summary Compensation Table for 2018 below.
Compensation Committee
The Compensation Committee consists of Ms. Fallon-Walsh (Chair) and Messrs. Audet, de Oliveira, Kaye, Pearson and Zoellick.
The Compensation Committee held three regular meetings and two special meetings in 2018.
As discussed in “NYSE Governance Matters” in Item 10, AB Holding, as a limited partnership, is exempt from NYSE rules that require
public companies to have a compensation committee consisting solely of independent directors. EQH owns, directly and through
various subsidiaries, an approximate 65.2% economic interest in AB (as of December 31, 2018), and compensation expense is a sig-
nificant component of our financial results. For these reasons, Mr. Pearson, director and President and CEO of EQH, was elected as
a member of the Compensation Committee as of February 12, 2019, and any action taken by the Compensation Committee
requires his affirmative vote or consent.
The Compensation Committee has general oversight of compensation and compensation-related matters, including:
• determining cash bonuses;
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AB
• determining contributions and awards under incentive plans or other compensation arrangements (whether qualified or
non-qualified) for employees of AB and its subsidiaries, and amending or terminating such plans or arrangements or any welfare
benefit plan or arrangement or making recommendations to the Board with respect to adopting any new incentive compensa-
tion plan, including equity-based plans;
•
•
reviewing and approving the compensation of our CEO, evaluating his performance, and determining and approving his
compensation level based on this evaluation; and
reviewing and discussing the CD&A, and recommending to the Board its inclusion in each of AB’s and AB Holding’s Form
10-K and, when applicable, proxy statements.
The Compensation Committee’s year-end process generally has focused on the cash bonuses and long-term incentive compensation
awards granted to senior management. Mr. Bernstein, working with Mr. Gingrich and other members of senior management, pro-
vides recommendations for individual employee awards to the Compensation Committee for its consideration. As part of this proc-
ess, management provides the committee with compensation benchmarking data from one or more compensation consultants. For
2018, we paid $32,100 to McLagan for executive compensation benchmarking data and an additional $278,334 for survey and
consulting services relating to the amount and form of compensation paid to employees other than executives.
The Compensation Committee held its regularly-scheduled meeting regarding year-end compensation on December 11, 2018, at
which meeting it discussed and approved senior management’s compensation recommendations. The Compensation Committee did
not retain its own consultants.
The Compensation Committee’s functions are more fully described in the committee’s charter, which is available on-line in the
“Management & Governance” section of our Internet Site.
Other Compensation-Related Matters
AB and AB Holding are, respectively, private and public limited partnerships, and are subject to taxes other than federal and state
corporate income tax (see “Structure-related Risks” in Item 1A and Note 21 to AB’s consolidated financial statements in Item 8). Accord-
ingly, Section 162(m) of the Code, which limits tax deductions relating to executive compensation otherwise available to an entity
taxed as a corporation, is not applicable to either AB or AB Holding for 2018.
Compensation Committee Interlocks and Insider Participation
Mr. Pearson is a director and the President and CEO of EQH, the parent company of the General Partner.
No executive officer of AB serves as (i) a member of a compensation committee or (ii) a director of another entity, an executive
officer of which serves as a member of AB’s Compensation Committee.
Compensation Committee Report
The members of the Compensation Committee reviewed and discussed with management the Compensation Discussion and Analy-
sis set forth above and, based on such review and discussion, recommended to the Board its inclusion in this Form 10-K.
Barbara Fallon-Walsh (Chair)
Ramon de Oliveira
Mark Pearson
Paul L. Audet
Daniel G. Kaye
Robert B. Zoellick
Annual Report 2018
149
Consideration of Risk Matters in Determining Compensation
In 2018, we considered whether our compensation practices for employees, including our named executive officers, encourage
unnecessary or excessive risk-taking and whether any risks arising from our compensation practices are reasonably likely to have a
material adverse effect on our firm. For the reasons set forth below, we have determined that our current compensation practices do
not create risks that are reasonably likely to have a material adverse effect on our firm.
As described above in “Compensation Elements for Named Executive Officers—Long-Term Incentive Compensation Awards,” long-term
incentive compensation awards generally are denominated in AB Holding Units that are not distributed until subsequent years, so
the ultimate value that the employee derives from the award depends on the long-term performance of the firm. Denominating the
award in restricted AB Holding Units and deferring their delivery is intended to sensitize employees to risk outcomes and dis-
courage them from taking excessive risks, whether relating to investments, operations, regulatory compliance and/or cyber security,
that could lead to a decrease in the value of the AB Holding Units and/or an adverse effect on the firm’s long-term prospects. Fur-
thermore, and as noted above in “Compensation Elements for Named Executive Officers—Long-Term Incentive Compensation Awards,” gen-
erally all outstanding long-term incentive compensation awards include a provision permitting us to “claw-back” the unvested
portion of an employee’s long-term incentive compensation award if the Compensation Committee determines that (i) the
employee failed to adhere to existing risk management policies and (ii) as a result of the employee’s failure, there has been or
reasonably could be expected to be a material adverse impact on our firm or the employee’s business unit.
Summary Compensation Table for 2018
Total compensation of our named executive officers for 2018, 2017 and 2016, as applicable, is as follows:
Name and Principal Position
Seth P. Bernstein(3)(4)
President and CEO
James A. Gingrich(5)(6)(7)
Chief Operating Officer
Laurence E. Cranch(8)
General Counsel
John C. Weisenseel(8)
CFO
Kate C. Burke(8)(9)
Head of Human Capital & Chief Talent Officer
Salary
($)
Bonus
($)
Stock
Awards(1)(2)
($)
All Other
Compensation
($)
Total
($)
Year
2018
2017
2018
2017
500,000
3,500,000
334,615
3,000,000
4,740,000
3,500,003
344,847
148,274
400,000
1,000,000
14,000,019
400,000
1,000,000
20,986,759
2016
400,000
3,540,000
3,260,000
2018
2017
400,000
400,000
940,000
940,000
4,660,009
660,000
2016
400,000
890,000
610,000
2018
2017
375,000
1,147,500
4,842,509
375,000
1,090,000
785,000
2016
375,000
977,500
672,500
2018
2017
300,000
300,000
785,000
740,000
4,440,009
410,000
39,912
37,801
36,645
92,276
17,208
18,441
68,433
15,177
14,927
14,200
14,266
9,084,847
6,982,892
15,439,931
22,424,560
7,236,645
6,092,285
2,017,208
1,918,441
6,433,442
2,265,177
2,039,927
5,539,209
1,464,266
(1) The figures in the “Stock Awards” column provide the aggregate grant date fair value of the awards calculated in accordance with FASB ASC Topic 718. For the
assumptions made in determining these values, see Note 18 to AB’s consolidated financial statements in Item 8.
(2) See “Grants of Plan-based Awards in 2018” below for information regarding the 2018 long-term incentive compensation awards granted to our named execu-
tive officers.
(3) See “Overview of Our President and CEO’s Compensation” above for a description of Mr. Bernstein’s compensatory elements.
(4) The “Stock Awards” column includes the grant date fair value of the transaction incentive award Mr. Bernstein received from EQH in May 2018. EQH granted to
Mr. Bernstein 18,500 restricted EQH stock units under the EQH 2018 Omnibus Equity Incentive Plan, which had a grant date fair value of $740,000.
150
AB
(5) See “Chief Operating Officer Equity Award” above for a description of the restricted AB Holding Unit award granted to Mr. Gingrich in April 2018.
(6) On February 6, 2018, it was agreed that Mr. Gingrich’s eventual retirement from AB shall be treated as a “termination without cause” with respect to the con-
tinued vesting of long-term compensation awards granted in years prior to 2017 under AB’s Incentive Compensation Award Program.
(7) On February 13, 2017, the Board approved a grant to Mr. Gingrich of 883,653 restricted AB Holding Units with a grant date fair value of approximately
$21 million (based on the average closing price on the NYSE of an AB Holding Unit for the period covering the four trading days immediately preceding the
grant date, the grant date and the five trading days immediately following the grant date), in lieu of cash bonus and year-end long-term incentive compensation
awards for 2017, 2018 and 2019 for which Mr. Gingrich otherwise would have been eligible under the Incentive Compensation Program; provided, Mr. Gingrich
is eligible to receive at the end of each such year an additional cash bonus, but only to the extent approved by the Compensation Committee. Mr. Gingrich’s
restricted AB Holding Units vested one-third on each of December 1, 2017 and 2018 and the remaining units will vest on December 1, 2019, provided, with
respect to each installment, Mr. Gingrich continues to be employed by our firm.
