SECURITIES AND EXCHANGE COMMISSION

Large accelerated filero

Non-accelerated filerx

Smaller reporting companyo

~~Emerging growth company~~ o

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

FINANCIAL INFORMATION

Item 1. Financial Statements

ALLIANCEBERNSTEIN L.P.

Condensed Consolidated Statements of Financial Condition

(in thousands, except unit amounts)

Commitments and contingencies (See Note 13)


	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Commitments and contingencies (See Note 12)

Redeemable non-controlling interest	103,997			601,587			291,524			148,809

Capital:
General Partner	40,553			41,221			39,997			40,240
Limited partners: 268,565,762 and 268,659,333 units issued and outstanding	4,105,882			4,168,841
Limited partners: 268,182,957 and 268,850,276 units issued and outstanding							4,052,581			4,075,306
Receivables from affiliates	(11,630		)	(11,494		)	(9,304		)	(11,430		)
AB Holding Units held for long-term incentive compensation plans	(86,961		)	(42,688		)	(95,713		)	(77,990		)
Accumulated other comprehensive loss	(107,777		)	(94,140		)	(122,070		)	(110,866		)
Partners’ capital attributable to AB Unitholders	3,940,067			4,061,740			3,865,491			3,915,260
Non-redeemable non-controlling interests in consolidated entities	1,685			1,564			—			949
Total capital	3,941,752			4,063,304			3,865,491			3,916,209
Total liabilities, redeemable non-controlling interest and capital	$	8,548,636		$	9,295,167		$	8,555,271		$	8,789,098

See Accompanying Notes to Condensed Consolidated Financial Statements.

ALLIANCEBERNSTEIN L.P.

Condensed Consolidated Statements of Income

(in thousands, except per unit amounts)

See Accompanying Notes to Condensed Consolidated Financial Statements.

ALLIANCEBERNSTEIN L.P.

Condensed Consolidated Statements of Comprehensive Income

See Accompanying Notes to Condensed Consolidated Financial Statements.

ALLIANCEBERNSTEIN L.P.

Condensed Consolidated Statements of Changes in Partners' Capital



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
General Partner’s Capital
Balance, beginning of period	$	40,016		$	40,886		$	40,240		$	41,221
Net income	1,877			2,037			5,031			5,695
Cash distributions to General Partner	(1,710		)	(1,881		)	(5,148		)	(6,551		)
Long-term incentive compensation plans activity	4			44			189			96
Issuance (retirement) of AB Units, net	(190		)	(533		)	(315		)	(254		)
Impact of adoption of revenue recognition standard ASC 606	—			—			—			349
Other	—			—			—			(3		)
Balance, end of period	39,997			40,553			39,997			40,553
Limited Partners' Capital
Balance, beginning of period	4,053,360			4,135,950			4,075,306			4,168,841
Net income	185,934			201,637			498,146			563,840
Cash distributions to Unitholders	(169,118		)	(184,588		)	(509,151		)	(646,440		)
Long-term incentive compensation plans activity	397			4,490			18,652			9,526
Issuance (retirement) of AB Units, net	(18,836		)	(52,780		)	(31,216		)	(25,289		)
Impact of adoption of revenue recognition standard ASC 606	—			—			—			34,601
Other	844			1,173			844			803
Balance, end of period	4,052,581			4,105,882			4,052,581			4,105,882
Receivables from Affiliates
Balance, beginning of period	(9,839		)	(11,705		)	(11,430		)	(11,494		)
Capital contributions from General Partner	—			—			—			19
Compensation plan accrual	—			—			—			352
Long-term incentive compensation awards expense	216			—			908			—
Capital contributions from AB Holding	319			75			1,218			(507		)
Balance, end of period	(9,304		)	(11,630		)	(9,304		)	(11,630		)
AB Holding Units held for Long-term Incentive Compensation Plans
Balance, beginning of period	(100,453		)	(88,317		)	(77,990		)	(42,688		)
Purchases of AB Holding Units to fund long-term compensation plans, net	(23,432		)	(47,846		)	(81,790		)	(82,710		)
(Issuance) retirement of AB Units, net	19,011			53,289			31,491			25,414
Long-term incentive compensation awards expense	9,214			(1,774		)	35,829			13,051
Re-valuation of AB Holding Units held in rabbi trust	(53		)	(2,313		)	(9,945		)	(28		)
Other	—			—			6,692			—
Balance, end of period	(95,713		)	(86,961		)	(95,713		)	(86,961		)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period	(109,963		)	(103,915		)	(110,866		)	(94,140		)
Foreign currency translation adjustment, net of tax	(12,654		)	(4,148		)	(12,350		)	(14,760		)
Changes in employee benefit related items, net of tax	547			286			1,146			749
Other	—			—			—			374
Balance, end of period	(122,070		)	(107,777		)	(122,070		)	(107,777		)
Total Partners' Capital attributable to AB Unitholders	3,865,491			3,940,067			3,865,491			3,940,067
Non-redeemable Non-controlling Interests in Consolidated Entities
Balance, beginning of period	1,020			1,659			949			1,564
Net income	17			32			91			150
Foreign currency translation adjustment	150			(6		)	147			(29		)
Purchase of non-controlling interest	(1,187		)	—			(1,187		)	—
Balance, end of period	—			1,685			—			1,685
Total Capital	$	3,865,491		$	3,941,752		$	3,865,491		$	3,941,752

See Accompanying Notes to Condensed Consolidated Financial Statements.

ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,
2018 2017

Cash flows from operating activities:
Net income $ 593,172
$ 466,007

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of deferred sales commissions 17,362
25,015
Non-cash long-term incentive compensation expense 13,051
26,947
Depreciation and other amortization 52,599
49,995
Unrealized (gains) losses on investments (5,226 ) 3,323
Unrealized gains on investments of consolidated company-sponsored investment funds (23,755 ) (33,062 )
Other, net 585
10,195
Changes in assets and liabilities:

(Increase) decrease in segregated cash and securities (446,556 ) 161,531
(Increase) decrease in receivables (179,020 ) 8,079
Increase in investments (30,130 ) (76,780 )
Decrease (increase) in investments of consolidated company-sponsored investment funds 966,737
(180,966 )
(Increase) decrease in deferred sales commissions (3,974 ) 1,871
Increase in other assets (134,259 ) (33,003 )
(Decrease) increase in other assets and liabilities of consolidated company-sponsored investment funds, net (663,220 ) 327,284
Increase (decrease) in payables 584,282
(58,126 )
(Decrease) increase in accounts payable and accrued expenses (22,908 ) 23,982
Increase in accrued compensation and benefits 395,643
358,586
Net cash provided by operating activities 1,114,383
1,080,878

Cash flows from investing activities:

Purchases of investments —
(11 )
Proceeds from sales of investments —
10
Purchases of furniture, equipment and leasehold improvements (26,993 ) (24,952 )
Proceeds from sales of furniture, equipment and leasehold improvements —
39
Net cash used in investing activities (26,993 ) (24,914 )

Cash flows from financing activities:

Repayment of commercial paper, net (97,303 ) (220,363 )
(Repayment) proceeds of bank loans (75,000 ) —
(Decrease) increase in overdrafts payable (39,025 ) 66,134
Distributions to General Partner and Unitholders (652,991 ) (489,049 )
Redemptions of investments in consolidated company-sponsored investment funds, net (518,601 ) (8,373 )
Capital contributions to non-controlling interests in consolidated entities —
(43,217 )
Purchase of non-controlling interest —
(1,833 )
Capital contributions (to) from affiliates (1,344 ) 79
Payments of contingent payment arrangements (1,146 ) (6,344 )
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units 10,802
17,672
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net (82,710 ) (134,186 )
Purchases of AB Units (129 ) (993 )



	Nine Months Ended September 30,
	2019			2018

Cash flows from operating activities:
Net income	$	525,195		$	593,172

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred sales commissions	10,348			17,362
Non-cash long-term incentive compensation expense	36,737			13,051
Depreciation and other amortization	125,729			52,599
Unrealized (gains) on investments	(17,386		)	(5,226		)
Unrealized (gains) on investments of consolidated company-sponsored investment funds	(29,522		)	(23,755		)
Other, net	3,652			585
Changes in assets and liabilities:
Decrease (increase) in segregated cash and securities	211,405			(446,556		)
Decrease (increase) in receivables	214,522			(190,660		)
Decrease (increase) in investments	407,616			(30,130		)
(Increase) decrease in investments of consolidated company-sponsored investment funds	(155,064		)	966,737
(Increase) in deferred sales commissions	(20,559		)	(3,974		)
(Increase) in right-of-use assets	(8,336		)	—
Decrease (increase) in other assets	20,361			(121,016		)
Increase (decrease) in other assets and liabilities of consolidated company-sponsored investment funds, net	1,903			(663,220		)
(Decrease) increase in payables	(733,097		)	584,282
(Decrease) in lease liabilities	(83,161		)	—
(Decrease) in accounts payable and accrued expenses	(39,225		)	(24,511		)
Increase in accrued compensation and benefits	334,900			395,643
Net cash provided by operating activities	806,018			1,114,383

Cash flows from investing activities:
Purchases of furniture, equipment and leasehold improvements	(24,311		)	(26,993		)
Acquisition of business, net of cash acquired	5,255			—
Net cash used in investing activities	(19,056		)	(26,993		)

See Accompanying Notes to Condensed Consolidated Financial Statements.

ALLIANCEBERNSTEIN L.P.

Notes to Condensed Consolidated Financial Statements

September 30, ~~2018~~2019

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. These statements should be read in conjunction with AB’s audited consolidated financial statements included in AB’s Form 10-K for the year ended December 31, ~~2017.~~2018.

1.Business Description Organization and Basis of Presentation

Business Description

We provide research, diversified investment management and related services globally to a broad range of clients. Our principal services include:

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 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, direct lending and private ~~equity (e.g., direct real estate investing~~equity; and ~~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, AXA ~~Equitable Holdings, Inc. ("EQH"),~~completed the ~~holding company for~~sale of a ~~diversified financial services organization, conducted~~minority stake in EQH through an initial public ~~offering;~~offering ("IPO"). Since then, AXA has completed additional offerings, most recently during the second quarter of 2019. As a ~~French holding company for~~result, AXA ~~Group, a worldwide leader in life, property and casualty and health insurance and asset management owns approximately 72%~~owned 39.1% of the outstanding common stock of EQH as of September 30, ~~2018.~~2019. 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.

As of September 30, ~~2018,~~2019, EQH ~~owns~~owned approximately ~~3.9%~~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 September 30, ~~2018,~~2019, the ownership structure of AB, including limited partnership units outstanding as well as the general partner's 1% interest, iswas as follows:



EQH and its subsidiaries	~~63.7~~63.8	%
AB Holding	~~35.5~~35.4
Unaffiliated holders	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 ~~65.1%~~65.3% economic interest in AB as of September 30, ~~2018.~~2019.

Basis of Presentation

The interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the interim results, have been made. The preparation of the condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the interim reporting periods. Actual results could differ from those estimates. The condensed consolidated statement of financial condition as of December 31, ~~2017~~2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The condensed consolidated financial statements include AB and its majority-owned and/or controlled subsidiaries, and the consolidated entities 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 condensed 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.

~~Reclassification~~Reclassifications

During ~~2018,~~2019, prior period amounts for ~~payments~~research and miscellaneous fees related to ~~financial intermediaries for administrative services, sub-accounting services and maintenance of books and records for certain funds~~our brokers dealers previously presented as ~~distribution-related payments~~changes in other assets are now presented as ~~trade execution, marketing, T&E~~changes in receivables; and certain income taxes payable and receivable as well as deferred tax assets and liabilities previously presented as changes in payables are now presented as changes in other ~~expenses~~assets in the condensed consolidated statements of ~~income~~cash flows to conform to the current period's presentation.

Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") ~~issued Accounting Standards Codification (“ASC”) 606,~~ ~~Revenue from Contracts with Customers~~, which outlines a single comprehensive revenue recognition model for all contracts with customers 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 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.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~. The amendment 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 diversity 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 balance sheet 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, Compensation - 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 February 2016, the FASB~~ issued ASU 2016-02, Leases. This pronouncement, along with subsequent ASUs issued to clarify certain provisions of ASU 2016-02 is now referred to as Accounting Standards Codification 842 ("ASC 842"). The standard requires ~~lessees~~a lessee to record most leases on ~~their~~its 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~~previous lease accounting guidance. ~~This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018.~~ We ~~plan to adopt the~~adopted this new standard ~~for our fiscal year beginning~~on January 1, 2019 using the ~~simplified~~modified retrospective method. Prior comparable periods will not be adjusted under this method.

We applied several practical expedients offered by ASC 842 upon adoption of this standard. These included continuing to account for existing leases based on judgments made under legacy GAAP as it relates to determining classification of leases, unamortized initial direct costs and whether contracts are leases or contain leases. We also used a practical expedient to use hindsight in determining the lease terms (using knowledge and expectations as of the standard's adoption date instead of the previous assumptions under legacy GAAP) and evaluating impairment of our right-of-use assets in the transition ~~method.~~period (using our most up-to-date information).

Adoption of ~~January 1, 2019, we expect to record an increase~~this standard resulted in ~~assets ranging between $400 million to $450 million and an increase in liabilities ranging between $550 million to $600 million, respectively, on our statement~~the recording of ~~financial condition as a result~~

~~of recognizing~~operating right-of-use assets and lease liabilities ~~for our real estate leases.~~of $438.7 million and $574.5 million, respectively, and financing right-of-use assets and lease liabilities of $2.4 million as of January 1, 2019. The operating right-of-use assets recognized as of January 1, 2019 are ~~substantially~~ net of deferred rent of $50.0 million and liabilities associated with previously recognized impairments of $85.8 million. See Note 13, Leases, for additional disclosures.

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 ~~December 31, 2018. These estimated ranges~~which are ~~based~~applicable for all companies. We adopted this standard on ~~our anticipated real estate lease portfolio as of~~ January 1, 2019, and it does 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 addition, we are evaluating the impact of recording right-of-use assets and lease liabilities for non-real estate leases on our statement of financial condition.2019. The adoption of this standard ~~will not have a material~~had no impact on our financial condition or results of operations.

Accounting Pronouncements Not Yet Adopted in 2019

In June 2016, the FASB issued ASU ~~2016-03,~~ 2016-13, 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~~beginning after December 15, 2019, with early adoption permitted. ~~Management currently~~The new guidance is ~~evaluating the~~not expected to have a material impact ~~that adoption of this standard will have~~ on our ~~consolidated~~ financial ~~statements.~~condition or results of operations.

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~~new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019 and will be applied ~~prospectively, and is effective in 2020.~~prospectively. 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. 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 modified 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~~post-retirement plans. The revised guidance is effective for financial statements issued for fiscal years ending after December 15, 2020, with early adoption permitted. The revised guidance is not expected to have a material impact on our financial condition or results of operations.

~~Revenue Recognition~~

~~Investment advisory~~In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill 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~~Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a ~~customer creates~~Cloud Computing Arrangement That is a ~~distinct, separately identifiable performance obligation~~Service Contract. The amendment aligns the requirements for ~~each day the customer’s assets are managed as the customer can benefit from each day of service. In accordance with ASC 606,~~capitalizing implementation costs incurred in 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”).

