UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~June~~September 30, 2019



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

For the transition period from to

Commission File No. 000-29961

ALLIANCEBERNSTEIN L.P.

(Exact name of registrant as specified in its charter)



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

1345 Avenue of the Americas, New York, NY10105

(Address of principal executive offices)

(Zip Code)

~~(212)~~ (212) 969-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes	x☒	No	o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).



Yes	x☒	No	o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filero	☐		Accelerated filero	☐

Non-accelerated filer	☒		Smaller reporting company	☐

Emerging growth company		☐

~~Non-accelerated filer~~ x					~~Smaller reporting company~~ o

~~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☐

Index

Securities registered pursuant to Section 12(g) of the Act:



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

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



Yes	o☐	No	x☒

The number of units of limited partnership interest outstanding as of ~~June~~September 30, 2019 was ~~268,815,565.~~268,182,957.

Index

ALLIANCEBERNSTEIN L.P.

Index to Form 10-Q



		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 Changes in Partners' Capital	5

	Condensed Consolidated 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	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5557

Item 4.	Controls and Procedures	5557

	Part II

	OTHER INFORMATION

Item 1.	Legal Proceedings	5658

Item 1A.	Risk Factors	5658

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5658

Item 3.	Defaults Upon Senior Securities	5658

Item 4.	Mine Safety Disclosures	5658

Item 5.	Other Information	5759

Item 6.	Exhibits	5861

SIGNATURE		5962

Index

Part I

FINANCIAL INFORMATION

Item 1. Financial Statements

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(in thousands, except unit amounts)

(unaudited)


	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018

ASSETS
Cash and cash equivalents	$	710,335	$	640,206	$	705,021	$	640,206
Cash and securities segregated, at fair value (cost: $1,099,679 and $1,164,375)	1,109,589		1,169,554
Cash and securities segregated, at fair value (cost: $952,164 and $1,164,375)					958,149		1,169,554
Receivables, net:
Brokers and dealers	172,457		197,048		119,256		197,048
Brokerage clients	1,715,075		1,718,629		1,544,227		1,718,629
AB funds fees	191,216		217,470		198,161		217,470
Other fees	133,006		127,462		130,337		127,462
Investments:
Long-term incentive compensation-related	48,906		52,429		48,776		52,429
Other	175,797		661,915		274,429		661,915
Assets of consolidated company-sponsored investment funds:
Cash and cash equivalents	10,665		13,118		17,009		13,118
Investments	470,435		351,696		536,282		351,696
Other assets	28,619		22,840		36,400		22,840
Furniture, equipment and leasehold improvements, net	146,616		155,519		151,812		155,519
Goodwill	3,076,926		3,066,700		3,076,926		3,066,700
Intangible assets, net	72,848		79,424		65,705		79,424
Deferred sales commissions, net	20,714		17,148		27,359		17,148
Right-of-use assets	398,966		—		380,587		—
Other assets	311,836		297,940		284,835		297,940
Total assets	$	8,794,006	$	8,789,098	$	8,555,271	$	8,789,098

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
Liabilities:
Payables:
Brokers and dealers	$	263,603	$	290,960	$	199,752	$	290,960
Securities sold not yet purchased	5,404		8,623		13,690		8,623
Brokerage clients	2,686,086		3,095,458		2,380,661		3,095,458
AB mutual funds	72,058		74,599		86,696		74,599
Accounts payable and accrued expenses	229,606		412,313		198,269		412,313
Lease liabilities	515,664		—		491,127		—
Liabilities of consolidated company-sponsored investment funds	35,583		22,610		38,073		22,610
Accrued compensation and benefits	453,802		273,250		606,881		273,250
Debt	442,425		546,267		383,107		546,267
Total liabilities	4,704,231		4,724,080		4,398,256		4,724,080

Index


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

Redeemable non-controlling interest	215,634			148,809			291,524			148,809

Capital:
General Partner	40,016			40,240			39,997			40,240
Limited partners: 268,815,565 and 268,850,276 units issued and outstanding	4,053,360			4,075,306
Limited partners: 268,182,957 and 268,850,276 units issued and outstanding							4,052,581			4,075,306
Receivables from affiliates	(9,839		)	(11,430		)	(9,304		)	(11,430		)
AB Holding Units held for long-term incentive compensation plans	(100,453		)	(77,990		)	(95,713		)	(77,990		)
Accumulated other comprehensive loss	(109,963		)	(110,866		)	(122,070		)	(110,866		)
Partners’ capital attributable to AB Unitholders	3,873,121			3,915,260			3,865,491			3,915,260
Non-redeemable non-controlling interests in consolidated entities	1,020			949			—			949
Total capital	3,874,141			3,916,209			3,865,491			3,916,209
Total liabilities, redeemable non-controlling interest and capital	$	8,794,006		$	8,789,098		$	8,555,271		$	8,789,098