(8) See “Relocation-related Performance Awards” above for a description of the restricted AB Holding Unit awards granted to Ms. Burke, Mr. Cranch and
Mr. Weisenseel in April 2018.
(9) We have not provided 2016 compensation for Ms. Burke as she was not a named executive officer in 2016.
The “All Other Compensation” column includes the aggregate incremental cost to our company of certain other expenses and
perquisites. For 2018, this column includes the following:
Name
Seth P. Bernstein
James A. Gingrich
Laurence E. Cranch
John C. Weisenseel
Kate C. Burke
Personal Use
of Car and
Driver
($)
Contributions
to Profit
Sharing Plan
($)
Life
Insurance
Premiums
($)
320,685(1)
—
—
—
—
12,500
13,750
13,750
13,750
13,750
2,322
2,772
3,708
1,677
450
Relocation
and/or
Financial
Planning
Assistance
($)
9,340
23,390
74,818
53,006
—
Other
($)
—
—
—
—
—
(1)
Includes auto lease costs ($16,689) and driver compensation and other car-related expenses ($303,996).
Grants of Plan-based Awards in 2018
Grants of awards under the 2018 Plan, our equity compensation plan, during 2018 made to our named executive officers are as follows:
Name
Seth P. Bernstein(2)
James A. Gingrich(2)
Laurence E. Cranch(2)
John C. Weisenseel(2)
Kate C. Burke(2)
Grant
Date
12/11/2018
4/24/2018
4/24/2018
12/11/2018
4/24/2018
12/11/2018
4/24/2018
12/11/2018
All Other Stock Awards:
Number of Shares of Stock
or Units
(#)
Grant Date Fair Value
of Stock Awards(1)
($)
149,868
531,310
151,803
24,729
151,803
31,567
151,803
16,486
4,000,000
14,000,019
4,000,009
660,000
4,000,009
842,500
4,000,009
440,000
(1) This column provides the aggregate grant date fair value of the awards calculated in accordance with FASB ASC Topic 718. For the assumptions made in
determining these values, see Note 19 to AB’s consolidated financial statements in Item 8.
(2) As discussed above in “Overview of 2018 Incentive Compensation Program” and “Compensation Elements for Named Executive Officers—Long-Term Incentive
Compensation Awards,” long-term incentive compensation awards granted in 2018 to our named executive officers were denominated in restricted AB Holding
Units. These awards are shown in the “All Other Stock Awards” column of this table, the “Stock Awards” column of the Summary Compensation Table and the
“AB Holding Unit Awards” columns of the Outstanding Equity Awards at 2018 Fiscal Year-End Table.
Annual Report 2018
151
In 2018, the number of restricted AB Holding Units comprising long-term incentive compensation awards granted to each named
executive officer was determined based on the closing price of an AB Holding Unit as reported for NYSE composite transactions
on December 11, 2018 and April 24, 2018, the dates on which the Compensation Committee approved the awards. At the time of
these awards, the Compensation Committee consisted of Ms. Fallon-Walsh (Chair) and Messrs. Audet, de Oliveira, Duverne, Kaye
and Zoellick. For further information regarding the material terms of such awards, including the vesting terms and the formulas or
criteria to be applied in determining the amounts payable, please refer to “Overview of 2018 Incentive Compensation Program,”
“Compensation Elements for Named Executive Officers-Long-Term Incentive Compensation Awards” and “Other Factors Considered When
Determining Named Executive Officer Compensation” above.
Outstanding Equity Awards at 2018 Fiscal Year-End
Outstanding equity awards held by our named executive officers as of December 31, 2018 are as follows:
Option Awards
AB Holding Unit Awards
Number of Securities
Underlying Unexercised
Options Exercisable
(#)
Number of Securities
Underlying Unexercised
Options Unexercisable
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of Shares
or Units of
Stock That Have
Not Vested (#)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
273,398
935,868
216,414
228,085
189,745
Market Value of
Shares or Units
of Stock That
Have Not Vested(6)
($)
7,469,243
25,567,905
5,912,424
6,231,269
5,183,841
Name
Seth P. Bernstein(1)
James A. Gingrich(2)
Laurence E. Cranch(3)
John C. Weisenseel(4)
Kate C. Burke(5)
(1) Subject to accelerated vesting clauses in the CEO Employment Agreement (e.g., immediate vesting upon a “change in control” of our firm), the award granted
to Mr. Bernstein in May 2017 vests ratably on each of the first four anniversaries of May 1, 2017, commencing May 1, 2018, provided, with respect to each
installment, Mr. Bernstein continues to be employed by AB on the vesting date. However, Mr. Bernstein elected to delay delivery of all of the restricted AB Hold-
ing Units until May 1, 2021, the final vesting date, subject to acceleration upon a “change in control” of our firm and certain qualifying events of termination of
employment. Additionally, Mr. Bernstein was awarded 149,868 restricted AB Holding Units in December 2018, which are scheduled to vest in equal annual
increments on each of December 1, 2019, 2020, 2021 and 2022. For further information, see “Overview of Our President and CEO’s Compensation” above.
(2) Mr. Gingrich was awarded (i) 531,310 restricted AB Holding Units in April 2018, which are scheduled to vest in equal increments on each of December 1, 2019,
2020, 2021 and 2022, (ii) 883,653 restricted AB Holding Units in February 2017, of which 33.3% vested on each of December 1, 2017 and 2018 and the
remainder of which is scheduled to vest on December 1, 2019, (iii) 140,517 restricted AB Holding Units in December 2016, of which 25% vested on each of
December 1, 2017 and 2018 and the remainder of which is scheduled to vest in equal increments on each of December 1, 2019 and 2020, and (iv) 158,992
restricted AB Holding Units in December 2015, of which 25% vested on each of December 1, 2016, 2017 and 2018 and the remainder of which is scheduled to
vest on December 1, 2019.
(3) Mr. Cranch was awarded (i) 24,728 restricted AB Holding Units in December 2018, which are scheduled to vest in equal increments on each of December 1,
2019, 2020, 2021 and 2022, (ii) 151,803 restricted AB Holding Units in April 2018, which are scheduled to cliff vest on December 1, 2022, (iii) 26,453 restricted
AB Holding Units in December 2017, of which 25% vested on December 1, 2018 and the remainder is scheduled to vest in equal increments on each of
December 1, 2019, 2020 and 2021, (iv) 26,293 restricted AB Holding Units in December 2016, of which 25% vested on each of December 1, 2017 and 2018
and the remainder of which is scheduled to vest in equal increments on each of December 1, 2019 and 2020, and (v) 27,585 restricted AB Holding Units in
December 2015, of which 25% vested on each December 1, 2016, 2017 and 2018 and the remainder of which is scheduled to vest on December 1, 2019.
(4) Mr. Weisenseel was awarded (i) 31,566 restricted AB Holding Units in December 2018, which are scheduled to vest in equal increments on each of December 1,
2019, 2020, 2021 and 2022, (ii) 151,803 restricted AB Holding Units in April 2018, which are scheduled to cliff vest on December 1, 2022, (iii) 31,463 restricted
AB Holding Units in December 2017, 25% of which vested on December 1, 2018 and the remainder of which are scheduled to vest in equal increments on each
of December 1, 2019, 2020 and 2021, (iv) 28,987 restricted AB Holding Units in December 2016, of which 25% vested on each of December 1, 2017 and 2018
and the remainder of which is scheduled to vest in equal increments on each of December 1, 2019 and 2020, and (v) 26,499 restricted AB Holding Units in
December 2015, of which 25% vested on each of December 1, 2016, 2017 and 2018 and the remainder of which is scheduled to vest on December 1, 2019.