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 methodologyhosting arrangement that is ~~validated and approved by our Valuation Committee (see paragraph immediately below~~a service contract with the requirements that currently exist in GAAP for ~~additional information about our Valuation Committee). Fair valuation methods are used only where AUM cannot~~capitalizing implementation costs incurred to develop or obtain internal-use software. Implementation costs would either be ~~valued using market-based valuation methods, such~~capitalized or expensed as incurred depending on the project stage. All costs in the ~~case of private equity or illiquid securities.~~

preliminary and post-implementation project stages are expensed as incurred, while certain costs within the application development stage are capitalized. The ~~Valuation Committee, which consists of senior officers~~revised guidance is effective for financial statements issued for fiscal years ending after December 15, 2019, with early adoption permitted. The revised guidance will be adopted prospectively 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 applynot expected to ~~pricing and valuing investments held in these portfolios. We also~~ have a ~~Pricing Group, which reports to the Valuation Committee~~material impact on our financial condition or results of operations.

We determine if an arrangement is a lease at inception. Both operating 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)~~finance leases 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 associated 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:~~right-of-use (“ROU”) assets and lease liabilities in our condensed consolidated statement of financial condition.

ROU assets represent our right to use an underlying asset for the ~~contractual claw-back provisions~~lease term and lease liabilities represent our obligation to ~~which~~make lease payments arising from the ~~variable consideration is subject,~~lease. ROU assets and lease liabilities are recognized at commencement date based on 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 measurement 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 thepresent value of lease payments over 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~~lease term. We use 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 contractual 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. 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 investment 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 contractual 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~~incremental borrowing rate based on the ~~average daily net assets~~information available as of the ~~fund. With respect~~date we adopted ASC 842 in determining the present value of lease payments. Our lease terms may include options to ~~certain share classes,~~extend or terminate the ~~management fee may also contain a component that is paid~~lease. These options 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.

~~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~~extend or terminate are assessed on a ~~percentage~~lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised.

When calculating the measurement of ROU assets and lease liabilities, we utilize the ~~NAV of~~fixed payments associated with 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~~lease 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~~include other variable contractual obligations, such as operating expenses, real estate taxes and employee parking. These costs are accounted for as period costs and expensed as incurred.

Additionally, we exclude any intangible assets such as software licensing agreements as stated in ASC 842-10-15-1. These arrangements will continue to follow the ~~time value~~guidance of ~~money~~ASC 350, Intangibles - Goodwill and instead, accrue the incremental costs of obtaining the contract when incurred. As of September 30, 2018, the balances of contract assets and contract liabilities are not considered material and, accordingly, no further disclosures are necessary.Other.

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 the first nine months of 2018, except for the recognition of $49.3 million of performance fees from two funds in liquidation that is not probable of significant reversal, that under the previous revenue accounting standard would not be recognized until final liquidation. Revenues for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 consisted of the following:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)
Subject to contracts with customers:
Investment advisory and services fees
Base fees	$	608,765	$	568,918	$	1,746,072	$	1,699,584
Performance-based fees	7,619		41,145		23,270		82,703
Bernstein research services	102,014		103,581		298,240		324,192
Distribution revenues
All-in-management fees	77,110		62,807		207,377		193,884
12b-1 fees	20,287		22,136		60,055		66,746
Other	21,238		19,545		60,059		56,980
Other revenues
Shareholder servicing fees	20,020		19,017		57,413		57,533
Other	4,095		4,293		12,609		15,827
	861,148		841,442		2,465,095		2,497,449
Not subject to contracts with customers:
Dividend and interest income, net of interest expense	11,904		7,467		33,439		35,204
Investment gains (losses)	4,433		565		31,117		26,860
Other revenues	382		702		1,477		3,188
	16,719		8,734		66,033		65,252

Total net revenues	$	877,867	$	850,176	$	2,531,128	$	2,562,701

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands)
Subject to contracts with customers:
    Investment advisory and services fees
        Base fees $ 568,918
$ 538,552
$ 1,699,584
$ 1,547,213
        Performance-based fees 41,145
4,555
82,703
25,347
    Bernstein research services 103,581
108,385
324,192
330,596
    Distribution revenues
        All-in-management fees 62,807
64,495
193,884
177,637
        12b-1 fees 22,136
23,199
66,746
71,677
        Other 19,545
18,348
56,980
53,431
    Other revenues
        Shareholder servicing fees 19,017
19,106
57,533
55,618
        Other 4,293
4,879
15,827
12,948
841,442
781,519
2,497,449
2,274,467
Not subject to contracts with customers:
    Dividend and interest income, net of interest
    expense
7,467
10,906
35,204
33,825
    Investment gains (losses) 565
18,808
26,860
68,122
    Other revenues 702
917
3,188
2,966
8,734
30,631
65,252
104,913

Total net revenues $ 850,176
$ 812,150
$ 2,562,701
$ 2,379,380

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 any of our affiliates (“Eligible Directors”).

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.

During the three and nine months ended September 30, 2019, we purchased 0.9 million and 2.9 million AB Holding Units for $25.1 million and $83.7 million (on a trade date basis), respectively. These amounts reflect open-market purchases of 0.6 million and 2.5 million AB Holding Units for $15.3 million and $70.6 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. During the three and nine months ended September 30, 2018, weAB purchased 1.6 million and 2.9 million AB Holding Units for $48.0 million and $83.2 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 1.6 million and 2.8 million AB Holding Units for $48.0 million and $80.9 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. During the three and nine months ended September 30, 2017, we purchased 0.3 million and 5.9 million AB Holding Units for $6.9 million and $134.6 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 0.3 million and 5.2 million AB Holding Units for $6.8 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 condensed consolidated statements of cash flows are net of AB Holding Unit purchases 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 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 third quarter of ~~2018~~2019 expired at the close of business on October ~~22, 2018.~~23, 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 the first nine months of ~~2018~~2019 and ~~2017,~~2018, we granted to employees and Eligible Directors ~~2.5~~1.9 million and ~~2.1~~2.5 million restricted AB Holding Unit awards, respectively. We used AB Holding Units repurchased during the periods and newly-issued AB Holding Units to fund these awards.

During the first nine months of ~~2018~~2019 and ~~2017,~~2018, AB Holding issued ~~0.6~~0.4 million and ~~1.0~~0.6 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of ~~$10.8~~$9.6 million and ~~$17.7~~$10.8 million, respectively, received from ~~employees~~award recipients as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.

~~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:~~

Nine Months Ended
September 30, 2018 Twelve Months Ended
December 31, 2017
(in thousands)
Balance as of beginning of period $ 113,635
$ 112,932
Expense incurred 6,490
28,507
Deferred rent —
7,083
Payments made (32,868 ) (39,122 )
Interest accretion 3,284
4,235
Balance as of end of period $ 90,541
$ 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 limited partnership units outstanding for each period. 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 limited partnership units outstanding for each period.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands, except per unit amounts)
Net income attributable to AB Unitholders	$	187,811	$	203,674	$	503,177	$	569,535

Weighted average limited partnership units outstanding – basic	268,567		269,603		268,131		269,783
Dilutive effect of compensatory options to buy AB Holding Units	36		245		52		282
Weighted average limited partnership units outstanding – diluted	268,603		269,848		268,183		270,065
Basic net income per AB Unit	$	0.69	$	0.75	$	1.86	$	2.09
Diluted net income per AB Unit	$	0.69	$	0.75	$	1.86	$	2.09

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands, except per unit amounts)
Net income attributable to AB Unitholders $ 203,674
$ 140,954
$ 569,535
$ 415,994

Weighted average limited partnership units outstanding – basic 269,603
265,585
269,783
267,448
Dilutive effect of compensatory options to buy AB Holding Units 245
400
282
455
Weighted average limited partnership units outstanding – diluted 269,848
265,985
270,065
267,903
Basic net income per AB Unit $ 0.75
$ 0.53
$ 2.09
$ 1.54
Diluted net income per AB Unit $ 0.75
$ 0.52
$ 2.09
$ 1.54

For both the three and nine months ended September 30, 2019, we excluded 29,056 options from the diluted net income computation due to their anti-dilutive effect. For the three and nine months ended September 30, 2018 , we excluded 824,245 options and 844,973 options, respectively, from the diluted net income computation due to their anti-dilutive effect. ~~For both the three and nine months ended September 30, 2017, we excluded 2,427,527 options from the diluted net income computation due to their anti-dilutive effect.~~

7.6. 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 general 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 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.

On October 24, ~~2018,~~2019, the General Partner declared a distribution of ~~$0.76~~$0.70 per AB Unit, representing a distribution of Available Cash Flow for the three months ended September 30, ~~2018.~~2019. 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 November ~~15, 2018~~14, 2019 to holders of record on November ~~5, 2018.~~4, 2019.

Cash and Securities Segregated Under Federal Regulations and Other Requirements

As of September 30, ~~2018~~2019 and December 31, ~~2017, $1.3~~2018, $1.0 billion and ~~$0.8~~$1.2 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.

~~Index~~


9.8.	Investments

Investments consist of:



	September 30, 2019		December 31, 2018
	(in thousands)
U.S. Treasury Bills	$	74,342	$	392,424
Equity securities:
Long-term incentive compensation-related	35,130		38,883
Seed capital	73,677		105,951
Other	42,518		73,409
Exchange-traded options	5,803		2,568
Investments in limited partnership hedge funds:
Long-term incentive compensation-related	13,646		13,546
Seed capital	46,927		67,153
Time deposits	18,070		8,783
Other	13,092		11,627
Total investments	$	323,205	$	714,344

Investments consist of:
September 30,
2018 December 31,
2017
(in thousands)
U.S. Treasury Bills $ 22,774
$ 52,609
Equity securities:
    Long-term incentive compensation-related 43,647
51,758
    Seed capital 118,158
160,672
    Other 120,705
81,154
Exchange-traded options 1,100
4,981
Investments in limited partnership hedge funds:

Long-term incentive compensation-related 14,767
14,276
Seed capital 101,732
22,923
Private equity (seed capital) 36,450
38,186
Time deposits 8,835
5,138
Other 10,379
11,892
Total investments $ 478,547
$ 443,589

Total investments related to long-term incentive compensation obligations of ~~$58.4~~$48.8 million and ~~$66.0~~$52.4 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 notionally 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 the 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 various 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.

U.S. Treasury Bills, the majority of which are pledged as collateral with clearing organizations, are held in our investment account. These clearing organizations have the ability by contract or custom to sell or re-pledge this collateral.

We allocate seed capital to our investment teams to help develop new products and services for our clients. A portion of our seed capital 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 allocate seed capital to investments in private equity ~~funds, such as a third-party venture capital fund that invests in communications, consumer, digital media, healthcare and information technology markets.~~funds. 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 $78.8 million primarily due to the deconsolidation of a fund in which we have a seed investment of $79.0 million due to no longer having a controlling financial interest. See Note 14, Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidate. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, our total seed capital investments were ~~$468.3~~$379.8 million and ~~$523.2~~

Index

$391.6 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.

~~Index~~

The portion of unrealized gains (losses) ~~for the three and nine months ended September 30, 2018 and 2017~~ related to equity securities, as defined by ASC 321-10, held as of September 30, ~~2018~~2019 and ~~2017~~2018 were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)
Net gains recognized during the period	$	2,382	$	5,485	$	23,962	$	6,817
Less: net gains recognized during the period on equity securities sold during the period	1,716		3,424		6,257		1,645
Unrealized gains recognized during the period on equity securities held	$	666	$	2,061	$	17,705	$	5,172

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands)
Net gains (losses) recognized during the period $ 3,429
$ (1,869 ) $ (177 ) $ 15,721
Less: net gains recognized during the period on equity securities sold during the period 1,156
366
2,820
14,067
Unrealized gains (losses) recognized during the period on equity securities held $ 2,273
$ (2,235 ) $ (2,997 ) $ 1,654


~~10.~~9.	Derivative Instruments

See Note 14, 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 ~~Accounting Standards Codification (“ASC”)~~ASC 815-10, Derivatives and Hedging.

The notional value and fair value as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 for derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below) not designated as hedging instruments were as follows:



			Fair Value
	Notional Value		Asset Derivatives		Liability Derivatives
	(in thousands)
September 30, 2019:
Exchange-traded futures	$	184,418	$	1,282	$	240
Currency forwards	64,489		8,388		7,716
Interest rate swaps	93,192		2,395		3,046
Credit default swaps	232,116		2,056		5,567
Total return swaps	89,023		589		89
Total derivatives	$	663,238	$	14,710	$	16,658

December 31, 2018:
Exchange-traded futures	$	218,657	$	1,594	$	2,534
Currency forwards	87,019		7,647		7,582
Interest rate swaps	112,658		1,649		1,959
Credit default swaps	94,657		2,888		2,685
Total return swaps	99,038		3,301		62
Total derivatives	$	612,029	$	17,079	$	14,822

Index

Fair Value
Notional Value Asset Derivatives Liability Derivatives
(in thousands)
September 30, 2018:
Exchange-traded futures $ 143,281
$ 915
$ 965
Currency forwards 88,091
7,888
7,622
Interest rate swaps 87,222
1,251
1,044
Credit default swaps 87,679
1,264
3,031
Total return swaps 120,455
79
1,275
Total derivatives $ 526,728
$ 11,397
$ 13,937

December 31, 2017:
Exchange-traded futures $ 163,458
$ 948
$ 2,540
Currency forwards 126,503
8,306
8,058
Interest rate swaps 43,309
951
870
Credit default swaps 74,600
1,247
2,465
Total return swaps 68,106
167
390
Total derivatives $ 475,976
$ 11,619
$ 14,323

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our condensed consolidated statements of financial condition.

~~Index~~

The gains and losses for derivative instruments (excluding our options desk trading activities discussed below) for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 recognized in investment gains (losses) in the condensed consolidated statements of income were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands)
Exchange-traded futures	$	(1,352	)	$	157		$	(9,903	)	$	1,699
Currency forwards	1,453			673			1,338			947
Interest rate swaps	(81		)	157			(726		)	424
Credit default swaps	(449		)	(1,117		)	(4,254		)	(1,212		)
Total return swaps	314			(5,625		)	(15,452		)	(5,665		)
Net (losses) gains on derivative instruments	$	(115	)	$	(5,755	)	$	(28,997	)	$	(3,807	)

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands)
Exchange-traded futures $ 157
$ (3,290 ) $ 1,699
$ (12,123 )
Currency forwards 673
(62 ) 947
(992 )
Interest rate swaps 157
151
424
(97 )
Credit default swaps (1,117 ) (273 ) (1,212 ) (1,182 )
Total return swaps (5,625 ) (1,417 ) (5,665 ) (5,376 )
Net (losses) gains on derivative instruments $ (5,755 ) $ (4,891 ) $ (3,807 ) $ (19,770 )

We may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We minimize 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 ~~both~~ September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we held ~~$0.5~~$0.3 million and $4.8 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our condensed consolidated statements of financial condition.

Although notional amount is the most commonly used measure of volume in the derivative 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 counterparty’s credit rating, or in some agreements, our assets under management (“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 collateralization, various levels of collateralization of net liability positions are applicable, depending on the credit rating of the counterparty. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we delivered ~~$5.3~~$1.9 million and ~~$8.8~~$4.5 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our condensed consolidated statements of financial condition.