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per unit amounts)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018			2019		2018
Revenues:
Investment advisory and services fees	$	596,364	$	598,108	$	1,152,958	$	1,172,224	$	616,384	$	610,063		$	1,769,342	$	1,782,287
Bernstein research services	105,991		106,211		196,226		220,611		102,014		103,581			298,240		324,192
Distribution revenues	108,347		105,118		208,856		213,122		118,635		104,488			327,491		317,610
Dividend and interest income	27,654		21,194		55,000		49,409		24,882		21,942			79,882		71,351
Investment gains (losses)	10,949		213		26,684		26,295		4,433		565			31,117		26,860
Other revenues	24,796		26,026		47,002		52,536		24,497		24,012			71,499		76,548
Total revenues	874,101		856,870		1,686,726		1,734,197		890,845		864,651			2,577,571		2,598,848
Less: Interest expense	16,302		12,132		33,465		21,672		12,978		14,475			46,443		36,147
Net revenues	857,799		844,738		1,653,261		1,712,525		877,867		850,176			2,531,128		2,562,701

Expenses:
Employee compensation and benefits	363,702		358,248		703,011		702,073		361,822		357,442			1,064,833		1,059,515
Promotion and servicing:
Distribution-related payments	116,254		106,301		222,247		216,455		127,726		106,372			349,973		322,827
Amortization of deferred sales commissions	3,241		6,113		6,743		12,711		3,605		4,651			10,348		17,362
Trade execution, marketing, T&E and other	57,550		59,259		107,198		113,302		53,814		50,793			161,012		164,095
General and administrative:
General and administrative	120,180		108,836		238,028		230,070		117,056		107,526			355,084		337,596
Real estate charges	548		6,909		548		6,645
Real estate charges (credits)									153		(155		)	701		6,490
Contingent payment arrangements	829		52		883		105		829		52			1,712		157
Interest on borrowings	3,990		2,629		7,973		5,241		2,802		2,711			10,775		7,952
Amortization of intangible assets	7,285		6,927		14,259		13,788		7,277		6,965			21,536		20,753
Total expenses	673,579		655,274		1,300,890		1,300,390		675,084		636,357			1,975,974		1,936,747

Operating income	184,220		189,464		352,371		412,135		202,783		213,819			555,154		625,954

Income taxes	10,211		7,538		19,132		23,363		10,827		9,419			29,959		32,782

Net income	174,009		181,926		333,239		388,772		191,956		204,400			525,195		593,172

Net income of consolidated entities attributable to non-controlling interests	7,757		261		17,873		22,911		4,145		726			22,018		23,637

Net income attributable to AB Unitholders	$	166,252	$	181,665	$	315,366	$	365,861	$	187,811	$	203,674		$	503,177	$	569,535

Net income per AB Unit:
Basic	$	0.61	$	0.66	$	1.17	$	1.34	$	0.69	$	0.75		$	1.86	$	2.09
Diluted	$	0.61	$	0.66	$	1.17	$	1.34	$	0.69	$	0.75		$	1.86	$	2.09