(5) Ms. Burke was awarded (i) 16,486 restricted AB Holding Units in December 2018, which are scheduled to vest in equal increments on each of December 1,
2019, 2020, 2021 and 2022, (ii) 151,803 restricted AB Holding Units in April 2018, which are scheduled to cliff vest on December 1, 2022, (iii) 16,433 restricted
AB Holding Units in December 2017, of which 25% vested on December 1, 2018 and the remainder of which are scheduled to vest in equal increments on each
152
AB
of December 1, 2019, 2020 and 2021, (iv) 14,224 restricted AB Holding Units in December 2016, of which 25% vested on each of December 1, 2017 and 2018
and the remainder of which is scheduled to vest in equal increments on each of December 1, 2019 and 2020, and (iii) 8,080 restricted AB Holding Units in
December 2015, of which 25% vested on each of December 1, 2016, 2017 and 2018 and the remainder of which is scheduled to vest on December 1, 2019.
(6) The market values of restricted AB Holding Units set forth in this column were calculated assuming a price per AB Holding Unit of $27.32, which was the closing
price on the NYSE of an AB Holding Unit on December 31, 2018, the last trading day of AB’s last completed fiscal year.
Option Exercises and AB Holding Units Vested in 2018
AB Holding Units held by our named executive officers that vested during 2018 are as follows:
Name
AB Holding Option Awards
AB Holding Unit Awards
Number of AB Holding
Units Acquired on Exercise
(#)
Value Realized
on Exercise
($)
Number of AB Holding
Units Acquired on Vesting
(#)
Value Realized
on Vesting ($)
Seth P. Bernstein
James A. Gingrich
Laurence E. Cranch
John C. Weisenseel
Kate C. Burke
William R. Siemers
—
—
78,348
—
—
—
—
—
723,789
—
—
—
41,177
407,176
26,632
26,894
11,396
2,523
1,115,883
12,300,783
804,546
812,466
344,282
76,218
Pension Benefits for 2018
None of our named executive officers are entitled to benefits under the Amended and Restated Retirement Plan for Employees of
AB (as amended and restated as of January 1, 2016 and as further amended as of April 1, 2018, “Retirement Plan”), our company
pension plan. For additional information regarding the Retirement Plan, including interest rates and actuarial assumptions, see Note
18 to AB’s consolidated financial statements in Item 8.
Non-Qualified Deferred Compensation for 2018
Vested and unvested non-qualified deferred compensation contributions, earnings and distributions of our named executive officers
during 2018 and their non-qualified deferred compensation plan balances as of December 31, 2018 are as follows:
Name
Executive Contributions
in Last FY
($)
Aggregate Earnings
in Last FY
($)
Aggregate
Withdrawals/Distributions
($)
Aggregate Balance
at Last FYE
($)
Seth P. Bernstein
James A. Gingrich(1)
Laurence E. Cranch
John C. Weisenseel
Kate C. Burke
—
—
—
—
—
—
(46,772)
—
—
—
—
(226,620)
—
—
—
—
848,746
—
—
—
(1) Amounts shown reflect Mr. Gingrich’s interests from pre-2009 awards under the predecessor plan to the Incentive Compensation Program, under which plan
participants were permitted to allocate their awards (i) among notional investments in AB Holding Units, certain of the investment services we provided to clients
and a money market fund, or (ii) under limited circumstances, in options to buy AB Holding Units. For additional information about the Incentive Compensation
Program, see Notes 2 and 19 to AB’s consolidated financial statements in Item 8.
Annual Report 2018
153
Potential Payments upon Termination or Change in Control
Estimated payments and benefits to which our named executive officers would have been entitled upon a change in control of AB
or the specified qualifying events of termination of employment as of December 31, 2018 are as follows:
Seth P. Bernstein
Name
Cash
Payments(1)
($)
Acceleration of
Restricted AB Holding
Unit Awards(2)
($)
Other Benefits
($)
Change in control
Termination by Mr. Bernstein for good reason or by AB without cause and within 12 months of change
—
3,374,826
in control (2017 Award)(3)
Termination by Mr. Bernstein for good reason or by AB without cause (2017 Award)(3)
Termination by reason of non-extension of initial 3-year employment term (2017 Award)(3)
Death or disability (2017 Award)(3)(4)(5)
Resignation (complies with applicable agreements and restrictive covenants) under ICAP (2018
7,000,000
3,500,000
—
—
Award)(2)
Death or disability under ICAP (2018 Award)(6)
James A. Gingrich
Termination by AB without cause (2017 RSU grant)(7)
Death or disability (2017 RSU grant)(7)
Termination by AB without cause; death or disability (2018 RSU grant)(7)
Resignation or termination by AB without cause (complies with applicable agreements and restrictive
covenants) under ICAP(2)
Death or disability under ICAP(6)
Laurence E. Cranch
Resignation or termination by AB without cause (complies with applicable agreements and restrictive
covenants)(2)
Death or disability(6)
Termination by AB without cause; death or disability (2018 RSU grant)(8)
John C. Weisenseel
Resignation or termination by AB without cause (complies with applicable agreements and restrictive
covenants)(2)
Death or disability(6)
Termination by AB without cause; death or disability (2018 RSU grant)(8)
Kate C. Burke
Resignation or termination by AB without cause (complies with applicable agreements and restrictive
covenants)(2)
Death or disability(6)
Termination by AB without cause; death or disability (2018 RSU grant)(8)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,374,826
3,374,826
3,374,826
3,374,826
4,094,417
4,094,417
670,594
670,594
2,166,090
3,005,382
3,005,382
1,765,166
1,765,166
618,883
2,084,011
2,084,011
618,883
1,036,583
1,036,583
618,883
13,610
13,610
13,610
13,610
13,610
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
It is possible that each named executive officer could receive a cash severance payment on the termination of his or her employment. The amounts of any such
cash severance payments would be determined at the time of such termination (other than for Mr. Bernstein), so we are unable to estimate such amounts. The
amounts shown for Mr. Bernstein are described in the CEO Employment Agreement.
(2) See Notes 2 and 19 in AB’s consolidated financial statements in Item 8 and “Compensation Elements for Named Executive Officers – Long-Term Incentive Com-
pensation Awards” above for a discussion of the terms set forth in long-term incentive compensation award agreements relating to termination of employment.
(3) See “Overview of Our President and CEO’s Compensation” above for a discussion of the terms set forth in the CEO Employment Agreement relating to termi-
nation of employment, which pertain to the restricted AB Holding Unit award Mr. Bernstein received in May 2017.
(4) The CEO Employment Agreement defines “Disability” as a good faith determination by AB that Mr. Bernstein is physically or mentally incapacitated and has
been unable for a period of 180 days in the aggregate during any 12-month period to perform substantially all of the duties for which he is responsible immedi-
ately before the commencement of the incapacity.
154
AB
(5) Under the CEO Employment Agreement, upon termination of Mr. Bernstein’s employment due to death or disability, and after the COBRA period, AB will pro-
vide Mr. Bernstein and his spouse with access to participation in AB’s medical plans at Mr. Bernstein’s (or his spouse’s) sole expense based on a reasonably
determined fair market value premium rate.
(6) “Disability” is defined in the Incentive Compensation Program award agreements of each named executive officer as the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment that can be expected to last for a continuous period of not less than 12
months, as determined by the carrier of the long-term disability insurance program maintained by AB or its affiliate that covers the named executive officer.
(7) For additional information relating to the restricted AB Holding Unit award Mr. Gingrich received in February 2017, please refer to “Annual Short-Term Incentive
Compensation Awards (Cash Bonuses)” above. For additional information relating to the restricted AB Holding Unit award Mr. Gingrich received in April 2018,
please refer to “Chief Operating Officer Equity Award” above in this Item 11.
(8) For additional information relating to the restricted AB Holding Unit award received by each of Ms. Burke, Mr. Cranch and Mr. Weisenseel in April 2018, please
refer to “Relocation-related Performance Awards” above in this Item 11.