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we held ~~$1.1~~$5.8 million and ~~$5.0~~$2.6 million, respectively, of long exchange-traded equity options, which are included in other investments on our condensed consolidated statements of financial condition. In addition, as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we held ~~$10.8~~$5.2 million and ~~$13.6~~$3.8 million, respectively, of short exchange-traded equity options, which are included in securities sold not yet purchased on our condensed 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 risks associated with this activity by taking offsetting positions in equities. For the three and nine months ended September 30, 2019, we recognized $3.6 million and $14.7 million, respectively, of losses on equity option activity. For the three and nine months ended September 30, 2018, we recognized a $5.7 million gain and a $3.2 million loss, respectively, on equity options activity. ~~For the three~~These gains and ~~nine months ended September 30, 2017, we recognized $12.7 million and $21.8 million, respectively, of losses on equity options activity. These~~ losses are recognized in investment gains (losses) in the condensed consolidated statements of income.

Index


~~11.~~10.	Offsetting Assets and Liabilities

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of offsetting assets and liabilities of our consolidated company-sponsored investment funds.

Offsetting of assets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 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		Financial Instruments			Cash Collateral Received			Net Amount
	(in thousands)
September 30, 2019:
Securities borrowed	$	22,596	$	—	$	22,596	$	(22,596	)	$	—		$	—
Derivatives	$	14,710	$	—	$	14,710	$	—		$	(251	)	$	14,459
Long exchange-traded options	$	5,803	$	—	$	5,803	$	—		$	—		$	5,803
December 31, 2018:
Securities borrowed	$	64,856	$	—	$	64,856	$	(64,217	)	$	—		$	639
Derivatives	$	17,079	$	—	$	17,079	$	—		$	(4,831	)	$	12,248
Long exchange-traded options	$	2,568	$	—	$	2,568	$	—		$	—		$	2,568

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
Financial
Instruments

Cash Collateral
Received

Net
Amount
(in thousands)
September 30, 2018:
Securities borrowed $ 46,175
$ —
$ 46,175
$ (42,514 ) $ —
$ 3,661
Derivatives $ 11,397
$ —
$ 11,397
$ —
$ (530 ) $ 10,867
Long exchange-traded options $ 1,100
$ —
$ 1,100
$ —
$ —
$ 1,100
December 31, 2017:

Securities borrowed $ 85,371
$ —
$ 85,371
$ (82,353 ) $ —
$ 3,018
Derivatives $ 11,619
$ —
$ 11,619
$ —
$ (519 ) $ 11,100
Long exchange-traded options $ 4,981
$ —
$ 4,981
$ —
$ —
$ 4,981

Offsetting of liabilities as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 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		Financial Instruments			Cash Collateral Pledged			Net Amount
	(in thousands)
September 30, 2019:
Securities loaned	$	—	$	—	$	—	$	—		$	—		$	—
Derivatives	$	16,658	$	—	$	16,658	$	—		$	(1,867	)	$	14,791
Short exchange-traded options	$	5,152	$	—	$	5,152	$	—		$	—		$	5,152
December 31, 2018:
Securities loaned	$	59,526	$	—	$	59,526	$	(59,526	)	$	—		$	—
Derivatives	$	14,822	$	—	$	14,822	$	—		$	(4,458	)	$	10,364
Short exchange-traded options	$	3,782	$	—	$	3,782	$	—		$	—		$	3,782

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
Financial
Instruments

Cash Collateral
Pledged
Net Amount
(in thousands)
September 30, 2018:
Securities loaned $ —
$ —
$ —
$ —
$ —
$ —
Derivatives $ 13,937
$ —
$ 13,937
$ —
$ (5,279 ) $ 8,658
Short exchange-traded options $ 10,799
$ —
$ 10,799
$ —
$ —
$ 10,799
December 31, 2017:

Securities loaned $ 37,960
$ —
$ 37,960
$ (37,922 ) $ —
$ 38
Derivatives $ 14,323
$ —
$ 14,323
$ —
$ (8,794 ) $ 5,529
Short exchange-traded options $ 13,585
$ —
$ 13,585
$ —
$ —
$ 13,585

Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty.

Index


~~12.~~11.	Fair Value

See Note 14, 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.

~~Index~~


•	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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Valuation of our financial instruments by pricing observability levels as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows (in thousands):



	Level 1		Level 2		Level 3		NAV Expedient⁽¹⁾		Other		Total
September 30, 2019:
Money markets	$	115,022	$	—	$	—	$	—	$	—	$	115,022
Securities segregated (U.S. Treasury Bills)	—		958,149		—		—		—		958,149
Derivatives	1,282		13,428		—		—		—		14,710
Investments
U.S. Treasury Bills	—		74,342		—		—		—		74,342
Equity securities	137,921		12,977		118		309		—		151,325
Long exchange-traded options	5,803		—		—		—		—		5,803
Limited partnership hedge funds⁽²⁾	—		—		—		—		60,573		60,573
Time deposits⁽³⁾	—		—		—		—		18,070		18,070
Other investments	5,418		—		—		—		7,674		13,092
Total investments	149,142		87,319		118		309		86,317		323,205
Total assets measured at fair value	$	265,446	$	1,058,896	$	118	$	309	$	86,317	$	1,411,086

Securities sold not yet purchased
Short equities – corporate	$	8,538	$	—	$	—	$	—	$	—	$	8,538
Short exchange-traded options	5,152		—		—		—		—		5,152
Derivatives	240		16,418		—		—		—		16,658
Contingent payment arrangements	—		—		26,432		—		—		26,432
Total liabilities measured at fair value	$	13,930	$	16,418	$	26,432	$	—	$	—	$	56,780

Level 1 Level 2 Level 3
NAV Expedient⁽¹⁾
Other Total
September 30, 2018:
Money markets $ 110,654
$ —
$ —
$ —
$ —
$ 110,654
Securities segregated (U.S. Treasury Bills) —
1,262,906
—
—
—
1,262,906
Derivatives 915
10,482
—
—
—
11,397
Investments
U.S. Treasury Bills —
22,774
—
—
—
22,774
Equity securities 272,053
10,028
117
312
—
282,510
Long exchange-traded options 1,100
—
—
—
—
1,100
   Limited partnership hedge funds⁽²⁾
—
—
—
—
116,499
116,499
   Private equity —
—
—
36,450
—
36,450
   Time deposits⁽³⁾
—
—
—
—
8,835
8,835
   Other investments —
—
—
—
10,379
10,379
Total investments 273,153
32,802
117
36,762
135,713
478,547
Total assets measured at fair value $ 384,722
$ 1,306,190
$ 117
$ 36,762
$ 135,713
$ 1,863,504

Securities sold not yet purchased

Short equities – corporate $ 10,162
$ —
$ —
$ —
$ —
$ 10,162
Short exchange-traded options 10,799
—
—
—
—
10,799
Derivatives 965
12,972
—
—
—
13,937
Contingent payment arrangements —
—
11,013
—
—
11,013
Total liabilities measured at fair value $ 21,926
$ 12,972
$ 11,013
$ —
$ —
$ 45,911

Index



	Level 1		Level 2		Level 3		NAV Expedient⁽¹⁾		Other		Total
December 31, 2018:
Money markets	$	102,888	$	—	$	—	$	—	$	—	$	102,888
Securities segregated (U.S. Treasury Bills)	—		1,169,554		—		—		—		1,169,554
Derivatives	1,594		15,485		—		—		—		17,079
Investments
U.S. Treasury Bills	—		392,424		—		—		—		392,424
Equity securities	209,414		8,372		142		315		—		218,243
Long exchange-traded options	2,568		—		—		—		—		2,568
Limited partnership hedge funds⁽²⁾	—		—		—		—		80,699		80,699
Time deposits⁽³⁾	—		—		—		—		8,783		8,783
Other investments	4,269		—		—		—		7,358		11,627
Total investments	216,251		400,796		142		315		96,840		714,344
Total assets measured at fair value	$	320,733	$	1,585,835	$	142	$	315	$	96,840	$	2,003,865

Securities sold not yet purchased
Short equities – corporate	$	4,841	$	—	$	—	$	—	$	—	$	4,841
Short exchange-traded options	3,782		—		—		—		—		3,782
Derivatives	2,534		12,288		—		—		—		14,822
Contingent payment arrangements	—		—		7,336		—		—		7,336
Total liabilities measured at fair value	$	11,157	$	12,288	$	7,336	$	—	$	—	$	30,781

Level 1 Level 2 Level 3
NAV Expedient⁽¹⁾
Other Total
December 31, 2017:
Money markets $ 62,071
$ —
$ —
$ —
$ —
$ 62,071
Securities segregated (U.S. Treasury Bills) —
816,350
—
—
—
816,350
Derivatives 948
10,671
—
—
—
11,619
Investments
  U.S. Treasury Bills —
52,609
—
—
—
52,609
  Equity securities 276,755
16,618
117
94
—
293,584
  Long exchange-traded options 4,981
—
—
—
—
4,981
    Limited partnership hedge funds⁽²⁾
—
—
—
—
37,199
37,199
    Private equity —
—
954
37,232
—
38,186
    Time deposits⁽³⁾
—
—
—
—
5,138
5,138
    Other investments —
—
—
—
11,892
11,892
Total investments 281,736
69,227
1,071
37,326
54,229
443,589
Total assets measured at fair value $ 344,755
$ 896,248
$ 1,071
$ 37,326
$ 54,229
$ 1,333,629

Securities sold not yet purchased

Short equities – corporate $ 16,376
$ —
$ —
$ —
$ —
$ 16,376
Short exchange-traded options 13,585
—
—
—
—
13,585
Derivatives 2,540
11,783
—
—
—
14,323
Contingent payment arrangements —
—
10,855
—
—
10,855
Total liabilities measured at fair value $ 32,501

$ 11,783

$ 10,855

$ —
$ —
$ 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.

~~One of our private equity~~Other investments ~~(measured at~~include (i) an investment in a software publishing company that does not have a readily available fair value ~~using NAV as a practical expedient) is a venture capital fund with a fair value of $36.4~~($1.0 million ~~and no unfunded commitment~~ as of September 30, 2018. This partnership invests in communications, consumer, digital media, healthcare and information technology markets. The fair value of this investment has been estimated using the capital account balances provided by the partnership. The interest in this partnership cannot be redeemed without specific approval by the general partner.

~~Other investments include (i)~~2019), (ii) an investment in a start-up company that does not have a readily available fair value ($~~3.6 million and $4.6~~0.9 million as of both September 30, ~~2018~~2019 and December 31, ~~2017, respectively)~~2018), ~~(ii)~~(iii) an investment in an equity method investee that is not measured at fair value in accordance with GAAP ($~~3.6~~2.5 million as of September 30, ~~2018~~2019 and ~~$4.1~~$3.4 million as of December 31, ~~2017)~~2018), and ~~(iii)~~(iv) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($~~3.1~~3.3 million as of September 30, ~~2018~~2019 and ~~$3.2~~$3.1 million as of December 31, ~~2017)~~2018).

We provide below a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification 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.

~~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.~~

•

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 markets, 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.

~~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.


•	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

Index

~~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 markets, 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.


•	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.

~~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 hierarchy; 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 based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 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 based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.

During the nine months ended September 30, ~~2018,~~2019, we had a transfer of $3.2 million from Level 2 to Level 1; there were no transfers between Level 12 and Level 23 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:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019			2018
	(in thousands)
Balance as of beginning of period	$	117	$	117	$	142		$	1,071
Purchases	—		—		—			—
Sales	—		—		—			—
Realized gains (losses), net	—		—		—			—
Unrealized gains (losses), net	1		—		(24		)	(954		)
Balance as of end of period	$	118	$	117	$	118		$	117

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands)
Balance as of beginning of period $ 117
$ 5,028
$ 1,071
$ 5,023
Purchases —
—
—
—
Sales —
—
—
—
Realized gains (losses), net —
—
—
—
Unrealized gains (losses), net —
(3,958 ) (954 ) (3,953 )
Balance as of end of period $ 117
$ 1,070
$ 117
$ 1,070

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 condensed consolidated statements of income.

~~Index~~

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~~down 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 Autonomous Research LLP ("Autonomous") in 2019 and Ramius Alternative Solutions LLC in 2016, ~~CPH Capital Fondsmaeglerselskab A/S in 2014 and SunAmerica's alternative investment group in 2010, all~~both 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:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)
Balance as of beginning of period	$	25,603	$	10,960	$	7,336	$	10,855
Addition	—		—		17,384		—
Accretion	829		53		1,712		158
Payments	—		—		—		—
Balance as of end of period	$	26,432	$	11,013	$	26,432	$	11,013

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands)
Balance as of beginning of period $ 10,960
$ 16,777
$ 10,855
$ 17,589
Accretion 53
53
158
408
Change in estimates —
(193 ) —
(193 )
Payments —
(4,534 ) —
(5,701 )
Balance as of end of period $ 11,013
$ 12,103
$ 11,013
$ 12,103

During 2018, we amended the ~~third quarter of 2017, we made the final~~ contingent ~~consideration~~ payment relating to our ~~2014~~2016 acquisition by modifying the earnout structure and extending it one year. As part of this amendment, we recorded a change in estimate and wrote off $2.4 million related to the ~~remaining~~ contingent consideration ~~payable relating to our 2010 acquisition.~~in the fourth quarter of 2018. As of September 30, ~~2018~~2019 and December 31, ~~2017, one~~2018, acquisition-related

Index

contingent ~~liability~~liabilities with a fair value of ~~$11.0~~$26.4 million and ~~$10.9~~$7.3 million, respectively, ~~remains~~remain relating to our 2019 and 2016 acquisitions. For our 2019 acquisition the contingent consideration liability, payable in five years, was valued using expected revenue growth rates ranging from 0.7% to 2.5% per year and a discount rate of 10.4%, reflecting a 3.5% risk-free rate, based on our cost of debt, and a 6.9% market price of risk adjustment rate. The 2016 acquisition ~~which~~ was valued using a revenue growth rate of ~~31%~~26% and a discount rate ranging from ~~1.4%~~3.2% to ~~2.3%~~3.7%.

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 nine months ended September 30, ~~2018~~2019 or during the year ended December 31, ~~2017.~~2018.


~~13.~~12.	Commitments and Contingencies

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.

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 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.


13.	Leases

We lease office space, furniture and office equipment under various operating and financing leases. Our current leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

Since 2010, we have sub-leased over 1000000 square feet of office space. The liability relating to our global space consolidation initiatives was $85.8 million as of December 31, 2018 ("Liability"). Upon adoption of ASC 842 on January 1, 2019, we recorded the Liability as a reduction to our operating right-of-use assets.

Index

Leases included in the condensed consolidated statement of financial condition as of September 30, 2019 were as follows:



	Classification	September 30, 2019
		(in thousands)
Operating Leases
Operating lease right-of-use assets	Right-of-use assets	$	378,083
Operating lease liabilities	Lease liabilities	488,592

Finance Leases
Property and equipment, gross	Right-of-use assets	3,436
Accumulated depreciation	Right-of-use assets	(932		)
Property and equipment, net		2,504
Finance lease liabilities	Lease liabilities	2,535

The components of lease expense included in the condensed consolidated statement of income as of September 30, 2019 were as follows:



		Three Months Ended September 30,			Nine Months Ended September 30,
	Classification	2019			2019
		(in thousands)
Operating lease cost	General and administrative	$	26,181		$	79,829

Financing lease cost:
Amortization of right-of-use assets	General and administrative	355			932
Interest on lease liabilities	Interest expense	20			52
Total finance lease cost		375			984
Variable lease cost ⁽¹⁾	General and administrative	10,588			30,337
Sublease income	General and administrative	(14,021		)	(42,472		)
Net lease cost		$	23,123		$	68,678

⁽¹⁾ Variable lease expense includes operating expenses, real estate taxes and employee parking.