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018

Net income	$	174,009		$	181,926		$	333,239		$	388,772		$	191,956		$	204,400		$	525,195		$	593,172
Other comprehensive income (loss):
Foreign currency translation adjustment, before reclassification and tax	(2,178		)	(20,656		)	452			(10,735		)	(12,694		)	(4,154		)	(12,242		)	(14,889		)
Less: reclassification adjustment for (losses) included in net income upon liquidation	—			(100		)	—			(100		)	—			—			—			(100		)
Foreign currency translation adjustments, before tax	(2,178		)	(20,556		)	452			(10,635		)	(12,694		)	(4,154		)	(12,242		)	(14,789		)
Income tax expense	(73		)	—			(150		)	—
Income tax benefit													189			—			39			—
Foreign currency translation adjustments, net of tax	(2,251		)	(20,556		)	302			(10,635		)	(12,505		)	(4,154		)	(12,203		)	(14,789		)
Changes in employee benefit related items:
Amortization of prior service cost	6			5			12			11			6			6			18			17
Recognized actuarial gain	285			286			552			568			288			285			840			853
Changes in employee benefit related items	291			291			564			579			294			291			858			870
Income tax benefit (expense)	25			2			35			(116		)	253			(5		)	288			(121		)
Employee benefit related items, net of tax	316			293			599			463			547			286			1,146			749
Other	—			374			—			374			—			—			—			374
Other comprehensive (loss) income	(1,935		)	(19,889		)	901			(9,798		)	(11,958		)	(3,868		)	(11,057		)	(13,666		)
Less: Comprehensive income in consolidated entities attributable to non-controlling interests	7,774			220			17,870			22,887			4,295			721			22,165			23,608
Comprehensive income attributable to AB Unitholders	$	164,300		$	161,817		$	316,270		$	356,087		$	175,703		$	199,811		$	491,973		$	555,898

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Partners' Capital

(in thousands)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
General Partner’s Capital
Balance, beginning of period	$	39,403		$	41,218		$	40,240		$	41,221		$	40,016		$	40,886		$	40,240		$	41,221
Net income	1,663			1,816			3,154			3,658			1,877			2,037			5,031			5,695
Cash distributions to General Partner	(1,521		)	(2,191		)	(3,438		)	(4,670		)	(1,710		)	(1,881		)	(5,148		)	(6,551		)
Long-term incentive compensation plans activity	12			30			185			52			4			44			189			96
Issuance (retirement) of AB Units, net	459			16			(125		)	279			(190		)	(533		)	(315		)	(254		)
Impact of adoption of revenue recognition standard ASC 606	—			—			—			349			—			—			—			349
Other	—			(3		)	—			(3		)	—			—			—			(3		)
Balance, end of period	40,016			40,886			40,016			40,886			39,997			40,553			39,997			40,553
Limited Partners' Capital
Balance, beginning of period	3,992,590			4,168,548			4,075,306			4,168,841			4,053,360			4,135,950			4,075,306			4,168,841
Net income	164,589			179,849			312,212			362,203			185,934			201,637			498,146			563,840
Cash distributions to Unitholders	(150,465		)	(216,558		)	(340,033		)	(461,852		)	(169,118		)	(184,588		)	(509,151		)	(646,440		)
Long-term incentive compensation plans activity	1,270			2,968			18,255			5,036			397			4,490			18,652			9,526
Issuance (retirement) of AB Units, net	45,376			1,513			(12,380		)	27,491			(18,836		)	(52,780		)	(31,216		)	(25,289		)
Impact of adoption of revenue recognition standard ASC 606	—			—			—			34,601			—			—			—			34,601
Other	—			(370		)	—			(370		)	844			1,173			844			803
Balance, end of period	4,053,360			4,135,950			4,053,360			4,135,950			4,052,581			4,105,882			4,052,581			4,105,882
Receivables from Affiliates
Balance, beginning of period	(11,666		)	(12,489		)	(11,430		)	(11,494		)	(9,839		)	(11,705		)	(11,430		)	(11,494		)
Capital contributions from General Partner	—			—			—			19			—			—			—			19
Compensation plan accrual	—			—			—			352			—			—			—			352
Long-term incentive compensation awards expense	227			—			692			—			216			—			908			—
Capital contributions from AB Holding	1,600			784			899			(582		)	319			75			1,218			(507		)
Balance, end of period	(9,839		)	(11,705		)	(9,839		)	(11,705		)	(9,304		)	(11,630		)	(9,304		)	(11,630		)
AB Holding Units held for Long-term Incentive Compensation Plans
Balance, beginning of period	(69,503		)	(57,366		)	(77,990		)	(42,688		)	(100,453		)	(88,317		)	(77,990		)	(42,688		)
Purchases of AB Holding Units to fund long-term compensation plans, net	94			(32,737		)	(58,358		)	(34,864		)	(23,432		)	(47,846		)	(81,790		)	(82,710		)
(Issuance) retirement of AB Units, net	(45,860		)	(1,604		)	12,480			(27,875		)	19,011			53,289			31,491			25,414
Long-term incentive compensation awards expense	8,011			2,341			26,615			14,825			9,214			(1,774		)	35,829			13,051
Re-valuation of AB Holding Units held in rabbi trust	113			1,049			(9,892		)	2,285			(53		)	(2,313		)	(9,945		)	(28		)
Other	6,692			—			6,692			—			—			—			6,692			—
Balance, end of period	(100,453		)	(88,317		)	(100,453		)	(88,317		)	(95,713		)	(86,961		)	(95,713		)	(86,961		)
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period	(108,012		)	(84,066		)	(110,866		)	(94,140		)
Foreign currency translation adjustment, net of tax	(2,267		)	(20,516		)	304			(10,612		)
Changes in employee benefit related items, net of tax	316			293			599			463
Other	—			374			—			374
Balance, end of period	(109,963		)	(103,915		)	(109,963		)	(103,915		)