Director Compensation in 2018
During 2018, we compensated our directors, who are not employed by our company or by any of our affiliates (“Eligible
Directors”), as follows (Mr. Zoellick is our Non-Executive Chairman; the other directors listed in the table below each satisfies
applicable NYSE and SEC standards relating to independence (“Independent Directors”)):
Name
Robert B. Zoellick
Paul L. Audet
Ramon de Oliveira
Barbara Fallon-Walsh
Daniel G. Kaye
Shelley B. Leibowitz
Das Narayandas
Fees Earned or
Paid in Cash
($)
Stock Awards(1)(2)
($)
Total
($)
425,000
105,500
97,000
129,125
132,500
99,500
88,000
425,000
170,000
170,000
170,000
170,000
170,000
170,000
850,000
275,500
267,000
299,125
302,500
269,500
258,000
(1) The aggregate number of restricted AB Holding Units underlying awards outstanding but not yet distributed at December 31, 2018 was: for Mr. Zoellick, 30,800
AB Holding Units; for each of Ms. Fallon-Walsh and Messrs. de Oliveira and Kaye, 9,850 AB Holding Units; and for each of Ms. Leibowitz and Messrs. Audet and
Narayandas, 8,589 AB Holding Units.
(2) Reflects the aggregate grant date fair value of the awards calculated in accordance with FASB ASC Topic 718. For the assumptions made in determining these
values, see Note 19 to AB’s consolidated financial statements in Item 8.
Independent Director Compensation
The Board has approved the compensation elements described immediately below for Independent Directors and has agreed to
re-consider such compensation elements no less frequently than every five years (with the next such reconsideration scheduled for
2020):
• an annual retainer of $85,000 (paid quarterly after any quarter during which an Independent Director serves on the Board;
annual retainers relating to Committee service, as described below, are paid quarterly in arrears as well);
• a fee of $5,000 for participating in any meeting of the Board, whether in person or by telephone, in excess of the six regularly-
scheduled Board meetings each year;
• a fee of $2,000 for participating in any meeting of any duly constituted committee of the Board, whether in person or by tele-
phone, in excess of the number of regularly-scheduled committee meetings each year (i.e., in excess of seven meetings of the
Audit Committee and three meetings of each of the Executive Committee, the Compensation Committee and the Governance
Committee);
Annual Report 2018
155
• an annual retainer of $25,000 for acting as Chair of the Audit Committee;
• an annual retainer of $12,500 for acting as Chair of the Compensation Committee;
• an annual retainer of $12,500 for acting as Chair of the Governance Committee;
• an annual retainer of $12,500 for serving as a member of the Audit Committee;
• an annual retainer of $6,000 for serving as a member of the Executive Committee;
• an annual retainer of $6,000 for serving as a member of the Compensation Committee;
• an annual retainer of $6,000 for serving as a member of the Governance Committee; and
• an annual equity-based grant under an equity compensation plan consisting of restricted AB Holding Units with a grant date fair
value of $170,000.
At the regular meeting of the Board held in May 2018, the Board granted to each Independent Director (Mses. Fallon-Walsh and
Leibowitz and Messrs. Audet, de Oliveira, Kaye and Narayandas) 6,320 restricted AB Holding Units. The number of AB Holding
Units granted was determined by dividing the $170,000 grant date fair value noted above by the closing price of an AB Holding Unit
on the date of the May 2018 Board Meeting, or $26.90 per unit. These awards vest ratably on each of the first four anniversaries of
the grant date, which generally is consistent with AB employee equity awards.
Further, in order to avoid any perception that our directors’ exercise of their fiduciary duties might be impaired, restricted AB
Holding Unit grants to Independent Directors are not forfeitable, except if the director is terminated for “Cause,” as that term is
defined in the 2017 Plan or the applicable award agreement. Accordingly, restricted AB Holding Units generally are delivered as
soon as administratively feasible following an Eligible Director’s resignation from the Board.
Equity grants to Independent Directors generally are made at the May meeting of the Board. The date of the May meeting is set by
the Board the previous year.
The General Partner may reimburse any director for reasonable expenses incurred in connection with attendance at Board meetings
as well as additional Board responsibilities. AB Holding and AB, in turn, reimburse the General Partner for expenses incurred by the
General Partner on their behalf, including amounts in respect of directors’ fees and expenses. These reimbursements are subject to
any relevant provisions of the AB Holding Partnership Agreement and the AB Partnership Agreement.
Non-Executive Chairman Compensation
Mr. Zoellick’s compensation, which was approved by the sole stockholder of the General Partner and by the Board in April 2017,
consists of:
• an annual retainer of $425,000 (paid quarterly after any quarter during which Mr. Zoellick serves as Non-Executive Chairman);
and
• an annual equity-based grant under an equity compensation plan consisting of restricted AB Holding Units with a grant date fair
value of $425,000.
Restricted AB Holding Unit awards granted to Mr. Zoellick vest ratably on each of the first four anniversaries of the grant date.
The Board granted to Mr. Zoellick 15,800 restricted AB Holding Units at the May 2018 Board Meeting. The number of AB Hold-
ing Units granted was determined by dividing the $425,000 grant date fair value noted above by the May 2018 Price.
156
AB
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Securities Authorized for Issuance under Equity Compensation Plans
AB Holding Units to be issued pursuant to our equity compensation plans as of December 31, 2018 are as follows:
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
securities to be issued
upon exercise of
outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of
securities remaining
available for future
issuance(1)
671,243
—
671,243
$ 22.83
—
$22.83
45,647,260
—
45,647,260
(1) All AB Holding Units remaining available for future issuance will be issued pursuant to the 2017 Plan, which was approved during a Special Meeting of AB Hold-
ing Unitholders held on September 29, 2017.
There are no AB Units to be issued pursuant to an equity compensation plan.
For information about our equity compensation plans, see Note 19 to AB’s consolidated financial statements in Item 8.
Principal Security Holders
As of December 31, 2018, we had no information that any person beneficially owned more than 5% of the outstanding AB Holding
Units.
As of December 31, 2018, we had no information that any person beneficially owned more than 5% of the outstanding AB Units,
except as reported by AXA, EQH and certain of their respective subsidiaries on Schedule 13D/A with the SEC on January 3, 2019
pursuant to the Exchange Act. We have prepared the following table, and the notes that follow, in reliance on such filing:
Name and Address of Beneficial Owner
Amount and Nature of Beneficial
Ownership Reported on Schedule
Percent of Class
AXA(1)(2)(3)(4)
25 avenue Matignon 75008
Paris, France
AXA Equitable Holdings(1)(3)(4)
1290 Avenue of the Americas
New York, NY 10104
170,121,745(3)(4)
63.3(1)(4)
170,121,745(3)(4)
63.3(1)(4)
(1) Based on information included in Form S-4 filed with the SEC on December 6, 2018, AXA owns approximately 59.2% of the outstanding shares of EQH. Addi-
tionally, the percent of class included in the above table reflects issued and outstanding AB Units.
(2) Based on information provided by AXA, as of December 31, 2018, 14.40% of the issued ordinary shares (representing 24.16% of the voting power) of AXA
were owned directly and indirectly by two French mutual insurance companies (AXA Assurances IARD Mutuelle and AXA Assurances Vie Mutuelle) engaged in
the Property & Casualty insurance business and the Life & Savings insurance business in France (“Mutuelles AXA”). The address of The Mutuelles AXA is 313
Terrasses de l’Arche 92727 Nanterre Cedex, France.
(3) By reason of their relationships, AXA, the Mutuelles AXA, AXA Equitable Holdings, AXA Equitable Financial Services, LLC (a subsidiary of EQH), AXA-IM Holding
U.S. (a subsidiary of EQH), Alpha Units Holdings, Inc. (a subsidiary of EQH) and MLOA may be deemed to share the power to vote or to direct the vote and to
dispose or direct the disposition of all or a portion of the 170,121,745 issued and outstanding AB Units.
(4) AXA, EQH and certain of their respective subsidiaries have reported on Schedule 13D/A dated as of January 3, 2019 that, by reason of AXA’s ownership of
59.2% of the outstanding shares of common stock of EQH, AXA may be deemed to beneficially own all of the issued and outstanding AB Units owned directly
and indirectly by EQH.
Annual Report 2018
157
As of December 31, 2018, AB Holding was the record owner of 96,658,278, or 36.0%, of the issued and outstanding AB Units.