The sub-lease income represents all revenues received from sub-tenants. It is primarily fixed base rental payments combined with variable reimbursements such as operating expenses, real estate taxes and employee parking. The vast majority of sub-tenant income is derived from our New York metro sub-tenant agreements. Sub-tenant income related to base rent is recorded on a straight-line basis.

Index

Maturities of lease liabilities were as follows:



	Operating Leases			Financing Leases			Total
Year ending December 31,	(in thousands)
2019 (excluding the nine months ended September 30, 2019)	$	28,748		$	377		$	29,125
2020	112,678			1,251			113,929
2021	102,964			607			103,571
2022	89,187			245			89,432
2023	81,972			126			82,098
Thereafter	121,626			23			121,649
Total lease payments	537,175			2,629			539,804
Less interest	(48,583		)	(94		)
Present value of lease liabilities	$	488,592		$	2,535

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 $126 million. During April 2019, we signed a lease, which commences in 2024, relating to approximately 190,000 square feet of space in New York City. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 20 year lease term is approximately $448 million.



Lease term and discount rate:
Weighted average remaining lease term (years)
Operating leases	5.38
Finance leases	2.43
Weighted average discount rate
Operating leases	3.51	%
Finance leases	3.14	%

Supplemental cash flow information related to leases was as follows:



	Nine Months Ended September 30, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	99,490
Operating cash flows from financing leases	52
Financing cash flows from finance leases	901
Right-of-use assets obtained in exchange for lease obligations⁽¹⁾:
Operating leases	10,565
Finance leases	1,080

⁽¹⁾Represents non-cash activity and, accordingly, is not reflected in the condensed consolidated statements of cash flows.

Index

14. 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.

We are not required to provide financial support to company-sponsored investment funds and only the assets of such funds are available to settle each fund's own liabilities. Our exposure to loss in regard to consolidated company-sponsored investment funds is limited 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 condensed consolidated statements of financial condition were as follows:



	September 30, 2019						December 31, 2018
	(in thousands)
	VIEs		VOEs		Total		VIEs		VOEs		Total
Cash and cash equivalents	$	14,647	$	2,362	$	17,009	$	11,880	$	1,238	$	13,118
Investments	372,668		163,614		536,282		217,840		133,856		351,696
Other assets	20,418		15,982		36,400		6,024		16,816		22,840
Total assets	$	407,733	$	181,958	$	589,691	$	235,744	$	151,910	$	387,654

Liabilities	$	17,892	$	20,181	$	38,073	$	5,215	$	17,395	$	22,610
Redeemable non-controlling interest	244,327		47,197		291,524		117,523		28,398		145,921
Partners' capital attributable to AB Unitholders	145,515		114,579		260,094		113,006		106,117		219,123
Total liabilities, redeemable non-controlling interest and partners' capital	$	407,734	$	181,957	$	589,691	$	235,744	$	151,910	$	387,654

September 30, 2018 December 31, 2017
(in thousands)
VIEs VOEs Total VIEs VOEs Total
Cash and cash equivalents $ 9,736
$ 702
$ 10,438
$ 326,158
$ 360
$ 326,518
Investments 186,386
116,915
303,301
1,189,835
56,448
1,246,283
Other assets 5,544
3,551
9,095
33,931
1,466
35,397
Total assets $ 201,666
$ 121,168
$ 322,834
$ 1,549,924
$ 58,274
$ 1,608,198

Liabilities $ 6,077
$ 2,502
$ 8,579
$ 695,997
$ 2,104
$ 698,101
Redeemable non-controlling interest 80,436
20,673
101,109
596,241
(18 ) 596,223
Partners' capital attributable to AB Unitholders 114,495
97,993
212,488
256,929
56,188
313,117
Non-redeemable non-controlling interests in consolidated entities 658
—
658
757
—
757
Total liabilities, redeemable non-controlling interest and partners' capital $ 201,666
$ 121,168
$ 322,834
$ 1,549,924
$ 58,274
$ 1,608,198

During 2018, we deconsolidated a fund in which we have a seed investment of $79.0 million due to no longer having a controlling financial interest. This VIE had significant consolidated assets and liabilities as of December 31, 2017.

~~Index~~

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.

Index

Valuation of consolidated company-sponsored investment funds' financial instruments by pricing observability levels as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows (in thousands):



	Level 1		Level 2		Level 3		NAV Expedient		Total
September 30, 2019:
Investments - VIEs	$	27,424	$	339,350	$	5,894	$	—	$	372,668
Investments - VOEs	94,725		68,382		507		—		163,614
Derivatives - VIEs	164		4,520		—		—		4,684
Derivatives - VOEs	38		8,089		—		—		8,127
Total assets measured at fair value	$	122,351	$	420,341	$	6,401	$	—	$	549,093

Derivatives - VIEs	521		4,299		—		—		4,820
Derivatives - VOEs	57		5,447		—		—		5,504
Total liabilities measured at fair value	$	578	$	9,746	$	—	$	—	$	10,324

December 31, 2018:
Investments - VIEs	$	22,149	$	187,626	$	8,065	$	—	$	217,840
Investments - VOEs	68,063		65,485		308		—		133,856
Derivatives - VIEs	1,486		1,924		—		—		3,410
Derivatives - VOEs	124		3,692		—		—		3,816
Total assets measured at fair value	$	91,822	$	258,727	$	8,373	$	—	$	358,922

Derivatives - VIEs	$	72	$	3,819	$	—	$	—	$	3,891
Derivatives - VOEs	197		3,633		—		—		3,830
Total liabilities measured at fair value	$	269	$	7,452	$	—	$	—	$	7,721

Level 1 Level 2 Level 3 NAV Expedient Total
September 30, 2018:
  Investments - VIEs $ 19,818
$ 160,266
$ 6,302
$ —
$ 186,386
  Investments - VOEs 66,384
50,339
192
—
116,915
  Derivatives - VIEs 108
2,519
—
—
2,627
  Derivatives - VOEs 102
1,003
—
—
1,105
Total assets measured at fair value $ 86,412
$ 214,127
$ 6,494
$ —
$ 307,033

Derivatives - VIEs 519
2,994
—
—
3,513
  Derivatives - VOEs 60
455
—
—
515
Total liabilities measured at fair value $ 579
$ 3,449
$ —
$ —
$ 4,028

December 31, 2017:
  Investments - VIEs $ 1,053,824
$ 133,796
$ 2,205
$ 10
$ 1,189,835
  Investments - VOEs 5,491
50,898
59
—
56,448
  Derivatives - VIEs 252
30,384
—
—
30,636
  Derivatives - VOEs 49
251
—
—
300
Total assets measured at fair value $ 1,059,616
$ 215,329
$ 2,264
$ 10
$ 1,277,219

Short equities - VIEs $ 669,258
$ —
$ —
$ —
$ 669,258
Derivatives - VIEs 421
21,820
—
—
22,241
  Derivatives - VOEs 12
619
—
—
631
Total liabilities measured at fair value $ 669,691
$ 22,439
$ —
$ —
$ 692,130

See Note 1211 for a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

~~Index~~

The change in carrying value associated with Level 3 financial instruments carried at fair value within consolidated company-sponsored investment funds was as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands)

Balance as of beginning of period	$	11,834		$	5,871		$	8,373		$	2,264
Transfers (out) in	(3,602		)	(406		)	(3,788		)	(82		)
Purchases	1,187			1,247			8,978			7,381
Sales	(2,996		)	(197		)	(7,345		)	(2,820		)
Realized gains (losses), net	12			2			35			(97		)
Unrealized gains (losses), net	(40		)	(25		)	129			(158		)
Accrued discounts	6			2			19			6
Balance as of end of period	$	6,401		$	6,494		$	6,401		$	6,494

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands)

Balance as of beginning of period $ 5,871
$ 2,797
$ 2,264
$ 5,741
Deconsolidated funds —
—
—
(6,697 )
Transfers (out) in (406 ) (35 ) (82 ) 378
Purchases 1,247
346
7,381
5,358
Sales (197 ) (1,148 ) (2,820 ) (3,045 )
Realized gains (losses), net 2
5
(97 ) 1
Unrealized (losses) gains, net (25 ) 52
(158 ) 269
Accrued discounts 2
1
6
13
Balance as of end of period $ 6,494
$ 2,018
$ 6,494
$ 2,018

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.

Index

Derivative Instruments

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the VIEs held ~~$0.9~~$0.1 million and ~~$8.4~~$0.5 million (net), respectively, of futures, forwards and swaps within their portfolios. For the three and nine months ended September 30, 2019, we recognized $0.6 million and $3.3 million of gains, respectively, on these derivatives. For the three and nine months ended September 30, 2018 we recognized $0.5 million of losses and $0.4 million of gains, respectively, on these derivatives. ~~For the three and nine months ended September 30, 2017, we recognized $3.8 million and $18.8 million of gains, respectively, on these derivative positions.~~ These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the VIEs held ~~$0.7~~$1.4 million and $0.9 million, respectively, 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 condensed consolidated statements of financial condition. As of September 30, 2019 and December 31, 2018, the VIEs delivered $3.4 million and $0.8 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 condensed consolidated statements of financial condition.

As of September 30, 2019 and December 31, 2018, the VOEs held $2.6 million and $0.1 million, respectively, (net) of futures, forwards, options and swaps within their portfolios. For the three and nine months ended September 30, 2019, we recognized $1.0 million and $0.5 million of gains, respectively, on these derivatives. For the three and nine months ended September 30, 2018 we recognized $0.2 million and $1.5 million of gains, respectively, on these derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of September 30, 2019 and December 31, 2018, the VOEs held $0.6 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 investment funds in our condensed consolidated statements of financial condition. As of September 30, ~~2018~~2019 and December 31, 2017, the VIEs delivered $1.9 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 condensed consolidated statements of financial condition.

As of September 30, 2018 and December 31, 2017, the VOE held $0.6 million and $0.3 million, respectively, (net) of futures, forwards, options and swaps within their portfolios. For the three and nine months ended September 30, 2018, we recognized $0.2 million and $1.5 million of gains, respectively, on these derivatives. For both the three and nine months ended September 30, 2017, we recognized losses of $0.2 million on these derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of September 30, 2018, the VOEs held $0.1 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 condensed consolidated statements of financial condition. As of September 30, 2018 and December 31, 2017, the VOEs held $0.4delivered $1.3 million and ~~$0.2~~$0.5 million, respectively, of cash collateral in brokerage accounts. The VOEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our condensed consolidated statements of financial condition.

~~Index~~

Offsetting Assets and Liabilities

Offsetting of derivative assets of consolidated company-sponsored investment funds as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 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		Financial Instruments		Cash Collateral Received			Net Amount
	(in thousands)
September 30, 2019:
Derivatives - VIEs	$	4,684	$	—	$	4,684	$	—	$	(1,351	)	$	3,333
Derivatives - VOEs	$	8,127	$	—	$	8,127	$	—	$	(597	)	$	7,530
December 31, 2018:
Derivatives - VIEs	$	3,410	$	—	$	3,410	$	—	$	(856	)	$	2,554
Derivatives - VOEs	$	3,816	$	—	$	3,816	$	—	$	(225	)	$	3,591

Index

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
Financial
Instruments

Cash Collateral
Received

Net
Amount
(in thousands)
September 30, 2018:
Derivatives - VIEs $ 2,627
$ —
$ 2,627
$ —
$ (691 ) $ 1,936
Derivatives - VOEs $ 1,105
$ —
$ 1,105
$ —
$ (115 ) $ 990
December 31, 2017:

Derivatives - VIEs $ 30,636
$ —
$ 30,636
$ —
$ (194 ) $ 30,442
Derivatives - VOEs $ 300
$ —
$ 300
$ —
$ (37 ) $ 263

Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 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		Financial Instruments		Cash Collateral Pledged			Net Amount
	(in thousands)
September 30, 2019:
Derivatives - VIEs	$	4,820	$	—	$	4,820	$	—	$	(3,368	)	$	1,452
Derivatives - VOEs	$	5,504	$	—	$	5,504	$	—	$	(1,291	)	$	4,213
December 31, 2018:
Derivatives - VIEs	$	3,891	$	—	$	3,891	$	—	$	(829	)	$	3,062
Derivatives - VOEs	$	3,830	$	—	$	3,830	$	—	$	(547	)	$	3,283

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
Financial
Instruments

Cash Collateral
Pledged
Net Amount
(in thousands)
September 30, 2018:
Derivatives - VIEs $ 3,513
$ —
$ 3,513
$ —
$ (1,948 ) $ 1,565
Derivatives - VOEs $ 515
$ —
$ 515
$ —
$ (405 ) $ 110
December 31, 2017:

Derivatives - VIEs $ 22,241
$ —
$ 22,241
$ —
$ (2,884 ) $ 19,357
Derivatives - VOEs $ 631
$ —
$ 631
$ —
$ (228 ) $ 403

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 September 30, ~~2018,~~2019, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately ~~$58.2~~$72.0 billion, and our maximum risk of loss is our investment of ~~$6.4~~$11.0 million in these VIEs and our advisory fee receivables from these VIEs, which are not material.


15.	Units Outstanding

Changes in AB Units outstanding during the nine-month period ended September 30, ~~2018~~2019 were as follows:

~~Index~~




Outstanding as of December 31, ~~2017~~2018	~~268,659,333~~268,850,276
Options exercised	~~629,493~~443,800
Units issued	~~2,712,263~~2,073,854
Units retired ⁽¹⁾	(~~3,435,327~~3,184,973	)
Balance as of September 30, ~~2018~~2019	~~268,565,762~~268,182,957

⁽¹⁾ Includes ~~4,546~~982 AB Units purchased in private transactions and retired during the first nine months of ~~2018.~~2019.


16.	Debt

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, AB had ~~$399.9~~$304.7 million and ~~$491.8~~$523.2 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 2.2% and ~~1.6%~~2.7%, respectively. Debt included in the statement of financial condition is presented net of issuance costs of ~~$1.7~~$1.6 million and ~~$1.1~~$1.9 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 the first nine months of ~~2018~~2019 and the full year ~~2017~~2018 were ~~$372.2~~$464.5 million and ~~$482.2~~$350.3 million, respectively, with weighted average interest rates of approximately ~~1.9%~~2.6% and ~~1.2%~~2.0%, 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.

AB has a $200.0 million committed, unsecured ~~364-day~~ senior revolving credit facility (the "Revolver") with a leading international bank, ~~and the other lending institutions that may be party thereto,~~ which matures on November ~~28, 2018.~~16, 2021. 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 ~~that~~which are identical to those of AB's $800.0 million committed, unsecured senior revolving credit facility. As of

Index

September 30, 2019 and December 31, 2018, we had ~~no amounts outstanding under the Revolver. As of December 31, 2017, we had $75.0~~$80.0 millionand$25.0 million outstanding under the Revolver, respectively, with an interest ~~rate~~rates of ~~2.4%.~~2.9% and 3.4%, respectively. Average daily borrowing under the Revolver during the first nine months of ~~2018~~2019 and full year ~~2017~~2018 were ~~$16.7~~$28.0 million and ~~$21.4~~$19.4 million, respectively, with weighted average interest rates of approximately ~~2.7%~~3.4% and ~~2.0%~~2.8%, respectively.