Index


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018			2019			2018			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	3,873,121		3,972,899			3,873,121			3,972,899			3,865,491			3,940,067			3,865,491			3,940,067
Non-redeemable Non-controlling Interests in Consolidated Entities
Balance, beginning of period	945		1,630			949			1,564			1,020			1,659			949			1,564
Net income	58		63			74			118			17			32			91			150
Foreign currency translation adjustment	17		(39		)	(3		)	(23		)	150			(6		)	147			(29		)
Distributions from non-controlling interests of our consolidated venture capital fund activities	—		5			—			—
Purchase of non-controlling interest												(1,187		)	—			(1,187		)	—
Balance, end of period	1,020		1,659			1,020			1,659			—			1,685			—			1,685
Total Capital	$	3,874,141	$	3,974,558		$	3,874,141		$	3,974,558		$	3,865,491		$	3,941,752		$	3,865,491		$	3,941,752

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018

Cash flows from operating activities:
Net income	$	333,239		$	388,772		$	525,195		$	593,172

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred sales commissions	6,743			12,711			10,348			17,362
Non-cash long-term incentive compensation expense	27,307			14,825			36,737			13,051
Depreciation and other amortization	83,997			35,626			125,729			52,599
Unrealized (gains) on investments	(16,724		)	(3,257		)	(17,386		)	(5,226		)
Unrealized (gains) on investments of consolidated company-sponsored investment funds	(32,173		)	(20,463		)	(29,522		)	(23,755		)
Other, net	11,537			(1,907		)	3,652			585
Changes in assets and liabilities:
Decrease (increase) in segregated cash and securities	59,965			(472,517		)	211,405			(446,556		)
Decrease (increase) in receivables	43,325			(220,343		)	214,522			(190,660		)
Decrease (increase) in investments	506,061			(59,219		)	407,616			(30,130		)
(Increase) decrease in investments of consolidated company-sponsored investment funds	(86,566		)	965,121			(155,064		)	966,737
(Increase) decrease in deferred sales commissions	(10,309		)	653
(Increase) in deferred sales commissions							(20,559		)	(3,974		)
(Increase) in right-of-use assets	(577,992		)	—			(8,336		)	—
(Increase) in other assets	(4,515		)	(108,751		)
Decrease (increase) in other assets							20,361			(121,016		)
Increase (decrease) in other assets and liabilities of consolidated company-sponsored investment funds, net	7,194			(663,910		)	1,903			(663,220		)
(Decrease) increase in payables	(440,029		)	682,703			(733,097		)	584,282
Increase in lease liabilities	516,918			—
(Decrease) in lease liabilities							(83,161		)	—
(Decrease) in accounts payable and accrued expenses	(61,705		)	(10,141		)	(39,225		)	(24,511		)
Increase in accrued compensation and benefits	180,701			225,571			334,900			395,643
Net cash provided by operating activities	546,974			765,474			806,018			1,114,383

Cash flows from investing activities:
Purchases of furniture, equipment and leasehold improvements	(11,276		)	(11,458		)	(24,311		)	(26,993		)
Acquisition of business, net of cash acquired	5,255			—			5,255			—
Net cash used in investing activities	(6,021		)	(11,458		)	(19,056		)	(26,993		)