Management
As of December 31, 2018, the beneficial ownership of AB Holding Units by each director and named executive officer of the
General Partner and by all directors and executive officers as a group is as follows:
Name of Beneficial Owner
Number of AB Holding
Units and Nature of
Beneficial Ownership
Percent of Class
Seth P. Bernstein(1)(2)
Robert B. Zoellick(1)
Paul L. Audet
Ramon de Oliveira(1)
Denis Duverne(1)
Barbara Fallon-Walsh(1)
Daniel G. Kaye(1)
Shelley B. Leibowitz
Anders Malmstrom(1)
Das Narayandas
Mark Pearson(1)
James A. Gingrich(1)(3)
Laurence E. Cranch(1)(4)
John C. Weisenseel(1)(5)
Kate C. Burke(1)(6)
All directors and executive officers as a group (16 persons)(7)(8)
314,574
47,100
9,345
13,379
2,000
13,379
13,379
16,145
—
9,345
—
1,784,907
365,212
303,041
208,643
3,137,990
*
*
*
*
*
*
*
*
*
*
*
1.8
*
*
3.2%
* Number of AB Holding Units listed represents less than 1% of the Units outstanding.
(1) Excludes AB Holding Units beneficially owned by AXA, EQH and their respective subsidiaries. Ms. Fallon-Walsh and Messrs. Bernstein, de Oliveira, Duverne, Kaye,
Malmstrom and Pearson are directors and/or officers of AXA, EQH, AXA Equitable and/or MLOA. Ms. Burke and Messrs. Bernstein, Zoellick, Gingrich, Cranch
and Weisenseel are directors and/or officers of the General Partner.
(2) Represents 314,574 restricted AB Holding Units that have not yet vested or with respect to which he has deferred delivery. See “Overview of Our President and
CEO’s Compensation – Compensation Elements – Restricted AB Holding Units” in Item 11 for additional information.
(3)
(4)
(5)
(6)
Includes 1,695,216 restricted AB Holding Units awarded to Mr. Gingrich as long-term incentive compensation that have not yet vested or with respect to which
he has deferred delivery. For information regarding Mr. Gingrich’s long-term incentive compensation awards, see “Grants of Plan-based Awards in 2018” and
“Outstanding Equity Awards at 2018 Fiscal Year-End” in Item 11.
Includes 242,611 restricted AB Holding Units awarded to Mr. Cranch as long-term incentive compensation that have not yet vested or with respect to which he
has deferred delivery. For information regarding Mr. Cranch’s long-term incentive compensation awards, see “Grants of Plan-based Awards in 2018” and
“Outstanding Equity Awards at 2018 Fiscal Year-End” in Item 11.
Includes 270,318 restricted AB Holding Units awarded to Mr. Weisenseel as long-term incentive compensation that have not yet vested or with respect to which
he has deferred delivery. For information regarding Mr. Weisenseel’s long-term incentive compensation awards, see “Grants of Plan-based Awards in 2018” and
“Outstanding Equity Awards at 2018 Fiscal Year-End” in Item 11.
Includes 189,746 restricted AB Holding Units awarded to Ms. Burke as long-term incentive compensation that have not yet vested. For information regarding
Ms. Burke’s long-term incentive compensation awards, see “Grants of Plan-based Awards in 2018” and “Outstanding Equity Awards at 2018 Fiscal Year-End” in
Item 11.
(7)
Includes 2,712,465 restricted AB Holding Units awarded to the executive officers as a group as long-term incentive compensation that have not yet vested and/
or with respect to which the executive officer has deferred delivery.
158
AB
As of December 31, 2018, our directors and executive officers did not beneficially own any AB Units.
As of December 31, 2018, the beneficial ownership of the common stock of AXA by each director and named executive officer of
the General Partner and by all directors and executive officers as a group is as follows:
AXA Common Stock(1)
Name of Beneficial Owner
Number of Shares
and Nature of
Beneficial Ownership
Percent of Class
Seth P. Bernstein
Robert B. Zoellick
Paul L. Audet
Ramon de Oliveira(2)
Denis Duverne(3)
Barbara Fallon-Walsh(4)
Daniel G. Kaye
Shelley B. Leibowitz
Anders Malmstrom(5)
Das Narayandas
Mark Pearson(6)
James A. Gingrich
Laurence E. Cranch
John C. Weisenseel
Kate C. Burke
All directors and executive officers as a group (16 persons)(7)
—
—
—
38,536
2,010,307
29,340
11,634
—
129,308
—
496,957
—
—
—
—
2,716,082
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* Number of shares listed represents less than 1% of the outstanding AXA common stock.
(1) Holdings of AXA American Depositary Shares (“ADS”) are expressed as their equivalent in AXA common stock. Each AXA ADS represents the right to receive
one AXA ordinary share.
(2)
Includes 4,361 shares Mr. de Oliveira can acquire within 60 days under option plans.
(3)
Includes 415,045 shares Mr. Duverne can acquire within 60 days under option plans.
(4)
Includes 2,127 shares Ms. Fallon-Walsh can acquire within 60 days under options plans.
(5)
(6)
Includes 36,807 shares Mr. Malmstrom can acquire within 60 days under option plans. Also includes 62,654 unvested AXA performance shares, which are paid
out when vested based on the share price of AXA at that time and are subject to achievement of internal performance conditions.
Includes 48,486 shares Mr. Pearson can acquire within 60 days under options plans. Also includes 203,470 unvested AXA performance shares, which are paid
out when vested based on the share price of AXA at that time and are subject to achievement of internal performance conditions.
(7)
Includes 506,826 shares the directors and executive officers as a group can acquire within 60 days under option plans.
Annual Report 2018
159
As of December 31, 2018, the beneficial ownership of the common stock of EQH by each director and named executive officer of
the General Partner and by all directors and executive officers as a group is as follows:
EQH Common Stock
Name of Beneficial Owner
Number of Shares
and Nature of
Beneficial Ownership
Percent of Class
Seth P. Bernstein(1)
Robert B. Zoellick
Paul L. Audet
Ramon de Oliveira
Denis Duverne
Barbara Fallon-Walsh
Daniel G. Kaye
Shelley B. Leibowitz
Anders Malmstrom(2)
Das Narayandas
Mark Pearson(3)
James A. Gingrich
Laurence E. Cranch
John C. Weisenseel
Kate C. Burke
All directors and executive officers as a group (16 persons)(4)
* Number of shares listed represents less than 1% of the outstanding EQH common stock.
(1)
Includes 9,250 restricted stock units that will vest within 60 days.
(2)
Includes 33,483 unvested EQH performance shares and 18,500 restricted stock units that will vest within 60 days.
(3)
Includes 85,937 unvested EQH performance shares and 46,250 restricted stock units that will vest within 60 days.
13,250
—
—
8,844
—
5,844
10,844
—
53,983
2,000
136,187
—
—
—
—
230,952
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
(4)
Includes 119,420 unvested EQH performance shares and 64,750 restricted stock units that will vest within 60 days for the directors and executive officers as a
group.
Partnership Matters
The General Partner makes all decisions relating to the management of AB and AB Holding. The General Partner has agreed that it
will conduct no business other than managing AB and AB Holding, although it may make certain investments for its own account.
Conflicts of interest, however, could arise between AB and AB Holding, the General Partner and the Unitholders of both
Partnerships.
Section 17-403(b) of the Delaware Revised Uniform Limited Partnership Act (“Delaware Act”) states in substance that, except as
provided in the Delaware Act or the applicable partnership agreement, a general partner of a limited partnership has the liabilities of
a general partner in a general partnership governed by the Delaware Uniform Partnership Law (as in effect on July 11, 1999) to the
partnership and to the other partners. In addition, as discussed below, Sections 17-1101(d) and 17-1101(f) of the Delaware Act gen-
erally provide that a partnership agreement may limit or eliminate fiduciary duties a partner may be deemed to owe to the limited
partnership or to another partner, and any related liability, provided that the partnership agreement may not limit or eliminate the
implied contractual covenant of good faith and fair dealing. Accordingly, while under Delaware law a general partner of a limited
partnership is liable as a fiduciary to the other partners, those fiduciary obligations may be altered by the terms of the applicable
partnership agreement. Each of the AB Partnership Agreement and AB Holding Partnership Agreement (each, a “Partnership
160
AB
Agreement” and, together, the “Partnership Agreements”) sets forth limitations on the duties and liabilities of the General Part-
ner. Each Partnership Agreement provides that the General Partner is not liable for monetary damages for errors in judgment or for
breach of fiduciary duty (including breach of any duty of care or loyalty), unless it is established (the person asserting such liability
having the burden of proof) that the General Partner’s action or failure to act involved an act or omission undertaken with deliber-
ate intent to cause injury, with reckless disregard for the best interests of the Partnerships or with actual bad faith on the part of the
General Partner, or constituted actual fraud. Whenever the Partnership Agreements provide that the General Partner is permitted or
required to make a decision (i) in its “discretion” or under a grant of similar authority or latitude, the General Partner is entitled to
consider only such interests and factors as it desires and has no duty or obligation to consider any interest of or other factors affecting
the Partnerships or any Unitholder of AB or AB Holding or (ii) in its “good faith” or under another express standard, the General
Partner will act under that express standard and will not be subject to any other or different standard imposed by either Partnership
Agreement or applicable law or in equity or otherwise. Each Partnership Agreement further provides that to the extent that, at law
or in equity, the General Partner has duties (including fiduciary duties) and liabilities relating thereto to either Partnership or any
partner, the General Partner acting under either Partnership Agreement, as applicable, will not be liable to the Partnerships or any
partner for its good faith reliance on the provisions of the Partnership Agreement.