~~Index~~


17.	~~Changes in Capital~~Non-controlling Interests

~~Changes in capital during the nine-month period ended September 30, 2018 were as follows:~~

Partners’ Capital Attributable to AB Unitholders Non-Redeemable Non-Controlling Interests In Consolidated Entities Total Capital
(in thousands)
Balance as of December 31, 2017 $ 4,061,740
$ 1,564
$ 4,063,304
Comprehensive income:

Net income 569,535
150
569,685
Other comprehensive income, net of tax:

Foreign currency translation adjustments (14,760 ) (29 ) (14,789 )
Changes in employee benefit related items 749
—
749
Other 374
—
374
Comprehensive income 555,898
121
556,019

Distributions to General Partner and unitholders (652,991 ) —
(652,991 )
Compensation-related transactions (58,857 ) —
(58,857 )
Capital contributions to affiliates (1,344 ) —
(1,344 )
Impact of adoption of revenue recognition standard ASC 606 and ASU 2016-01 34,577
—
34,577
Other 1,044
—
1,044
Balance as of September 30, 2018 $ 3,940,067
$ 1,685
$ 3,941,752

~~Index~~

~~Changes in capital during the nine-month period ended September 30, 2017 were as follows:~~

Partners’ Capital Attributable to AB Unitholders Non-redeemable Non-Controlling Interests In Consolidated Entities Total Capital
(in thousands)
Balance as of December 31, 2016 $ 4,032,017
$ 36,172
$ 4,068,189
Comprehensive income:

Net income 415,994
9,680
425,674
Other comprehensive income, net of tax:

Unrealized gains on investments 9
—
9
Foreign currency translation adjustments 23,114
977
24,091
Changes in employee benefit related items 755
—
755
Comprehensive income 439,872
10,657
450,529

Distributions to General Partner and unitholders (489,049 ) —
(489,049 )
Compensation-related transactions (89,567 ) —
(89,567 )
Capital contributions from affiliates 79
—
79
Purchase of non-controlling interest 172
(2,005 ) (1,833 )
Distributions to non-controlling interests of our consolidated venture capital fund —
(43,217 ) (43,217 )
Other 1,257
—
1,257
Balance as of September 30, 2017 $ 3,894,781
$ 1,607
$ 3,896,388


~~18.~~	~~Non-controlling Interests~~

Non-controlling interest in net income for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 consisted of the following:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
	(in thousands)
Non-redeemable non-controlling interests:
Consolidated company-sponsored investment funds	$	—	$	(46	)	$	—	$	(99	)
Other	18		78			92		249
Total non-redeemable non-controlling interests	18		32			92		150
Redeemable non-controlling interests:
Consolidated company-sponsored investment funds	4,127		694			21,926		23,487
Total non-controlling interest in net income	$	4,145	$	726		$	22,018	$	23,637

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands)
Non-redeemable non-controlling interests:
    Consolidated company-sponsored investment funds $ (46 ) $ 21
$ (99 ) $ 9,436
    Other 78
50
249
245
Total non-redeemable non-controlling interests 32
71
150
9,681
Redeemable non-controlling interests:
    Consolidated company-sponsored investment funds 694
16,455
23,487
40,332
Total non-controlling interest in net income $ 726
$ 16,526
$ 23,637
$ 50,013

~~Index~~

Non-redeemable non-controlling interest as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 consisted of the following:



	September 30, 2019		December 31, 2018
	(in thousands)
Consolidated company-sponsored investment funds	$	—	$	—
CPH	—		949
Total non-redeemable non-controlling interest	$	—	$	949

September 30, 2018 December 31, 2017
(in thousands)
Consolidated company-sponsored investment funds $ 658
$ 757
CPH Capital Fondsmaeglerselskab A/S 1,027
807
Total non-redeemable non-controlling interest $ 1,685
$ 1,564

Redeemable non-controlling interest as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 consisted of the following:

September 30, 2018 December 31, 2017
(in thousands)
Consolidated company-sponsored investment funds $ 101,109
$ 596,223
CPH Capital Fondsmaeglerselskab A/S acquisition 2,888
5,364
Total redeemable non-controlling interest $ 103,997
$ 601,587

Index



	September 30, 2019		December 31, 2018
	(in thousands)
Consolidated company-sponsored investment funds	$	291,524	$	145,921
CPH	—		2,888
Total redeemable non-controlling interest	$	291,524	$	148,809

During the third quarter of 2019, we purchased additional shares of CPH, bringing our ownership interest to 100% as of September 30, 2019.

18.Acquisition

Acquisitions are accounted for under ASC 805, Business Combinations.

On April 1, 2019, we acquired a 100% interest in Autonomous, an institutional research firm. On the acquisition date, we made a cash payment of $6.5 million and recorded a contingent consideration payable of $17.4 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 of $5.6 million resulted in the recognition of $10.2 million of goodwill and $8.1 million of intangible assets relating to customer relationships and trademarks. Also, in accordance with GAAP, additional cash payments and contingent consideration payable to the owners of Autonomous on the acquisition date are considered compensation expense

to be amortized over two-year and five-year periods, respectively, not purchase price consideration, due to service conditions at the time of acquisition. The Autonomous acquisition did not have a material impact on our financial condition or results of operations.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

Our total assets under management (“AUM”) as of September 30, ~~2018~~2019 were ~~$550.4~~$592.4 billion, up ~~$10.6~~$11.6 billion, or 2.0%, compared to June 30, ~~2018,~~2019, and up ~~$15.5~~$42.0 billion, or ~~2.9%~~7.6%, compared to September 30, ~~2017.~~2018. During the third quarter of ~~2018,~~2019, AUM increased as a result of net inflows of $8.1 billion (Retail net inflows of $7.4 billion and Institutional net inflows of $1.5 billion, offset by net outflows of $0.8 billion from Private Wealth Management) and market appreciation of $3.5 billion. During the twelve months ended September 30, 2019, AUM increased as a result of market appreciation of ~~$9.3~~$23.4 billion and net inflows of ~~$1.3~~$19.5 billion (Retail net inflows of ~~$1.2~~$19.3 billion and ~~$0.3 billion for Private Wealth Management, offset by~~Institutional net ~~outflows~~inflows of ~~$0.2 billion for Institutions). During the twelve months ended September 30, 2018, AUM increased as a result of market appreciation of $20.2~~$2.1 billion, offset by net outflows of ~~$4.7~~$1.9 billion ~~(Institutional net outflows of $8.0 billion, offset by net inflows of $3.0 billion for~~from Private Wealth ~~Management and $0.3 billion for Retail)~~Management).

Institutional AUM increased ~~$2.6~~$3.8 billion, or ~~1.0%~~1.4%, to ~~$257.0~~$272.9 billion during the third quarter of ~~2018,~~2019, due to market appreciation of ~~$2.5~~$2.3 billion and ~~transfers in~~net inflows of ~~$0.3 billion, offset by net outflows of $0.2~~$1.5 billion. Gross sales decreased sequentially from ~~$3.9~~$5.5 billion during the second quarter of ~~2018~~2019 to ~~$3.7~~$2.9 billion during the third quarter of ~~2018.~~2019. Redemptions and terminations increased sequentially from $1.3 billion to $4.2 billion.

Retail AUM increased $8.0 billion, or 3.7%, to $222.5 billion during the third quarter of 2019, due to net inflows of $7.4 billion and market appreciation of $0.6 billion. Gross sales increased sequentially from $18.8 billion during the second quarter of 2019 to $21.1 billion during the third quarter of 2019. Redemptions and terminations were flat sequentially at $11.2 billion.

Private Wealth Management AUM decreased $0.2 billion, or 0.2%, to $97.0 billion during the third quarter of 2019, due to net outflows of $0.8 billion, offset by market appreciation of $0.6 billion. Gross sales decreased sequentially from $3.0 billion during the second quarter of 2019 to $2.3 billion during the third quarter of 2019. Redemptions and terminations decreased sequentially from ~~$9.9~~$3.6 billion to ~~$1.5 billion. The second quarter's redemptions included a $7.0 billion low-fee Customized Retirement Strategies redemption.~~

Retail AUM increased $6.0 billion, or 3.2%, to $196.3 billion during the third quarter of 2018, due to market appreciation of $4.8 billion and net inflows of $1.2 billion. Gross sales increased sequentially from $11.6 billion during the second quarter of 2018 to $12.6 billion during the third quarter of 2018, while redemptions and terminations decreased sequentially from $10.6 billion to $9.5 billion.

Private Wealth Management AUM increased $2.0 billion, or 2.1%, to $97.1 billion during the third quarter of 2018, due to market appreciation of $2.0 billion and net inflows of $0.3 billion, offset by transfers out of $0.3 billion. Gross sales decreased sequentially from $3.5 billion during the second quarter of 2018 to $3.0 billion during the third quarter of 2018, and redemptions and terminations decreased sequentially from $2.8 billion to $2.3$3.2 billion.

Bernstein Research Services revenue for the third quarter of ~~2018~~2019 was ~~$103.6~~$102.0 million, down ~~$4.8~~$1.6 million, or ~~4.4%~~1.5%, compared to the third quarter of ~~2017~~2018 due to lower ~~revenues in both the U.S.~~global customer activity and ~~Asia, mainly due to a volume shift towards lower priced electronic trading. The revenue decrease in the U.S. and Asia~~trading commissions which was partially offset by ~~higher~~the inclusion of revenues ~~in Europe, which resulted~~ from ~~an increase in hard dollar payments for research, partially offset by a strengthening U.S. dollar. Global revenues continue to be negatively impacted by fee pressure due to unbundling~~our recent acquisition of ~~research payments. (See MiFID II discussion below~~).Autonomous.

Net revenues for the third quarter of ~~2018~~2019 increased ~~$38.0~~$27.7 million, or ~~4.7%~~3.3%, to ~~$850.2~~$877.9 million from ~~$812.2~~$850.2 million in the third quarter of ~~2017.~~2018. The ~~most significant contributors~~increase was primarily due to ~~the increase were higher performance-based fees of $36.6 million and~~ higher investment advisory base fees of ~~$30.4~~$39.8 million, higher distribution revenues of $14.1 million and higher investment gains of $3.9 million, offset by lower ~~investments gains~~performance-based fees of ~~$18.2 million and lower Bernstein Research Services revenue of $4.8~~$33.5 million. Operating expenses for the third quarter of ~~2018 decreased $13.8~~2019 increased $38.7 million, or ~~2.1%~~6.1%, to ~~$636.4~~$675.1 million from ~~$650.2~~$636.4 million in the third quarter of ~~2017.~~2018. The ~~decrease~~increase was primarily ~~was~~ due to ~~lower~~higher promotion and servicing expenses of $23.3 million, higher general and administrative expenses ~~(including real estate charges)~~ of ~~$40.0~~$9.8 million ~~offset by~~and higher employee compensation and benefits expenses of ~~$27.7~~$4.4 million. Our operating income ~~increased $51.8~~decreased $11.0 million, or ~~32.0%~~5.2%, to ~~$213.8~~$202.8 million from ~~$162.0~~$213.8 million and our operating margin ~~increased~~declined to 22.6% in the third quarter of 2019 from 25.1% in the third quarter of ~~2018 from 17.9%~~2018.

Market Environment

U.S. equity markets ended the third quarter mostly higher, despite mixed economic data and continued trade tensions. Specifically, the Dow Jones industrial average, S&P 500, and Nasdaq 100 all finished marginally higher in the third quarter of ~~2017.~~

~~Market Environment~~

~~Ongoing trade tension between~~2019. The U.S. continued to outperform international equities, as the U.S. ~~and China,~~dollar strengthened. In the ~~slowing pace of global growth, rising Treasury yields and more aggressive central bank monetary policy preoccupied investors during~~U.S., the ~~third~~Federal Reserve showed its commitment to addressing a possible slowdown by cutting rates twice in a quarter ~~which created broad dispersion of equity market returns. Global equities finished broadly higher, as did U.S. equities, driven by strong economic data and~~for the ~~positive earnings impact of tax reform. Meanwhile,~~first time in ten years. Despite these cuts, the yield curve remains inverted. As a result, the Federal Reserve has implemented daily repurchase operations for the first time since emerging from the financial crisis. In Europe, the European ~~equity returns were muted and emerging markets remained~~Central Bank announced a fresh stimulus package in September that pushed the deposit rate further into negative territory. Bond categories such as U.S. high yield and global corporates fared well during the third quarter, and emerging market debt improved from a very challenging first half of 2018. However, government bonds were lower. The U.S. Federal Reserve increased interestInterest rates in ~~September for the third time in 2018 and signaled another increase later this year. Quantitative easing in~~ Europe is set to end in December, and with monetary policy tightening around the world, reduced liquidity could negatively affect less liquid assets like high yield bonds and emerging market securities. By contrast, China has been easing monetary policy as the country deals with slowing domestic growth and U.S. tariff headwinds. In this environment,rising volatility, more moderate returns, P/E contraction and greater dispersion are increasingly driving the importance of security selection. Investors’ growing beta concerns are manifesting in a steep decline in industrywide U.S. passive mutual fund flows: total year-to-date flows through September were down 38%. Within active, the trends are diverging between equity and fixed income. Year-to-date U.S. active equity mutual fund outflows of $112.8 billion were 14% lower than the prior year-to-date period. Conversely, active fixed income industry

~~Index~~

~~inflows of $96.6 billion declined 44% over the same period, due primarily to weakness in taxable bonds. Moving forward, investors~~ are likely to ~~be focused~~stay near zero for the foreseeable future. In China, the need to negotiate a form of trade deal with the U.S. or introduce new measures of stimulus continued, as several announcements on ~~the persistency of equity returns, quality of growth and balance sheet strength, all factors that offer active asset managers, such as AB, a real opportunity to differentiate themselves.~~stimulus measures have been made.

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MiFID II

~~The second installment of the Markets in Financial Instruments Directive~~In Europe, MiFID II, ~~(“MiFID II”),~~ which became effective on January 3, 2018, ~~makes~~has made significant modifications to the manner in which European broker-dealers can be compensated for research. These modifications are ~~recognized in the industry as having the potential~~believed to have significantly ~~decrease~~reduced the overall research spend by European buy-side ~~firms. Consequently,~~firms, which has decreased the revenues we derive from our ~~U.K.-based broker-dealer is considering new charging mechanisms for its~~European clients. Our European clients may continue to reduce their research in order to minimize this impact as part of its broader MiFID II implementation program. It is important to note, however, that our new fee structures and other strategic decisions to address the new environment created by MiFID II may not be successful,budgets, which could result in a significant decline in our sell-side revenues.