Index


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Cash flows from financing activities:
(Repayment) issuance of commercial paper, net	(85,888		)	20,058
Repayment of bank loans	(25,000		)	(75,000		)
(Repayment) of commercial paper, net							(227,528		)	(97,303		)
Proceeds (repayment) of bank loans							55,000			(75,000		)
(Decrease) in overdrafts payable	(19,144		)	(28,952		)	(72,878		)	(39,025		)
Distributions to General Partner and Unitholders	(343,471		)	(466,522		)	(514,299		)	(652,991		)
Subscriptions (redemptions) of investments in consolidated company-sponsored investment funds, net	49,026			(515,856		)	123,677			(518,601		)
Capital contributions from (to) affiliates	495			(1,178		)	470			(1,344		)
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units	8,951			8,340			9,642			10,802
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net	(58,358		)	(34,864		)	(81,790		)	(82,710		)
Other	291			—			(2,460		)	(2,980		)
Net cash used in financing activities	(473,098		)	(1,093,974		)	(710,166		)	(1,459,152		)

Effect of exchange rate changes on cash and cash equivalents	(179		)	(6,039		)	(8,090		)	(9,139		)


Net increase (decrease) in cash and cash equivalents	67,676			(345,997		)	68,706			(380,901		)
Cash and cash equivalents as of beginning of the period	653,324			998,448			653,324			998,448
Cash and cash equivalents as of end of the period	$	721,000		$	652,451		$	722,030		$	617,547

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

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

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2019

(unaudited)

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, 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:

Institutional Services – servicing our institutional clients, including private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and affiliates such as AXA S.A. ("AXA"), AXA Equitable Holdings, Inc. ("EQH") and their respective subsidiaries, by means of separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles.

Retail Services – servicing our retail clients, primarily by means of retail mutual funds sponsored by AB or an affiliated company, sub-advisory relationships with mutual funds sponsored by third parties, separately-managed account programs sponsored by financial intermediaries worldwide and other investment vehicles.

Private Wealth Management Services – servicing our private clients, including high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities, by means of separately-managed accounts, hedge funds, mutual funds and other investment vehicles.

Bernstein Research Services – servicing institutional investors, such as pension fund, hedge fund and mutual fund managers, seeking high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options.

We also provide distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds we sponsor.

Our high-quality, in-depth research is the foundation of our business. Our research disciplines include economic, fundamental equity, fixed income and quantitative research. In addition, we have experts focused on multi-asset strategies, wealth management and alternative investments.

We provide a broad range of investment services with expertise in:

Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and investment strategies, including value, growth and core equities;

•Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;

•Passive management, including index and enhanced index strategies;

Alternative investments, including hedge funds, fund of funds, direct lending and private ~~equity (e.g., direct lending);~~equity; 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.

Index

Organization

During the second quarter of 2018, AXA completed the sale of a minority stake in EQH through an initial public offering ("IPO"). Since then, AXA has completed additional offerings, most recently during the second quarter of 2019. As a result, AXA owned ~~40.1%~~39.1% of the outstanding common stock of EQH as of ~~June~~September 30, ~~2019. As part of the latest offering, the underwriters exercised their over-allotment option resulting in AXA owning 38.9% of EQH as of July 8,~~ 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 ~~June~~September 30, 2019, EQH owned approximately 4.2% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AllianceBernstein Holding L.P. (“AB Holding Units”). AllianceBernstein Corporation (an indirect wholly-owned subsidiary of EQH, “General Partner”) is the general partner of both AllianceBernstein Holding L.P. (“AB Holding”) and AB. AllianceBernstein Corporation owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB.

As of ~~June~~September 30, 2019, the ownership structure of AB, including limited partnership units outstanding as well as the general partner's 1% interest, was as follows:



EQH and its subsidiaries	~~63.7~~63.8	%
AB Holding	~~35.6~~35.4
Unaffiliated holders	~~0.7~~0.8
	100.0	%

Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate ~~65.2%~~65.3% economic interest in AB as of ~~June~~September 30, 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, 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 2019, prior period amounts for revenues related to our middle market lending business have been reclassified from other revenues to investment advisory fees in the condensed consolidated statements of income to conform to the current period's presentation.

During 2019, prior period amounts for research and miscellaneous fees related to our brokers dealers previously presented as changes in other assets are now presented as changes in receivables; and certain income taxes payable and receivable as

~~Index~~

well as deferred tax assets and liabilities previously presented as changes in payables are now presented as changes in other assets in the condensed consolidated statements of cash flows to conform to the current period's presentation.

Index


2.	Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("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 a lessee to record most leases on 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 previous lease accounting guidance. We adopted this new standard on January 1, 2019 using the 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 period (using our most up-to-date information).