In addition, each Partnership Agreement grants broad rights of indemnification to the General Partner and its directors, officers and
affiliates and authorizes AB and AB Holding to enter into indemnification agreements with the directors, officers, partners, employ-
ees and agents of AB and its affiliates and AB Holding and its affiliates. The Partnerships have granted broad rights of
indemnification to officers and employees of AB and AB Holding. The foregoing indemnification provisions are not exclusive, and
the Partnerships are authorized to enter into additional indemnification arrangements. AB and AB Holding have obtained directors
and officers/errors and omissions liability insurance.
Each Partnership Agreement also allows transactions between AB and AB Holding and the General Partner or its affiliates, as we describe
in “Policies and Procedures Regarding Transactions with Related Persons” in Item 13, so long as such transactions are on an arms-length basis.
The Delaware courts have held that provisions in partnership or limited liability company agreements that permit affiliate transactions
so long as they are on an arms-length basis operate to establish a contractually-agreed-to fiduciary duty standard of entire fairness on the
part of the general partner or manager in connection with the approval of affiliate transactions. Also, each Partnership Agreement
expressly permits all affiliates of the General Partner to compete, directly or indirectly, with AB and AB Holding, as we discuss in
“Competition” in Item 1. The Partnership Agreements further provide that, except to the extent that a decision or action by the General
Partner is taken with the specific intent of providing an improper benefit to an affiliate of the General Partner to the detriment of AB
or AB Holding, there is no liability or obligation with respect to, and no challenge of, decisions or actions of the General Partner that
would otherwise be subject to claims or other challenges as improperly benefiting affiliates of the General Partner to the detriment of
the Partnerships or otherwise involving any conflict of interest or breach of a duty of loyalty or similar fiduciary obligation.
Section 17-1101(c) of the Delaware Act provides that it is the policy of the Delaware Act to give maximum effect to the principle
of freedom of contract and to the enforceability of partnership agreements. Further, Section 17-1101(d) of the Delaware Act pro-
vides in part that to the extent that, at law or in equity, a partner has duties (including fiduciary duties) to a limited partnership or to
another partner, those duties may be expanded, restricted, or eliminated by provisions in a partnership agreement (provided that a
partnership agreement may not eliminate the implied contractual covenant of good faith and fair dealing). In addition,
Section 17-1101(f) of the Delaware Act provides that a partnership agreement may limit or eliminate any or all liability of a partner
to a limited partnership or another partner for breach of contract or breach of duties (including fiduciary duties); provided, how-
ever, that a partnership agreement may not limit or eliminate liability for any act or omission that constitutes a bad faith violation of
the implied contractual covenant of good faith and fair dealing. Decisions of the Delaware courts have recognized the right of par-
ties, under the above provisions of the Delaware Act, to alter by the terms of a partnership agreement otherwise applicable fiduciary
duties and liability for breach of duties. However, the Delaware courts have required that a partnership agreement make clear the
intent of the parties to displace otherwise applicable fiduciary duties (the otherwise applicable fiduciary duties often being referred to
as “default” fiduciary duties). Judicial inquiry into whether a partnership agreement is sufficiently clear to displace default fiduciary
duties is necessarily fact driven and is made on a case by case basis. Accordingly, the effectiveness of displacing default fiduciary
obligations and liabilities of general partners continues to be a developing area of the law and it is not certain to what extent the
foregoing provisions of the Partnership Agreements are enforceable under Delaware law.
Annual Report 2018
161
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Policies and Procedures Regarding Transactions with Related Persons
Each Partnership Agreement expressly permits AXA, EQH and their affiliates (collectively, “AXA Affiliates”), to provide services
to AB and AB Holding if the terms of the transaction are approved by the General Partner in good faith as being comparable to (or
more favorable to each such Partnership than) those that would prevail in a transaction with an unaffiliated party. This requirement
is conclusively presumed to be satisfied as to any transaction or arrangement that (i) in the reasonable and good faith judgment of
the General Partner meets that unaffiliated party standard, or (ii) has been approved by a majority of those directors of the General
Partner who are not also directors, officers or employees of an affiliate of the General Partner.
In practice, our management pricing committees review investment advisory agreements with AXA Affiliates, which is the manner
in which the General Partner reaches a judgment regarding the appropriateness of the fees. Other transactions with AXA Affiliates
are submitted to the Audit Committee for their review and approval. (See “Committees of the Board” in Item 10 for details regarding
the Audit Committee.) We are not aware of any transaction during 2018 between our company and any related person with respect
to which these procedures were not followed.
Our relationships with AXA Affiliates also are subject to applicable provisions of the insurance laws and regulations of New York
and other states. Under such laws and regulations, the terms of certain investment advisory and other agreements we enter into with
AXA Affiliates are required to be fair and equitable and charges or fees for services performed must be reasonable. Also, in some
cases, the agreements are subject to regulatory approval.
We have written policies regarding the employment of immediate family members of any of our related persons. Compensation and
benefits for all of our employees is established in accordance with our human resources practices, taking into consideration the
defined qualifications, responsibilities and nature of the role.
Financial Arrangements with AXA Affiliates
The General Partner has, in its reasonable and good faith judgment (based on its knowledge of, and inquiry with respect to, com-
parable arrangements with or between unaffiliated parties), approved the following arrangements with AXA Affiliates as being
comparable to, or more favorable to AB than, those that would prevail in a transaction with an unaffiliated party.
Transactions between AB and related persons during 2018 are as follows (the first table summarizes services we provide to related
persons and the second table summarizes services our related persons provide to us):
Parties(1)
General Description of Relationship(2)
Amounts Received
or Accrued for in 2018
We provide investment management services and ancillary accounting, valuation,
reporting, treasury and other services to the general and separate accounts of AXA
Equitable Holdings and its insurance company subsidiaries.
We serve as sub-adviser to these open-end mutual funds, each of which is
sponsored by a subsidiary of AXA Equitable Holdings.
We provide investment management, distribution and shareholder servicing-
related services.
AXA Equitable(3)
EQAT, AXA Enterprise Trust and AXA Premier VIP Trust
AXA Life Invest
AXA Life Japan Limited(3)
AXA France(3)
AXA Switzerland Life(3)
AXA Rosenberg Asia Pacific(3)
AXA Germany(3)
AXA Re Arizona Company(3)
AXA Belgium(3)
AXA Hong Kong Life(3)
AXA Insurance UK Non Direct Regulated(3)
$71,891,000
$27,755,000
$17,921,000
$15,089,000
$10,533,000
$ 8,912,000
$ 6,206,000
$ 5,597,000
$ 3,215,000
$ 3,137,000
$ 2,400,000
$ 2,291,000
162
AB
Parties(1)
General Description of Relationship(2)
Amounts Received
or Accrued for in 2018
MONY Life Insurance Company of America(3)
Architas Multi-Manager UK(3)
AXA Winterthur(3)
AXA Mediterranean(3)
AXA Insurance Ltd(3)
AXA U.K. Group Pension Scheme
AXA Switzerland Property and Casualty(3)
AXA Corporate Solutions(3)
AXA General Insurance Hong Kong Ltd(3)
U.S. Financial Life Insurance Company(3)
AXA Spain Property and Casualty(3)
AXA General Insurance Hong Kong Ltd.(3)
AXA Insurance Company(3)
AXA MPS (3)
AXA Equitable Holdings(3)
AXA Life Singapore (3)
AXA Investment Managers Ltd.(3)
XL Group Investments Ltd(3)
$1,792,000
$1,503,000
$1,133,000
$ 843,000
$ 730,000
$ 591,000
$ 511,000
$ 428,000
$ 397,000
$ 373,000
$ 364,000
$ 328,000
$ 222,000
$ 222,000
$ 199,000
$ 136,000
$ 109,000
$ 101,000
Parties(1)(3)
General Description of Relationship
Amounts Paid
or Accrued for in 2018
AXA Advisors
AXA Business Services Pvt. Ltd.