Also, ~~although~~while MiFID II ~~does permit~~is not applicable to firms operating outside of Europe, competitive and client pressures may force buy-side firms ~~to purchase research through the use~~operating outside of ~~client-funded research payment accounts, most buy-side firms that operate in the Eurozone, including our U.K. buy-side subsidiaries, have decided to use their own funds~~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 ~~the Eurozone. This change~~an additional significant decline in ~~practice will~~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 ~~in the Eurozone~~ and ~~if this practice becomes more pervasive globally, it may have a significant adverse effect on~~decrease our ~~net income in future periods.~~operating income.

The ultimate impact of MiFID II on payments for research globally, currently is uncertain.

AXA Equitable Holdings IPO

During ~~2017,~~the second quarter of 2018, AXA ~~S.A. (“AXA”) announced its intention to pursue~~completed the sale of a minority stake in ~~AXA Equitable Holdings, Inc. ("EQH"), the holding company for a diversified financial services organization,~~EQH through an initial public offering ("IPO"). ~~During~~Since then, AXA has completed additional offerings, most recently during the second quarter of ~~2018, EQH completed the IPO and, as~~2019. As a result, AXA ~~owns approximately 72%~~owned 39.1% of the outstanding common stock of EQH as of September 30, ~~2018. EQH and it subsidiaries have an approximate 65.1% economic interest in AB as of September 30, 2018.~~2019. 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.

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, itsuch 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 ~~benefits~~AB has benefited 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 preferred 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 /~~ performance/returns and (iii) subject to applicable fiduciary duties.

Relocation Strategy

On May 2, 2018, we announced that we ~~will~~would establish our corporate headquarters in, and relocate approximately 1,050 jobs ~~currently~~ 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 Management, Sell-Side Research and Trading, and New York-based Private Wealth Management businesses.

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 ~~has begun~~began in 2018 and is expected to continue through 2024, we currently estimate that we will incur transition costs of approximately ~~$125~~$155 million to ~~$135~~$165 million. These costs include employee relocation, severance, recruitment, and overlapping compensation and occupancy costs. Over this same period, we expect to realize total expense savings of approximately ~~$150~~$180 million to ~~$160~~$190 million, an amount greater than the total transition costs. However, we will incur some transition costs before we begin to realize expense savings. We incurred approximately $10 million of transition costs in 2018 and approximately $25 million in the nine months ended September 30, 2019. This compares to estimated expense savings of approximately $11 million for the first nine months of 2019. We currently anticipate that the largest reduction in ~~EPU~~net income per unit ("EPU") during the transition period will be approximately ~~$0.04~~$0.08 in ~~2018.~~2019. We expect to achieve ~~break-even~~breakeven or ~~possibly~~ a slight ~~increase~~accretion in EPU in 2021 and then achieve EPU accretion in each year thereafter. Beginning in 2025, once the transition period has been completed,

~~Index~~

we estimate ongoing annual expense savings of approximately $70 million 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

Index

and occupancy costs. In addition, our estimates for both the timing of when we incur transition costs and realize the related expense savings isare 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.

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” ~~in our 2017 10-K~~ and “Cautions Regarding Forward-Looking Statements” in this ~~10-Q.~~10-Q and our 2018 10-K. We strongly caution investors not to place undue reliance on any of these assumptions or our cost and ~~expenses~~expense 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 assumptions, estimates, financial goals, targets, projections or other related statements that we may make.

Adjusted Operating Margin Target

We ~~have~~previously adopted a goal of increasing our adjusted operating margin ~~from 27.7% (which we achieved for 2017)~~ to a target of 30% by 2020 (the “2020 Margin Target”), subject to the assumptions, factors and contingencies ~~discussed below.~~

Actual results related to this target may vary depending on various factors, including capital market outcomes, the global regulatory environment in which we operate, the performance of our investment services, the net flows experienced by our investment services and the successful management of our costs. Also, the relocation of our corporate headquarters outsidedescribed as part of the ~~New York City metropolitan area, which is described~~ ~~immediately above~~, will likely involve substantial transitional costs, including employee relocation, severance, recruitment and duplicative compensation and occupancy costs. If the transitional costs we incur in 2018 through 2020 significantly exceed any cost savings we realize in those years from our relocation strategy, our actualinitial disclosure of this target. Our adjusted operating margin, ~~for 2020 will be adversely affected~~which was 29.1% during 2018, declined to 25.7% during the first nine months of 2019.

Our AUM and, ~~as a result, we may not reach the 2020 Margin Target.~~

~~In setting our 2020 Margin Target, we have made significant assumptions with respect to, among other things:~~

~~the levels of positive net flows into~~therefore, our investment ~~services;~~

advisory revenues, including performance-based fee revenues, are heavily dependent upon the level ~~of growth (in terms of additional AUM) in our alternative products business;~~

~~the rate of increase in our fixed costs due to inflation~~ and similar factors, the transitional costs related to our relocation strategy and the timing of such costs, the success we have in achieving planned new cost reductions (including those relating to our relocation strategy) and the timing of such cost reductions, and the investments we make in our business; and

~~general conditions~~volatility of the ~~markets in which~~financial markets. Based upon our ~~business operates, including modest appreciation in both equity~~current revenue and ~~fixed income total investment returns.~~

~~While our~~expense projections, we do not believe that achieving the 2020 Margin Target is ~~presented~~likely. However, we are taking additional actions to better align our expenses with ~~numerical specificity,~~our expected revenues. We remain committed to achieving an adjusted operating margin of 30% in years subsequent to 2020 and ~~we believe~~will take continued actions in this regard, subject to prevailing market conditions and the target to be reasonable as of the date of this report, the uncertainties surrounding the assumptions we discuss above create a significant risk that these assumptions may not be realized. Accordingly, our 2020 Margin Target may not be achieved, particularly if actual events adversely differ from one or moreevolution of our key assumptions. The 2020 Margin Target and its underlying assumptions are Forward-Looking Statements and can be affected by any of the factors discussed in “Risk Factors” in our 2017 10-K and “Cautions Regarding Forward-Looking Statements” in this 10-Q. We strongly caution investors not to place undue reliance on any of these assumptions or our 2020 Margin Target. 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 assumptions, estimates, financial goals, targets, projections or other related statements that we may make.

business mix.

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Assets Under Management

Assets under management by distribution channel are as follows:


	As of September 30,									As of September 30,
	2018		2017		$ Change			% Change		2019		2018		$ Change			% Change
	(in billions)									(in billions)

Institutions	$	257.0	$	260.0	$	(3.0	)	(1.2	)%	$	272.9	$	257.0	$	15.9		6.2	%
Retail	196.3		185.7		10.6			5.7		222.5		196.3		26.2			13.3
Private Wealth Management	97.1		89.2		7.9			8.8		97.0		97.1		(0.1		)	(0.1	)
Total	$	550.4	$	534.9	$	15.5		2.9		$	592.4	$	550.4	$	42.0		7.6

Assets under management by investment service are as follows:


	As of September 30,									As of September 30,
	2018		2017		$ Change			% Change		2019		2018		$ Change			% Change
	(in billions)									(in billions)
Equity
Actively Managed	$	155.9	$	131.7	$	24.2		18.4	%	$	159.9	$	155.9	$	4.0		2.5	%
Passively Managed⁽¹⁾	56.0		52.3		3.7			7.0		56.8		56.0		0.8			1.5
Total Equity	211.9		184.0		27.9			15.1		216.7		211.9		4.8			2.2

Fixed Income
Actively Managed
Taxable	224.8		243.0		(18.2		)	(7.5	)	252.9		224.8		28.1			12.5
Tax–exempt	42.0		39.4		2.6			6.4		45.8		42.0		3.8			9.2
	266.8		282.4		(15.6		)	(5.5	)	298.7		266.8		31.9			12.0

Passively Managed⁽¹⁾	9.9		9.9		—			—		9.4		9.9		(0.5		)	(4.7	)
Total Fixed Income	276.7		292.3		(15.6		)	(5.3	)	308.1		276.7		31.4			11.4

Other⁽²⁾
Actively Managed	61.0		58.0		3.0			5.0		66.2		61.0		5.2			8.7
Passively Managed⁽¹⁾	0.8		0.6		0.2			52.6		1.4		0.8		0.6			52.6
Total Other	61.8		58.6		3.2			5.5		67.6		61.8		5.8			9.3
Total	$	550.4	$	534.9	$	15.5		2.9		$	592.4	$	550.4	$	42.0		7.6

(1)Includes index and enhanced index services.

(2)Includes certain multi-asset solutions and services and certain alternative investments.

Index

Changes in assets under management for the three-month, nine-month and twelve-month periods ended September 30, ~~2018~~2019 are as follows:


	Distribution Channel												Distribution Channel
	Institutions			Retail			Private Wealth Management			Total			Institutions			Retail			Private Wealth Management			Total
	(in billions)												(in billions)
Balance as of June 30, 2018	$	254.4		$	190.3		$	95.1		$	539.8
Balance as of June 30, 2019													$	269.1		$	214.5		$	97.2		$	580.8
Long-term flows:
Sales/new accounts	3.7			12.6			3.0			19.3			2.9			21.1			2.3			26.3
Redemptions/terminations	(1.5		)	(9.5		)	(2.3		)	(13.3		)	(4.2		)	(11.2		)	(3.2		)	(18.6		)
Cash flow/unreinvested dividends	(2.4		)	(1.9		)	(0.4		)	(4.7		)	2.8			(2.5		)	0.1			0.4
Net long-term (outflows) inflows	(0.2		)	1.2			0.3			1.3
Transfers	0.3			—			(0.3		)	—
Net long-term inflows (outflows)													1.5			7.4			(0.8		)	8.1
Market appreciation	2.5			4.8			2.0			9.3			2.3			0.6			0.6			3.5
Net change	2.6			6.0			2.0			10.6			3.8			8.0			(0.2		)	11.6
Balance as of September 30, 2018	$	257.0		$	196.3		$	97.1		$	550.4
Balance as of September 30, 2019													$	272.9		$	222.5		$	97.0		$	592.4

Balance as of December 31, 2017	$	269.3		$	192.9		$	92.3		$	554.5
Balance as of December 31, 2018													$	246.3		$	180.8		$	89.3		$	516.4
Long-term flows:
Sales/new accounts	22.5			39.1			11.0			72.6			11.7			56.4			8.6			76.7
Redemptions/terminations	(26.0		)	(34.2		)	(7.7		)	(67.9		)	(10.7		)	(32.4		)	(9.7		)	(52.8		)
Cash flow/unreinvested dividends	(7.5		)	(5.6		)	(0.4		)	(13.5		)	—			(5.4		)	0.2			(5.2		)
Net long-term (outflows) inflows	(11.0		)	(0.7		)	2.9			(8.8		)
Net long-term inflows (outflows)													1.0			18.6			(0.9		)	18.7
Adjustments⁽³⁾													—			—			(0.9		)	(0.9		)
Transfers	0.3			—			(0.3		)	—			0.1			—			(0.1		)	—
Market (depreciation) appreciation	(1.6		)	4.1			2.2			4.7
Market appreciation													25.5			23.1			9.6			58.2
Net change	(12.3		)	3.4			4.8			(4.1		)	26.6			41.7			7.7			76.0
Balance as of September 30, 2019													$	272.9		$	222.5		$	97.0		$	592.4

Balance as of September 30, 2018	$	257.0		$	196.3		$	97.1		$	550.4		$	257.0		$	196.3		$	97.1		$	550.4

Balance as of September 30, 2017	$	260.0		$	185.7		$	89.2		$	534.9
Long-term flows:
Sales/new accounts	26.0			52.0			13.8			91.8			15.3			71.4			11.1			97.8
Redemptions/terminations	(27.0		)	(44.4		)	(10.4		)	(81.8		)	(14.8		)	(44.6		)	(13.1		)	(72.5		)
Cash flow/unreinvested dividends	(7.0		)	(7.3		)	(0.4		)	(14.7		)	1.6			(7.5		)	0.1			(5.8		)
Net long-term (outflows) inflows	(8.0		)	0.3			3.0			(4.7		)
Net long-term inflows (outflows)													2.1			19.3			(1.9		)	19.5
Adjustments⁽³⁾													—			—			(0.9		)	(0.9		)
Transfers	0.3			—			(0.3		)	—			(0.1		)	0.2			(0.1		)	—
Market appreciation	4.7			10.3			5.2			20.2			13.9			6.7			2.8			23.4
Net change	(3.0		)	10.6			7.9			15.5			15.9			26.2			(0.1		)	42.0
Balance as of September 30, 2018	$	257.0		$	196.3		$	97.1		$	550.4
Balance as of September 30, 2019													$	272.9		$	222.5		$	97.0		$	592.4

Index

Investment Service

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)
Balance as of June 30, 2018 $ 147.2
$ 53.8
$ 225.9
$ 41.6
$ 10.1
$ 61.2
$ 539.8
Long-term flows:

Sales/new accounts 8.7
(0.1 ) 7.3
2.0
—
1.4
19.3
Redemptions/terminations (4.7 ) —
(6.3 ) (1.4 ) (0.1 ) (0.8 ) (13.3 )
Cash flow/unreinvested dividends (1.1 ) (1.1 ) (1.5 ) (0.2 ) —
(0.8 ) (4.7 )
Net long-term inflows (outflows) 2.9
(1.2 ) (0.5 ) 0.4
(0.1 ) (0.2 ) 1.3
Market appreciation (depreciation) 5.8
3.4
(0.6 ) —
(0.1 ) 0.8
9.3
Net change 8.7
2.2
(1.1 ) 0.4
(0.2 ) 0.6
10.6
Balance as of September 30, 2018 $ 155.9
$ 56.0
$ 224.8
$ 42.0
$ 9.9
$ 61.8
$ 550.4

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 28.2
1.0
21.0
6.2
0.1
16.1
72.6
Redemptions/terminations (16.4 ) (0.5 ) (30.4 ) (4.4 ) (0.3 ) (15.9 ) (67.9 )
Cash flow/unreinvested dividends (2.6 ) (3.0 ) (6.7 ) (0.2 ) 0.4
(1.4 ) (13.5 )
Net long-term inflows (outflows) 9.2
(2.5 ) (16.1 ) 1.6
0.2
(1.2 ) (8.8 )
Market appreciation (depreciation) 7.3
4.2
(7.0 ) —
(0.2 ) 0.4
4.7
Net change 16.5
1.7
(23.1 ) 1.6
—
(0.8 ) (4.1 )
Balance as of September 30, 2018 $ 155.9
$ 56.0
$ 224.8
$ 42.0
$ 9.9
$ 61.8
$ 550.4

~~Index~~


	Investment Service																					Investment Service
	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			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)																					(in billions)
Balance as of June 30, 2019																						$	161.8		$	57.4		$	240.8		$	44.3		$	9.5		$	67.0		$	580.8
Long-term flows:
Sales/new accounts																						6.9			0.3			16.2			2.5			—			0.4			26.3
Redemptions/terminations																						(7.2		)	(0.6		)	(8.8		)	(1.5		)	(0.1		)	(0.4		)	(18.6		)
Cash flow/unreinvested dividends																						(1.1		)	(0.8		)	2.0			—			(0.1		)	0.4			0.4
Net long-term (outflows) inflows																						(1.4		)	(1.1		)	9.4			1.0			(0.2		)	0.4			8.1
Market (depreciation) appreciation																						(0.5		)	0.5			2.7			0.5			0.1			0.2			3.5
Net change																						(1.9		)	(0.6		)	12.1			1.5			(0.1		)	0.6			11.6
Balance as of September 30, 2019																						$	159.9		$	56.8		$	252.9		$	45.8		$	9.4		$	67.6		$	592.4