Adoption of this standard resulted in the recording of operating right-of-use assets and lease liabilities 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 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 which are applicable for all companies. We adopted this standard on January 1, 2019. The adoption of this standard 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 2016-13, 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 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 financial condition ~~and~~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 new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019 and will be applied prospectively. 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 2018-13, 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.

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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 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.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements that currently exist in GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software. Implementation costs would either be capitalized or expensed as incurred depending on the project stage. All costs in the preliminary and post-implementation project stages are expensed as incurred, while certain costs within the application development stage are capitalized. The 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 is not expected to have a material impact on our financial condition or results of operations.

Leases

We determine if an arrangement is a lease at inception. Both operating and finance leases are included in the 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 lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available as of the date we adopted ASC 842 in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a 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 fixed payments associated with the lease and do not 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 guidance of ASC 350, Intangibles - Goodwill and Other.

Index

3. Revenue Recognition

Revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 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 June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Subject to contracts with customers:
    Investment advisory and services fees
        Base fees $ 585,077
$ 562,810
$ 1,137,307
$ 1,130,666
        Performance-based fees 11,287
35,298
15,651
41,558
    Bernstein research services 105,991
106,211
196,226
220,611
    Distribution revenues
        All-in-management fees 68,494
64,329
130,267
131,077
        12b-1 fees 20,182
22,075
39,768
44,609
        Other 19,671
18,714
38,821
37,436
    Other revenues
        Shareholder servicing fees 19,563
18,985
37,393
38,515
        Other 4,496
5,781
8,514
11,534
834,761
834,203
1,603,947
1,656,006
Not subject to contracts with customers:
    Dividend and interest income, net of interest
    expense
11,352
9,062
21,535
27,737
    Investment gains (losses) 10,949
213
26,684
26,295
    Other revenues 737
1,260
1,095
2,487
23,038
10,535
49,314
56,519

Total net revenues $ 857,799
$ 844,738
$ 1,653,261
$ 1,712,525


4.	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 ~~six~~three and nine months ended ~~June~~September 30, 2019, we purchased ~~2.0~~0.9 million and 2.9 million AB Holding Units for ~~$58.6~~$25.1 million and $83.7 million (on a trade date basis)~~. As there were no open-market purchases during the second quarter of 2019, these~~, respectively. These amounts reflect open-market purchases of ~~1.9~~0.6 million and 2.5 million AB Holding Units for ~~$55.2~~$15.3 million ~~during the three months ended March 31, 2019,~~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 ~~six~~nine months ended ~~June~~September 30, 2018, AB purchased ~~approximately 1.2~~1.6 million and ~~1.2~~2.9 million AB Holding Units for ~~$32.9~~$48.0 million and ~~$35.2~~$83.2 million, respectively (on a trade date basis). These amounts reflect open-market purchases of ~~1.2~~1.6 million and 2.8 million AB Holding Units for ~~$32.9~~$48.0 million ~~during the second quarter of 2018~~and $80.9 million, respectively, with the remainder relating to purchases of AB Holding Units from employees to allow them to

Index

fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards. Purchases of AB Holding

~~Index~~

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. ~~There was no~~The plan adopted during the ~~first or second~~third quarter of 2019 expired at the close of business on October 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 ~~six~~nine months of 2019 and 2018, we granted to employees and Eligible Directors ~~1.7~~1.9 million and ~~2.4~~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 ~~six~~nine months of 2019 and 2018, AB Holding issued 0.4 million and ~~0.5~~0.6 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of ~~$9.0~~$9.6 million and ~~$8.3~~$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.


5.	Net Income per Unit

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 June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands, except per unit amounts)
Net income attributable to AB Unitholders $ 166,252
$ 181,665
$ 315,366
$ 365,861

Weighted average limited partnership units outstanding – basic 268,475
270,564
267,909
269,870
Dilutive effect of compensatory options to buy AB Holding Units 48
272
60
303
Weighted average limited partnership units outstanding – diluted 268,523
270,836
267,969
270,173
Basic net income per AB Unit $ 0.61
$ 0.66
$ 1.17
$ 1.34
Diluted net income per AB Unit $ 0.61
$ 0.66
$ 1.17
$ 1.34

For both the three and ~~six~~nine months ended ~~June~~September 30, 2019, we excluded 29,056 options from the diluted net income computation due to their anti-dilutive effect. For the three and ~~six~~nine months ended ~~June~~September 30, 2018 , we excluded ~~850,155~~824,245 options and ~~1,211,906~~844,973 options, respectively, from the diluted net income computation due to their anti-dilutive effect.