AXA Equitable Holdings
Distributes certain of our Retail Products and provides Private Wealth
Management referrals.
Provides data processing services and support for certain investment operations
functions.
We are covered by various insurance policies maintained by AXA Equitable
Holdings.
AXA Technology Services India Pvt.
Provides certain data processing services and functions.
AXA XL Insurance
AXA Advisors
AXA Group Solutions Pvt. Ltd.
GIE Informatique AXA
We are covered by various E&O insurance policies maintained by AXA XL.
Sells shares of our mutual funds under Distribution Service and educational
Support agreements.
Provides maintenance and development support for applications.
Provides cooperative technology development and procurement services to us and
to various other subsidiaries of AXA.
$21,567,000
$ 6,815,000
$ 2,615,000
$ 2,153,000
$ 1,961,000
$ 1,485,000
$ 1,038,000
$
399,000
(1) AB or one of its subsidiaries is a party to each transaction.
(2) We provide investment management services unless otherwise indicated.
(3) This entity is a subsidiary of AXA.
Arrangements with Immediate Family Members of Related Persons
During 2018, we did not have arrangements with immediate family members of our directors and executive officers.
Director Independence
See “Independence of Certain Directors” in Item 10.
Annual Report 2018
163
Item 14.
Principal Accounting Fees and Services
Fees for professional audit services rendered by PricewaterhouseCoopers LLP (“PwC”) for the audit of AB’s and AB Holding’s
annual financial statements for 2018 and 2017, respectively, and fees for other services rendered by PwC are as follows:
Audit fees(1)
Audit-related fees(2)
Tax fees(3)
All other fees(4)
Total
2018
2017
(in thousands)
$ 6,244
$ 5,943
3,259
2,001
6
3,457
2,112
189
$11,510
$11,701
(1)
Includes $58,447 and $57,010 paid for audit services to AB Holding in 2018 and 2017, respectively.
(2) Audit-related fees consist principally of fees for audits of financial statements of certain employee benefit plans, internal control reviews and accounting con-
sultation.
(3) Tax fees consist of fees for tax consultation and tax compliance services.
(4) All other fees in 2018 and 2017 consisted of miscellaneous non-audit services.
The Audit Committee has a policy to pre-approve audit and non-audit service engagements with the independent registered public
accounting firm. The independent registered public accounting firm must provide annually a comprehensive and detailed schedule
of each proposed audit and non-audit service to be performed. The Audit Committee then affirmatively indicates its approval of the
listed engagements. Engagements that are not listed, but that are of similar scope and size to those listed and approved, may be
deemed to be approved, if the fee for such service is less than $100,000. In addition, the Audit Committee has delegated to its
chairman the ability to approve any permissible non-audit engagement where the fees are expected to be less than $100,000.
164
AB
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a)
There is no document filed as part of this Form 10-K.
Financial Statement Schedule.
Attached to this Form 10-K is a schedule describing Valuation and Qualifying Account-Allowance for Doubtful Accounts
for the three years ended December 31, 2018, 2017 and 2016.
(b)
Exhibits.
The following exhibits required to be filed by Item 601 of Regulation S-K are filed herewith or incorporated by reference
herein, as indicated:
Exhibit
Description
3.01
3.02
3.03
3.04
3.05
3.06
3.07
3.08
10.01
10.02
10.03
10.04
10.05
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
10.14
10.15
AllianceBernstein Corporation By-Laws with amendments through July 25, 2018.
Amended and Restated Certificate of Limited Partnership dated February 24, 2006 of AB Holding (incorporated by reference to Exhibit 99.06 to Form 8-K, as
filed February 24, 2006).
Amendment No. 1 dated February 24, 2006 to Amended and Restated Agreement of Limited Partnership of AB Holding (incorporated by reference to Exhibit 3.1
to Form 10-Q for the quarterly period ended September 30, 2006, as filed November 8, 2006).
Amended and Restated Agreement of Limited Partnership dated October 29, 1999 of AB Holding (incorporated by reference to Exhibit 3.2 to Form 10-K for the
fiscal year ended December 31, 2003, as filed March 10, 2004).
Amended and Restated Certificate of Limited Partnership dated February 24, 2006 of AB (incorporated by reference to Exhibit 99.07 to Form 8-K, as filed
February 24, 2006).
Amendment No. 1 dated February 24, 2006 to Amended and Restated Agreement of Limited Partnership of AB (incorporated by reference to Exhibit 3.2 to Form
10-Q for the quarterly period ended September 30, 2006, as filed November 8, 2006).
Amended and Restated Agreement of Limited Partnership dated October 29, 1999 of AB (incorporated by reference to Exhibit 3.3 to Form 10-K for the fiscal
year ended December 31, 2003, as filed March 10, 2004).
Certificate of Amendment to the Certificate of Incorporation of AllianceBernstein Corporation (incorporated by reference to Exhibit 99.08 to Form 8-K, as filed
February 24, 2006).
Amendment to Seth P. Bernstein’s Employment Agreement.*
AllianceBernstein 2018 Incentive Compensation Award Program.*
AllianceBernstein 2018 Deferred Cash Compensation Program.*
Form of Award Agreement, dated as of December 31, 2018, under Incentive Compensation Award Program, Deferred Cash Compensation Program and AB
2017 Long Term Incentive Plan.*
Form of Award Agreement, dated as of May 15, 2018, under AB 2017 Long Term Incentive Plan relating to equity compensation awards to Eligible Directors.*
Award Agreement, dated as of May 15, 2018 among Robert B. Zoellick, AB and AB Holding, under AB 2017 Long Term Incentive Plan.*
James A. Gingrich Award Letter dated as of April 24, 2018.*
Kate C. Burke Award Letter dated as of April 24, 2018.*
Laurence E. Cranch Award Letter dated as of April 24, 2018.*
John C. Weisenseel Award Letter dated as of April 24, 2018.*
Amendment to the Retirement Plan for Employees of AllianceBernstein L.P., dated as of April 1, 2018.*
Amendment to the Profit Sharing Plan for Employees of AllianceBernstein L.P., dated as of April 1, 2018.*
Summary of AB’s Lease at 1345 Avenue of the Americas, New York, New York.
Summary of AB’s Lease at 501 Commerce Street, Nashville, Tennessee.
Guidelines for Transfer of AB Units.
Annual Report 2018
165
Exhibit
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
21.01
23.01
31.01
31.02
32.01
32.02
Description
Amended and Restated Revolving Credit Agreement, dated as of September 27, 2018 (incorporated by reference to Exhibit 10.01 to Form 8-K, as filed
October 3, 2018).