Balance as of September 30, 2017	$	131.7		$	52.3		$	243.0		$	39.4		$	9.9		$	58.6		$	534.9
Balance as of December 31, 2018																						$	136.2		$	50.2		$	219.7		$	41.7		$	9.4		$	59.2		$	516.4
Long-term flows:
Sales/new accounts	34.2			1.0			30.0			8.4			0.1			18.1			91.8			23.7			0.2			40.8			7.6			0.1			4.3			76.7
Redemptions/terminations	(21.6		)	(0.5		)	(37.4		)	(5.6		)	(0.4		)	(16.3		)	(81.8		)	(20.1		)	(0.6		)	(24.5		)	(5.5		)	(0.3		)	(1.8		)	(52.8		)
Cash flow/unreinvested dividends	(3.4		)	(4.4		)	(5.7		)	(0.2		)	0.4			(1.4		)	(14.7		)	(2.9		)	(2.1		)	(0.9		)	(0.1		)	(0.5		)	1.3			(5.2		)
Net long-term inflows (outflows)	9.2			(3.9		)	(13.1		)	2.6			0.1			0.4			(4.7		)	0.7			(2.5		)	15.4			2.0			(0.7		)	3.8			18.7
Market appreciation (depreciation)	15.0			7.6			(5.1		)	—			(0.1		)	2.8			20.2
Adjustments⁽³⁾																						—			—			(0.4		)	(0.5		)	—			—			(0.9		)
Market appreciation																						23.0			9.1			18.2			2.6			0.7			4.6			58.2
Net change	24.2			3.7			(18.2		)	2.6			—			3.2			15.5			23.7			6.6			33.2			4.1			—			8.4			76.0
Balance as of September 30, 2019																						$	159.9		$	56.8		$	252.9		$	45.8		$	9.4		$	67.6		$	592.4

Balance as of September 30, 2018	$	155.9		$	56.0		$	224.8		$	42.0		$	9.9		$	61.8		$	550.4		$	155.9		$	56.0		$	224.8		$	42.0		$	9.9		$	61.8		$	550.4
Long-term flows:
Sales/new accounts																						32.1			3.2			47.4			9.3			0.1			5.7			97.8
Redemptions/terminations																						(25.9		)	(0.8		)	(35.0		)	(7.7		)	(0.5		)	(2.6		)	(72.5		)
Cash flow/unreinvested dividends																						(3.9		)	(2.7		)	(0.3		)	(0.4		)	(0.7		)	2.2			(5.8		)
Net long-term inflows (outflows)																						2.3			(0.3		)	12.1			1.2			(1.1		)	5.3			19.5
Adjustments⁽³⁾																						—			—			(0.4		)	(0.5		)	—			—			(0.9		)
Market appreciation																						1.7			1.1			16.4			3.1			0.6			0.5			23.4
Net change																						4.0			0.8			28.1			3.8			(0.5		)	5.8			42.0
Balance as of September 30, 2019																						$	159.9		$	56.8		$	252.9		$	45.8		$	9.4		$	67.6		$	592.4

(1)Includes index and enhanced index services.

(2)Includes certain multi-asset solutions and services and certain alternative investments.

(3)Approximately $900 million of non-investment management fee earning taxable and tax-exempt money market assets

were removed from assets under management during the second quarter of 2019.

Net long-term inflows (outflows) for actively managed investment services as compared to passively managed investment services for the three-month, nine-month and twelve-month periods ended September 30, ~~2018~~2019 are as follows:

Average assets under management by distribution channel and investment service are as follows:

Equity Passively Managed⁽¹⁾

Fixed Income Passively Managed⁽¹⁾

(1)Includes index and enhanced index services.

(2)Includes certain multi-asset solutions and services and certain alternative investments.

Our Institutional channel third quarter average AUM of ~~$256.6~~$270.7 billion ~~decreased $0.5~~increased $14.1 billion, or ~~0.2%~~5.5%, compared to the third quarter of ~~2017.~~2018. Our Institutional AUM ~~decreased $3.0~~increased $15.9 billion, or ~~1.2%~~6.2%, to ~~$257.0~~$272.9 billion over the last twelve months. The ~~$3.0~~$15.9 billion ~~decrease~~increase in AUM primarily resulted from ~~net outflows of $8.0 billion, offset by~~ market appreciation of ~~$4.7~~$13.9 billion and net inflows of $2.1 billion.

Our Retail channel third quarter average AUM of ~~$194.0~~$218.5 billion increased ~~$12.3~~$24.5 billion, or ~~6.7%~~12.6%, compared to the third quarter of ~~2017, primarily due to our~~2018. Our Retail AUM ~~increasing $10.6~~increased $26.2 billion, or ~~5.7%~~13.3%, to ~~$196.3~~$222.5 billion over the last twelve months. The ~~$10.6~~$26.2 billion increase ~~in AUM~~ resulted from net inflows of $19.3 billion and market appreciation of ~~$10.3 billion and net inflows of $0.3~~$6.7 billion.

Our Private Wealth Management channel third quarter average AUM of ~~$96.3~~$97.1 billion increased ~~$8.5~~$0.8 billion, or ~~9.7%~~0.8%, compared to the third quarter of ~~2017, primarily due to our~~2018. Our Private Wealth Management AUM ~~increasing $7.9~~decreased $0.1 billion, or ~~8.8%~~0.1%, to ~~$97.1~~$97.0 billion over the last twelve months. The ~~$7.9~~$0.1 billion ~~increase~~decrease resulted from net outflows of $1.9 billion and an adjustment of $0.9 billion in ~~AUM primarily resulted from~~the second quarter of 2019 relating to the removal of non-investment management fee earning assets, partially offset by market appreciation of ~~$5.2 billion and net inflows of $3.0~~$2.8 billion.

Absolute investment composite returns, gross of fees, and relative performance as of September 30, ~~2018~~2019 compared to benchmarks for certain representative Institutional equity and fixed income services are as follows:

Consolidated Results of Operations

Operating margin ⁽¹⁾

(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 three months ended September 30, ~~2018 increased $62.7~~2019 decreased $15.9 million, or ~~44.5%~~7.8%, from the three months ended September 30, ~~2017.~~2018. The ~~increase~~decrease primarily is due to (in millions):

Lower general and administrative expenses (including real estate charges) $ 40.0
Higher performance-based fees 36.6
Higher base advisory fees 30.4
Lower net income of consolidated entities attributable to non-controlling interests 15.8
Higher employee compensation and benefits (27.7 )
Lower investment gains (18.2 )
Lower Bernstein Research Services revenue (4.8 )
Higher income tax expense (4.9 )
Lower dividend and interest income, net of interest expense (3.4 )
Other (1.1 )
$ 62.7



Lower performance-based fees	$	(33.5	)
Higher promotion and servicing expense	(23.3		)
Higher general and administrative expenses (including real estate charges)	(9.8		)
Higher employee compensation and benefits expense	(4.4		)
Higher net income of consolidated entities attributable to non-controlling interest	(3.4		)
Higher base advisory fees	39.8
Higher distribution revenues	14.1
Higher investment gains	3.9
Other	0.7
	$	(15.9	)

Net income attributable to AB Unitholders for the nine months ended September 30, ~~2018 increased $153.5~~2019 decreased $66.4 million, or ~~36.9%~~11.7%, from the nine months ended September 30, ~~2017.~~2018. The ~~increase~~decrease primarily is due to (in millions):

Higher base advisory fees $ 152.4
Higher performance-based fees 57.4
Lower general and administrative expenses (including real estate charges) 55.7
Lower net income of consolidated entities attributable to non-controlling interests 26.4
Higher other revenues 5.0
Higher employee compensation and benefits (80.1 )
Lower investment gains (41.3 )
Higher trade execution, marketing, T&E and other expenses (8.1 )
Higher income tax expense (7.9 )
Lower Bernstein Research Services revenues (6.4 )
Other 0.4
$ 153.5



Lower performance-based fees	$	(59.4	)
Lower Bernstein Research Services revenue	(26.0		)
Higher general and administrative expenses (excluding real estate charges)	(17.5		)
Higher promotion and servicing expense	(17.0		)
Higher employee compensation and benefits expense	(5.3		)
Higher base advisory fees	46.5
Higher distribution revenues	9.9
Lower real estate charges	5.8
Other	(3.4		)
	$	(66.4	)

~~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 customers 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. As such, we recognized $49.3 million of performance-based fees from two funds in liquidation that is 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 the first nine months of 2018, we recorded pre-tax real estate charges of $6.5 million, resulting from changes in estimates pertaining to previously recorded real estate charges. During the first nine months of 2017, we recorded pre-tax real estate charges of $39.4 million, resulting from new charges of $40.2 million primarily 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 $0.8 million.

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 third quarter of ~~2018~~2019 expired at the close of business on October ~~22, 2018.~~23, 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.

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 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 76 to the condensed consolidated financial statements contained in Item 1 for a description of Available Cash Flow.

Management Operating Metrics

We are providing the non-GAAP measures “adjusted net ~~revenues”,~~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.

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands, except per unit amounts)
Net revenues, US GAAP basis $ 850,176
$ 812,150
$ 2,562,701
$ 2,379,380
Adjustments:

Impact of adoption of revenue recognition standard ASC 606 —
—
77,844
—
Distribution-related payments (106,372 ) (106,106 ) (322,827 ) (300,951 )
Amortization of deferred sales commissions (4,651 ) (7,629 ) (17,362 ) (25,015 )
Pass-through fees and expenses (10,084 ) (9,759 ) (31,180 ) (29,868 )
Impact of consolidated company-sponsored funds (1,543 ) (23,368 ) (39,073 ) (71,222 )
Loss (gain) on sale of software technology investment 1,000
(361 ) 1,000
(4,593 )
Long-term incentive compensation-related investment gains and dividend and interest (1,383 ) (2,185 ) (1,965 ) (7,398 )
Other —
—
47
—
Adjusted net revenues⁽¹⁾
$ 727,143
$ 662,742
$ 2,229,185
$ 1,940,333

Operating income, US GAAP basis $ 213,819
$ 162,027
$ 625,954
$ 490,876
Adjustments:

Impact of adoption of revenue recognition standard ASC 606 —
—
35,156
—
Real estate (credits) charges (155 ) 18,655
6,490
39,400
Acquisition-related expenses —
1,462
—
2,012
Loss (gain) on software technology investment 1,000
(361 ) 1,000
(4,593 )
Long-term incentive compensation-related items 1,820
329
2,822
813
Other —
(193 ) 47
(193 )
Sub-total of non-GAAP adjustments 2,665
19,892
45,515
37,439
Less: Net income of consolidated entities attributable to non-controlling interests 726
16,526
23,637
50,013
Adjusted operating income 215,758
165,393
647,832
478,302
Adjusted income taxes 9,515
10,188
33,946
29,511
Adjusted net income 206,243
155,205
613,886
448,791

Diluted net income per AB Unit, GAAP basis $ 0.75
$ 0.52
$ 2.09
$ 1.54
Impact of non-GAAP adjustments 0.01
0.06
0.16
0.12
Adjusted diluted net income per AB Unit $ 0.76
$ 0.58
$ 2.25
$ 1.66

Adjusted operating margin⁽¹⁾
29.7 % 25.0 % 29.1 % 24.7 %



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands, except per unit amounts)
Net revenues, US GAAP basis	$	877,867		$	850,176		$	2,531,128		$	2,562,701
Adjustments:
Impact of adoption of revenue recognition standard ASC 606	—			—			—			77,844
Distribution-related payments	(127,726		)	(106,372		)	(349,973		)	(322,827		)
Amortization of deferred sales commissions	(3,605		)	(4,651		)	(10,348		)	(17,362		)
Pass-through fees and expenses	(14,690		)	(10,084		)	(40,687		)	(31,180		)
Impact of consolidated company-sponsored funds	(4,820		)	(1,543		)	(24,477		)	(39,073		)
Long-term incentive compensation-related investment gains and dividend and interest	(317		)	(1,383		)	(6,485		)	(1,965		)
Loss on sale of software technology	—			1,000			—			1,000
Other	—			—			—			47
Adjusted net revenues	$	726,709		$	727,143		$	2,099,158		$	2,229,185



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Operating income, US GAAP basis	$	202,783		$	213,819		$	555,154		$	625,954
Adjustments:
Impact of adoption of revenue recognition standard ASC 606	—			—			—			35,156
Real estate (credits) charges	—			(155		)	—			6,490
Acquisition-related expenses	556			—			3,275			—
Long-term incentive compensation-related items	517			1,820			1,151			2,822
CEO's EQH award compensation	217			—			908			—
Loss on sale of software technology	—			1,000			—			1,000
Other	—			—			—			47
Sub-total of non-GAAP adjustments	1,290			2,665			5,334			45,515
Less: Net income of consolidated entities attributable to non-controlling interests	4,145			726			22,018			23,637
Adjusted operating income	199,928			215,758			538,470			647,832
Adjusted income taxes	10,676			9,515			29,077			33,946
Adjusted net income	$	189,252		$	206,243		$	509,393		$	613,886

Diluted net income per AB Unit, GAAP basis	$	0.69		$	0.75		$	1.86		$	2.09
Impact of non-GAAP adjustments	0.01			0.01			0.02			0.16
Adjusted diluted net income per AB Unit	$	0.70		$	0.76		$	1.88		$	2.25

Adjusted operating margin	27.5		%	29.7		%	25.7		%	29.1		%

⁽¹⁾ Prior period adjusted net revenues and operating margin have been revised due to a GAAP reclassification of certain promotion and servicing expenses that impacted adjusted revenues previously presented.

Adjusted operating income for the three months ended September 30, ~~2018 increased $50.4~~2019 decreased $15.8 million, or ~~30.5%~~7.3%, from the three months ended September 30, ~~2017,~~2018, primarily due to ~~higher~~lower performance-based fees of ~~$36.6~~$33.5 million, ~~higher investment advisory base fees of $30.3 million and lower general and administrative expenses of $13.8 million, offset by~~ higher employee compensation and benefits expense (excluding the impact of long-term incentive compensation-related items) of ~~$27.0~~$6.1 million, higher net distribution expenses of $6.1 million higher general and ~~lower Bernstein Research Services revenue~~administrative expenses of ~~$4.8~~$5.7 million, offset by higher investment advisory base fees of $35.8 million.

Adjusted operating income for the nine months ended September 30, ~~2018 increased $169.5~~2019 decreased $109.4 million, or ~~35.4%~~16.9%, from the nine months ended September 30, ~~2017,~~2018, primarily due to ~~higher investment advisory base fees of $154.7 million, higher~~lower performance-based fees of ~~$135.2~~$138.0 million, lower Bernstein Research Services revenue of $26.0 million and ~~lower~~higher general and administrative expenses of ~~$14.4~~$18.2 million, offset by ~~higher~~lower employee compensation ~~and benefits~~ expense (excluding the impact of long-term incentive compensation-related

items) of ~~$126.8~~$42.1 million ~~lower Bernstein Research Services revenue of $6.4 million~~(see discussion below) and higher ~~promotion and servicing expense~~investment advisory base fees of ~~$5.7~~$34.6 million.