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

Index

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 ~~July 25,~~October 24, 2019, the General Partner declared a distribution of ~~$0.63~~$0.70 per AB Unit, representing a distribution of Available Cash Flow for the three months ended ~~June~~September 30, 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 ~~August 22,~~November 14, 2019 to holders of record on ~~August 5, 2019.~~November 4, 2019.


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

As of ~~June~~September 30, 2019 and December 31, 2018, ~~$1.1~~$1.0 billion and $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.


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:
June 30,
2019 December 31,
2018
(in thousands)
U.S. Treasury Bills $ —
$ 392,424
Equity securities:
    Long-term incentive compensation-related 34,956
38,883
    Seed capital 84,947
105,951
    Other 14,917
73,409
Exchange-traded options 2,291
2,568
Investments in limited partnership hedge funds:

Long-term incentive compensation-related 13,950
13,546
Seed capital 52,881
67,153
Time deposits 8,487
8,783
Other 12,274
11,627
Total investments $ 224,703
$ 714,344

Total investments related to long-term incentive compensation obligations of ~~$48.9~~$48.8 million and $52.4 million as of ~~June~~September 30, 2019 and December 31, 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.

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. 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. See Note 14, Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidate. As of ~~June~~September 30, 2019 and December 31, 2018, our total seed capital investments were ~~$398.9~~$379.8 million and ~~$391.6~~

Index

$391.6 million, respectively. Seed capital investments in unconsolidated company-sponsored investment funds are valued using

~~Index~~

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.

The portion of unrealized gains (losses) related to equity securities, as defined by ASC 321-10, held as of ~~June~~September 30, 2019 and 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 June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Net gains recognized during the period $ 7,586
$ 1,774
$ 21,580
$ 1,332
Less: net gains (losses) recognized during the period on equity securities sold during the period 1,409
(4,674 ) 4,541
(1,779 )
Unrealized gains recognized during the period on equity securities held $ 6,177
$ 6,448
$ 17,039
$ 3,111


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 ASC 815-10, Derivatives and Hedging.

The notional value and fair value as of ~~June~~September 30, 2019 and December 31, 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

Fair Value
Notional Value Asset Derivatives Liability Derivatives
(in thousands)
June 30, 2019:
Exchange-traded futures $ 185,680
$ 220
$ 3,075
Currency forwards 90,925
7,116
7,241
Interest rate swaps 95,146
1,885
2,537
Credit default swaps 150,244
2,211
5,832
Total return swaps 98,083
39
2,644
Total derivatives $ 620,078
$ 11,471
$ 21,329

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

As of ~~June~~September 30, 2019 and December 31, 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.

The gains and losses for derivative instruments (excluding our options desk trading activities discussed below) for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 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 June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Exchange-traded futures $ (3,436 ) $ 717
$ (8,551 ) $ 1,542
Currency forwards (75 ) 257
(115 ) 274
Interest rate swaps (331 ) (7 ) (645 ) 267
Credit default swaps (1,465 ) (169 ) (3,805 ) (95 )
Total return swaps (3,810 ) (1,217 ) (15,766 ) (40 )
Net (losses) gains on derivative instruments $ (9,117 ) $ (419 ) $ (28,882 ) $ 1,948

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 ~~June~~September 30, 2019 and December 31, 2018, we held $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 ~~June~~September 30, 2019 and December 31, 2018, we delivered ~~$6.9~~$1.9 million and $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 ~~June~~September 30, 2019 and December 31, 2018, we held ~~$2.3~~$5.8 million and $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 ~~June~~September 30, 2019 and December 31, 2018, we held ~~$2.2~~$5.2 million and $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 ~~six~~nine months ended ~~June~~September 30, 2019, we recognized ~~$3.5~~$3.6 million and ~~$11.1~~$14.7 million, respectively, of losses on equity option activity. For the three and ~~six~~nine months ended ~~June~~September 30, 2018, we recognized ~~$4.7~~a $5.7 million gain and ~~$8.9~~a $3.2 million loss, respectively, ~~of losses~~ on equity options activity. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income.