Amendment Agreement, dated as of February 6, 2018, between James A. Gingrich and AB to amend the Letter Agreement, dated as of February 13, 2017,
between Mr. Gingrich and AB (incorporated by reference to Exhibit 10.01 to Form 10-K for the fiscal year ended December 31, 2017, as filed
February 13, 2018).*
AB 2017 Long Term Incentive Plan (incorporated by reference to Exhibit 10.06 to Form 10-K for the fiscal year ended December 31, 2017, as filed
February 13, 2018).*
Letter Agreement between Robert B. Zoellick and AllianceBernstein Corporation relating to Mr. Zoellick’s Service as Non-Executive Chairman of the Board
(incorporated by reference to Exhibit 10.1 to Form 8-K, as filed May 1, 2017).*
Employment Agreement among Seth P. Bernstein, AB, AB Holding and AllianceBernstein Corporation (incorporated by reference to Exhibit 10.3 to Form 10-K,
as filed May 1, 2017).*
Amendment to the Profit Sharing Plan for Employees of AllianceBernstein L.P., dated as of October 20, 2016 and effective as of January 1, 2017 (incorporated
by reference to Exhibit 10.06 to Form 10-K for the fiscal year ended December 31, 2016, as filed February 14, 2017).*
Profit Sharing Plan for Employees of AB, as amended and restated as of January 1, 2015 and as further amended as of January 1, 2017 (incorporated by
reference to Exhibit 10.05 to Form 10-K the the fiscal year ended December 31, 2015, as filed February 11, 2016).*
Amendment and Restatement of the Retirement Plan for Employees of AB, as of January 1, 2015 (incorporated by reference to Exhibit 10.06 to Form 10-K for
the fiscal year ended December 31, 2015, as filed February 11, 2016).*
Commercial Paper Dealer Agreement 4(a)(2) Program, dated as of June 1, 2015, between AllianceBernstein L.P., as Issuer, and Citigroup Global Markets Inc.,
as Dealer (incorporated by reference to Exhibit 10.08 to Form 10-K for the fiscal year ended December 31, 2015, as filed February 11, 2016).
Commercial Paper Dealer Agreement 4(a)(2) Program, dated as of June 1, 2015, between AllianceBernstein L.P., as Issuer, and Credit Suisse Securities (USA)
LLC, as Dealer. (incorporated by reference to Exhibit 10.09 to Form 10-K for the fiscal year ended December 31, 2015, as filed February 11, 2016).
Commercial Paper Dealer Agreement 4(a)(2) Program, dated as of June 1, 2015, between AllianceBernstein L.P., as Issuer, and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as Dealer.(incorporated by reference to Exhibit 10.10 to Form 10-K for the fiscal year ended December 31, 2015, as filed February 11,
2016).
Investment Advisory and Management Agreement for the General Account of AXA Equitable Life Insurance Company (incorporated by reference to Exhibit 10.5
to Form 10-K for the fiscal year ended December 31, 2004, as filed March 15, 2005).
Amended and Restated Investment Advisory and Management Agreement dated January 1, 1999 among AB Holding, Alliance Corporate Finance Group
Incorporated, and AXA Equitable Life Insurance Company (incorporated by reference to Exhibit (a)(6) to Form 10-Q/A for the quarterly period ended
September 30, 1999, as filed on September 28, 2000).
Subsidiaries of AB.
Consents of PricewaterhouseCoopers LLP.
Certification of Mr. Bernstein furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Mr. Weisenseel furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Mr. Bernstein furnished for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Mr. Weisenseel furnished for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema.
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
*
Denotes a compensatory plan or arrangement
166
AB
Item 16.
Form 10-K Summary
None.
Annual Report 2018
167
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 13, 2019
AllianceBernstein Holding L.P.
By: /s/ Seth P. Bernstein
Seth P. Bernstein
Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date: February 13, 2019
Date: February 13, 2019
/s/ John C. Weisenseel
John C. Weisenseel
Chief Financial Officer
/s/ William R. Siemers
William R. Siemers
Controller and Chief Accounting Officer
168
AB
Directors
/s/ Seth P. Bernstein
Seth P. Bernstein
President and Chief Executive Officer
/s/ Paul L. Audet
Paul L. Audet
Director
/s/ Denis Duverne
Denis Duverne
Director
/s/ Daniel G. Kaye
Daniel G. Kaye
Director
/s/ Anders Malmstrom
Anders Malmstrom
Director
/s/ Mark Pearson
Mark Pearson
Director
/s/ Robert B. Zoellick
Robert B. Zoellick
Chairman of the Board
/s/ Ramon de Oliveira
Ramon de Oliveira
Director
/s/ Barbara Fallon-Walsh
Barbara Fallon-Walsh
Director
/s/ Shelley B. Leibowitz
Shelley B. Leibowitz
Director
/s/ Das Narayandas
Das Narayandas
Director
Annual Report 2018
169
AllianceBernstein L.P.
Valuation and Qualifying Account—Allowance for Doubtful Accounts
For the Three Years Ending December 31, 2018, 2017 and 2016
SCHEDULE II
Description
For the year ended December 31, 2016
For the year ended December 31, 2017
For the year ended December 31, 2018
(a)
Includes accounts written-off as uncollectible of $39.
(b)
Includes accounts written-off as uncollectible of $252.
(c)
Includes accounts written-off as uncollectible of $16.
Balance at
Beginning
of Period
Credited to
Costs and
Expenses
Deductions
Balance at
End
of Period
(in thousands)
$552
$513
$411
$ —
$150
$ —
$ 39(a)
$252(b)
16(c)
$513
$411
$395
170
AB
2018 COMPANY INFORMATION
AllianceBernstein Holding L.P.
New York Stock Exchange
Symbol: AB
Headquarters
1345 Avenue of the Americas
New York, NY 10105
(212) 969 1000
www.AllianceBernstein.com
Unitholder Investor Relations
Phone: (800) 962 2134 option 6
Fax:
(212) 969 2136
Email: ir@AllianceBernstein.com
www.AllianceBernstein.com/investorrelations
All forms that we file with the US Securities
and Exchange Commission, as well as this
annual report, can be found in the Investor &
Media Relations section of our website.
Unitholder Account Assistance
Unitholders who own units in certificate
form should contact the transfer agent and
registrar listed below with any questions:
Media Relations
Jen Will
(212) 969 1157
Independent Public Accountants
PricewaterhouseCoopers LLP
New York
Mutual Fund Shareholder Information
For US Investors:
AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
Monday to Friday, 8:30 am–7:00 pm ET
(800) 221 5672
US Direct Number: (210) 384 6000
24-Hour Automated Assistance
The AB Answer: (800) 251 0539
www.AllianceBernstein.com
(regular mail)
Computershare
P.O. Box 505000
Louisville, KY 40233
(overnight)
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
US: (866) 737 9896
Outside the US: (201) 680 6578
Email: web.queries@computershare.com
www.computershare.com/investor
Unitholder Tax Assistance
Unitholders with Schedule K-1 or any
tax-related questions can contact:
Phone: (844) 275 9875
(212) 969 6870
Fax:
Email: K1help@AllianceBernstein.com
www.taxpackagesupport.com/ab
For Non-US Investors:
AllianceBernstein Investor Services,
A unit of AllianceBernstein
(Luxembourg) S.à.r.l
2-4, rue Eugène Ruppert
International Access Code + (800) 22 63 8637
Be advised that only the international access
code is required to dial this number and not
the country code.
Alternative Phone + (352) 46 39 36 151
AllianceBernstein Institutional
Investments
Steve Eisenberg
(212) 756 4536
www.AllianceBernstein.com/institutional
Bernstein Private Wealth Management
(212) 486 5800
www.bernstein.com
Bernstein Research
Lori Lewin
(212) 756 4226
www.bernsteinresearch.com
Cautions Regarding Forward-Looking Statements
Certain statements provided by management in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance
of financial markets, the investment performance of sponsored investment products and separately managed accounts, general economic conditions, industry
trends, future acquisitions, competitive conditions, and government regulations, including changes in tax regulations and rates and the manner in which the
earnings of publicly traded partnerships are taxed. We caution readers to carefully consider such factors. Further, such forward-looking statements speak only
as of the date on which such statements are made; we undertake no obligation to update any forward-looking statements to reflect events or circumstances
after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ,
see “Risk Factors” in Item 1A and “Cautions Regarding Forward-Looking Statements” in Item 7 of the enclosed Form 10-K. Any or all of the forward-looking
statements that we make in this report, the enclosed Form 10-K, other documents we file with or furnish to the SEC, and any other public statements we issue,
may turn out to be wrong. It is important to remember that other factors besides those listed in “Risk Factors” and “Cautions Regarding Forward-Looking
Statements” could also adversely affect our revenues, financial condition, results of operations and business prospects.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner,
AllianceBernstein L.P.
© 2019 AllianceBernstein L.P.
Printed in the USA
www.AllianceBernstein.com
1345 Avenue of the Americas
New York, NY 10105
AB–4737–0419