On January 1, 2018, as a result of our adoption of ASC 606, 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~~represented 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 iswas probable that significant reversal ~~will~~would 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~~that 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.

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~~during the ~~exchange of software technology for an ownership stake in a third party provider of financial market data and trading tools. During the third~~first quarter of 2018, ~~we wrote this investment down $1.0 million.~~discussed above.

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) our CEO's EQH award compensation, as discussed below, (5) loss on software technology investment, and (6) the impact of consolidated company-sponsored investment ~~funds, (5) loss (gain) on software technology investment, and (6) adjustments to contingent payment arrangements;~~funds; provided, however, that adjusted operating income includes the revenues and expenses associated with the implementation of ASC 606 during the first quarter of 2018 discussed above.

Real estate charges (credits) incurred outside of our headquarters relocation strategy 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 comparing 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 achieved 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.

~~Index~~

The board of directors of EQH granted to Seth P. Bernstein (“CEO”) equity awards 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 EQH in the future related to his service on the Management Committee. Any awards granted to Mr. Bernstein by EQH are recorded as compensation expense in AB’s condensed consolidated statement of income. The compensation expense associated with these awards has been excluded from our non-GAAP measures because they are non-cash and are based upon EQH's, and not AB's, financial performance.

Losses on the sale of software technology has been excluded due to its non-recurring nature and because it is not part of our core operating results.

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 has been excluded due to its non-recurring nature and because it is not part of our core operating results.~~

The recording of changes in estimates of contingent consideration payable with respect to contingent payment arrangements associated with our acquisitions are not considered part of our core operating results and, accordingly, have been excluded.

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 volatility 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.

The adoption of ASC 606 had no significant impact on revenue recognition during the first nine months of 2018, except for the recognition of $49.3 million of performance fees from two funds in liquidation that is not probable of significant reversal, that under the previous revenue accounting standard would not be recognized until final liquidation. The components of net revenues are as follows:

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 the account and the total amount of assets we manage for a particular client.

Accordingly, fee income generally increases or decreases as AUM increases or decreases 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 4035 to 110 basis points for actively-managed equity services, 10 to 7570 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 could range from 53 basis points for certain ~~Institutional asset allocation~~Retail third party managed 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.



Delaware		13-4064930
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
None	None	None



		Page

	Part I

	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Financial Condition	1

	Condensed Consolidated Statements of Income	3

	Condensed Consolidated Statements of Comprehensive Income	4

	Condensed Consolidated Statements of ~~Cash Flows~~Changes in Partners' Capital	5

	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3331

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5857

Item 4.	Controls and Procedures	5857

	Part II

	OTHER INFORMATION

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3.	Defaults Upon Senior Securities	58

Item 4.	Mine Safety Disclosures	58

Item 5.	Other Information	59

Item ~~1A.~~6.	~~Risk Factors~~Exhibits	59

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	59

~~Item 3.~~	~~Defaults Upon Senior Securities~~	59

~~Item 4.~~	~~Mine Safety Disclosures~~	59

~~Item 5.~~	~~Other Information~~	60

~~Item 6.~~	~~Exhibits~~	6261

SIGNATURE		6362


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018

ASSETS
Cash and cash equivalents	$	607,109	$	671,930	$	705,021	$	640,206
Cash and securities segregated, at fair value (cost: $1,262,899 and $816,350)	1,262,906		816,350
Cash and securities segregated, at fair value (cost: $952,164 and $1,164,375)					958,149		1,169,554
Receivables, net:
Brokers and dealers	303,542		199,690		119,256		197,048
Brokerage clients	1,627,419		1,647,059		1,544,227		1,718,629
AB funds fees	209,677		212,115		198,161		217,470
Other fees	111,231		124,164		130,337		127,462
Investments:
Long-term incentive compensation-related	58,414		66,034		48,776		52,429
Other	420,133		377,555		274,429		661,915
Assets of consolidated company-sponsored investment funds:
Cash and cash equivalents	10,438		326,518		17,009		13,118
Investments	303,301		1,246,283		536,282		351,696
Other assets	9,095		35,397		36,400		22,840
Furniture, equipment and leasehold improvements, net	158,475		157,569		151,812		155,519
Goodwill	3,066,700		3,066,700		3,076,926		3,066,700
Intangible assets, net	85,463		105,784		65,705		79,424
Deferred sales commissions, net	16,738		30,126		27,359		17,148
Right-of-use assets					380,587		—
Other assets	297,995		211,893		284,835		297,940
Total assets	$	8,548,636	$	9,295,167	$	8,555,271	$	8,789,098

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
Liabilities:
Payables:
Brokers and dealers	$	204,986	$	237,861	$	199,752	$	290,960
Securities sold not yet purchased	20,961		29,961		13,690		8,623
Brokerage clients	2,781,140		2,229,371		2,380,661		3,095,458
AB mutual funds	50,436		82,967		86,696		74,599
Accounts payable and accrued expenses	373,596		515,660		198,269		412,313
Lease liabilities					491,127		—
Liabilities of consolidated company-sponsored investment funds	8,579		698,101		38,073		22,610
Accrued compensation and benefits	664,947		270,610		606,881		273,250
Debt	398,242		565,745		383,107		546,267
Total liabilities	4,502,887		4,630,276		4,398,256		4,724,080

Commitments and contingencies (See Note 13)


Debt issuance costs	(1,705		)	—
							Nine Months Ended September 30,
							2019			2018
Cash flows from financing activities:
(Repayment) of commercial paper, net							(227,528		)	(97,303		)
Proceeds (repayment) of bank loans							55,000			(75,000		)
(Decrease) in overdrafts payable							(72,878		)	(39,025		)
Distributions to General Partner and Unitholders							(514,299		)	(652,991		)
Subscriptions (redemptions) of investments in consolidated company-sponsored investment funds, net							123,677			(518,601		)
Capital contributions from (to) affiliates							470			(1,344		)
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units							9,642			10,802
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net							(81,790		)	(82,710		)
Other							(2,460		)	(2,980		)
Net cash used in financing activities	(1,459,152		)	(820,473		)	(710,166		)	(1,459,152		)

Effect of exchange rate changes on cash and cash equivalents	(9,139		)	17,458			(8,090		)	(9,139		)


Net (decrease) increase in cash and cash equivalents	(380,901		)	252,949
Net increase (decrease) in cash and cash equivalents							68,706			(380,901		)
Cash and cash equivalents as of beginning of the period	998,448			994,510			653,324			998,448
Cash and cash equivalents as of end of the period	$	617,547		$	1,247,459		$	722,030		$	617,547

Non-cash investing activities:
Fair value of assets acquired (excluding cash acquired of $11.8 million)							$	28,966		$	—
Fair value of liabilities assumed							$	16,837		$	—

Non-cash financing activities:
Payables recorded under contingent payment arrangements							$	17,384		$	—



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Large accelerated filero	☐		Accelerated filero	☐

Non-accelerated filerx	☒		Smaller reporting companyo	☐

Emerging growth company		☐
		~~Emerging growth company~~ o

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. o☐



	Nine Months Ended September 30, 2018			Twelve Months Ended December 31, 2017
	(in thousands)
Balance as of beginning of period	$	113,635		$	112,932
Expense incurred	6,490			28,507
Deferred rent	—			7,083
Payments made	(32,868		)	(39,122		)
Interest accretion	3,284			4,235
Balance as of end of period	$	90,541		$	113,635


8.7.	Cash and Securities Segregated Under Federal Regulations and Other Requirements



	September 30, 2018						December 31, 2017
	(in thousands)
	VIEs		VOEs		Total		VIEs		VOEs			Total
Cash and cash equivalents	$	9,736	$	702	$	10,438	$	326,158	$	360		$	326,518
Investments	186,386		116,915		303,301		1,189,835		56,448			1,246,283
Other assets	5,544		3,551		9,095		33,931		1,466			35,397
Total assets	$	201,666	$	121,168	$	322,834	$	1,549,924	$	58,274		$	1,608,198

Liabilities	$	6,077	$	2,502	$	8,579	$	695,997	$	2,104		$	698,101
Redeemable non-controlling interest	80,436		20,673		101,109		596,241		(18		)	596,223
Partners' capital attributable to AB Unitholders	114,495		97,993		212,488		256,929		56,188			313,117
Non-redeemable non-controlling interests in consolidated entities	658		—		658		757		—			757
Total liabilities, redeemable non-controlling interest and partners' capital	$	201,666	$	121,168	$	322,834	$	1,549,924	$	58,274		$	1,608,198


	Periods Ended September 30, 2018									Periods Ended September 30, 2019
	Three-months			Nine-months			Twelve-months			Three-months			Nine-months			Twelve-months
	(in billions)									(in billions)
Actively Managed
Equity	$	2.9		$	9.2		$	9.2		$	(1.4	)	$	0.7		$	2.3
Fixed Income	(0.1		)	(14.5		)	(10.5		)	10.4			17.4			13.3
Other	(0.3		)	(1.4		)	0.2			0.3			3.5			4.8
	2.5			(6.7		)	(1.1		)	9.3			21.6			20.4
Passively Managed
Equity	(1.2		)	(2.5		)	(3.9		)	(1.1		)	(2.5		)	(0.3		)
Fixed Income	(0.1		)	0.2			0.1			(0.2		)	(0.7		)	(1.1		)
Other	0.1			0.2			0.2			0.1			0.3			0.5
	(1.2		)	(2.1		)	(3.6		)	(1.2		)	(2.9		)	(0.9		)
Total net long-term (outflows)	$	1.3		$	(8.8	)	$	(4.7	)
Total net long-term inflows										$	8.1		$	18.7		$	19.5


	1-Year		3-Year		5-Year		1-Year		3-Year		5-Year
Global High Income - Hedged (fixed income)
Absolute return	1.0	%	7.9	%	5.7	%	6.8	%	6.0	%	5.4	%
Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged)	(0.1	)	—		(0.1	)	0.1		0.6		(0.2	)
U.S. High Yield (fixed income)
Absolute return	3.4		7.8		5.6		6.5		6.1		5.2
Relative return (vs. Bloomberg Barclays U.S. Corp. High Yield Index)	0.4		(0.4	)	0.1		0.1		0.1		(0.2	)
Global Plus - Hedged (fixed income)
Absolute return	0.4		3.1		3.8		10.5		4.0		4.5
Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged)	(0.4	)	0.8		0.6		(0.1	)	0.4		0.4
Intermediate Municipal Bonds (fixed income)
Absolute return	0.1		1.7		2.3		6.6		2.5		2.8
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg)	—		0.4		0.6		1.3		0.6		0.8
U.S. Strategic Core Plus (fixed income)
Absolute return	(0.6	)	2.5		3.2		10.3		3.6		4.1
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index)	0.7		1.2		1.1		—		0.6		0.7
Emerging Market Debt (fixed income)
Absolute return	(4.9	)	6.9		4.6		10.0		4.0		4.9
Relative return (vs. JPM EMBI Global/JPM EMBI)	(2.0	)	1.2		—		(0.7	)	0.2		(0.2	)
Emerging Markets Value
Absolute return	(4.1	)	10.8		3.3		(1.7	)	4.1		1.4
Relative return (vs. MSCI EM Index)	(3.3	)	(1.6	)	(0.3	)	0.4		(1.9	)	(0.9	)
Global Strategic Value
Absolute return	2.3		10.6		8.4		(6.9	)	5.0		3.8
Relative return (vs. MSCI ACWI Index)	(7.4	)	(2.8	)	(0.3	)	(8.3	)	(4.7	)	(2.8	)
U.S. Small & Mid Cap Value
Absolute return	11.2		15.3		11.5		(6.9	)	7.0		7.5
Relative return (vs. Russell 2500 Value Index)	1.0		0.8		1.5		(2.6	)	0.1		0.5
U.S. Strategic Value
Absolute return	7.5		10.0		8.7		(2.5	)	6.6		4.2
Relative return (vs. Russell 1000 Value Index)	(1.9	)	(3.6	)	(2.0	)	(6.5	)	(2.8	)	(3.6	)
U.S. Small Cap Growth
Absolute return	38.8		25.8		15.4		(5.3	)	19.4		13.0
Relative return (vs. Russell 2000 Growth Index)	17.7		7.8		3.2		4.3		9.6		4.0
U.S. Large Cap Growth
Absolute return	24.9		20.1		18.3		8.1		18.3		15.6
Relative return (vs. Russell 1000 Growth Index)	(1.4	)	(0.4	)	1.7		4.4		1.5		2.2
U.S. Small & Mid Cap Growth
Absolute return	35.6		22.2		14.2		(7.3	)	16.3		11.2
Relative return (vs. Russell 2500 Growth Index)	12.5		4.3		1.3		(3.2	)	4.0		1.0
Concentrated U.S. Growth
Absolute return	21.5		17.3		15.2		13.2		18.8		14.0
Relative return (vs. S&P 500 Index)	3.6		—		1.3		8.9		5.4		3.2
Select U.S. Equity
Absolute return	19.8		17.1		14.1		3.0		13.8		10.7
Relative return (vs. S&P 500 Index)	1.9		(0.3	)	0.2		(1.3	)	0.4		(0.1	)
Strategic Equities
Absolute return	17.4		15.4		13.3		4.7		12.9		10.7
Relative return (vs. Russell 3000 Index)	(0.2	)	(1.7	)	(0.1	)	1.8		—		0.2
Global Core Equity
Absolute return	13.3		15.4		9.7		6.3		12.7		9.2
Relative return (vs. MSCI ACWI Index)	3.6		2.0		1.0		4.9		3.0		2.5



Lower general and administrative expenses (including real estate charges)	$	40.0
Higher performance-based fees	36.6
Higher base advisory fees	30.4
Lower net income of consolidated entities attributable to non-controlling interests	15.8
Higher employee compensation and benefits	(27.7		)
Lower investment gains	(18.2		)
Lower Bernstein Research Services revenue	(4.8		)
Higher income tax expense	(4.9		)
Lower dividend and interest income, net of interest expense	(3.4		)
Other	(1.1		)
	$	62.7



Higher base advisory fees	$	152.4
Higher performance-based fees	57.4
Lower general and administrative expenses (including real estate charges)	55.7
Lower net income of consolidated entities attributable to non-controlling interests	26.4
Higher other revenues	5.0
Higher employee compensation and benefits	(80.1		)
Lower investment gains	(41.3		)
Higher trade execution, marketing, T&E and other expenses	(8.1		)
Higher income tax expense	(7.9		)
Lower Bernstein Research Services revenues	(6.4		)
Other	0.4
	$	153.5


•	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 legal proceeding could be significant, and could have such an effect.


•	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 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 operating margin, which was 29.1% during 2018, declined to 25.7% during the first nine months of 2019.



Period	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
7/1/18 - 7/31/18	—	$	—	—	—
8/1/18 - 8/31/18	—	—		—	—
9/1/18 - 9/30/18	796	30.21		—	—
Total	796	$	30.21	—	—



31.1		Certification of Mr. Bernstein furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Mr. Weisenseel furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		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.

32.2		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.

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104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL (included in Exhibit 101).



Date:	October 24, ~~2018~~2019	ALLIANCEBERNSTEINL.P.

		By:	/s/ John C. Weisenseel
			John C. Weisenseel
			Chief Financial Officer

		By:	/s/ William R. Siemers
			William R. Siemers
			Chief Accounting Officer