Index


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 ~~June~~September 30, 2019 and December 31, 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)
June 30, 2019:
Securities borrowed $ 70,481
$ —
$ 70,481
$ (69,582 ) $ —
$ 899
Derivatives $ 11,471
$ —
$ 11,471
$ —
$ (280 ) $ 11,191
Long exchange-traded options $ 2,291
$ —
$ 2,291
$ —
$ —
$ 2,291
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

Offsetting of liabilities as of ~~June~~September 30, 2019 and December 31, 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)
June 30, 2019:
Securities loaned $ —
$ —
$ —
$ —
$ —
$ —
Derivatives $ 21,329
$ —
$ 21,329
$ —
$ (6,881 ) $ 14,448
Short exchange-traded options $ 2,177
$ —
$ 2,177
$ —
$ —
$ 2,177
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

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

Index


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.


•	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 ~~June~~September 30, 2019 and December 31, 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
June 30, 2019:
Money markets $ 114,136
$ —
$ —
$ —
$ —
$ 114,136
Securities segregated (U.S. Treasury Bills) —
1,109,589
—
—
—
1,109,589
Derivatives 220
11,251
—
—
—
11,471
Investments
U.S. Treasury Bills —
—
—
—
—
—
  Equity securities 126,007
8,378
117
318
—
134,820
Long exchange-traded options 2,291
—
—
—
—
2,291
   Limited partnership hedge funds⁽²⁾
—
—
—
—
66,831
66,831
   Time deposits⁽³⁾
—
—
—
—
8,487
8,487
   Other investments 5,374
—
—
—
6,900
12,274
Total investments 133,672
8,378
117
318
82,218
224,703
Total assets measured at fair value $ 248,028
$ 1,129,218
$ 117
$ 318
$ 82,218
$ 1,459,899

Securities sold not yet purchased

Short equities – corporate $ 3,227
$ —
$ —
$ —
$ —
$ 3,227
Short exchange-traded options 2,177
—
—
—
—
2,177
Derivatives 3,075
18,254
—
—
—
21,329
Contingent payment arrangements —
—
25,603
—
—
25,603
Total liabilities measured at fair value $ 8,479
$ 18,254
$ 25,603
$ —
$ —
$ 52,336

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, 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

⁽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.

Other investments include (i) an investment in a software publishing company that does not have a readily available fair value ($1.0 million as of September 30, 2019), (ii) an investment in a start-up company that does not have a readily available fair value ($0.9 million as of both ~~June~~September 30, 2019 and December 31, 2018), ~~(ii)~~(iii) an investment in an equity method investee that is not measured at fair value in accordance with GAAP ($~~2.7~~2.5 million as of ~~June~~September 30, 2019 and $3.4 million as of December 31, 2018), and ~~(iii)~~(iv) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($3.3 million as of ~~June~~September 30, 2019 and $3.1 million as of December 31, 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.

~~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


•	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

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.

~~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 ~~six~~nine months ended ~~June~~September 30, 2019, we had a transfer of $3.2 million from Level 2 to Level 1; there were no transfers between Level 2 and Level 3 securities.

The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as private equity and equity securities, is as follows:



	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 June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Balance as of beginning of period $ 115
$ 1,071
$ 142
$ 1,071
Purchases —
—
—
—
Sales —
—
—
—
Realized gains (losses), net —
—
—
—
Unrealized gains (losses), net 2
(954 ) (25 ) (954 )
Balance as of end of period $ 117
$ 117
$ 117
$ 117

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.

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, 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 June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Balance as of beginning of period $ 7,390
$ 10,908
$ 7,336
$ 10,855
Addition 17,384
—
17,384
—
Accretion 829
52
883
105
Payments —
—
—
—
Balance as of end of period $ 25,603
$ 10,960
$ 25,603
$ 10,960

During 2018, we amended the contingent payment relating to our 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 contingent consideration in the fourth quarter of 2018. As of ~~June~~September 30, 2019 and December 31, 2018, acquisition-related

Index

contingent liabilities with a fair value of ~~$25.6~~$26.4 million and $7.3 million, respectively, remain relating to our 2019 and 2016

~~Index~~

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 was valued using a revenue growth rate of 26% and a discount rate ranging from 3.2% to 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 ~~six~~nine months ended ~~June~~September 30, 2019 or during the year ended December 31, 2018.


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 ~~one million~~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 ~~June~~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

Classification June 30, 2019
(in thousands)
Operating Leases
Operating lease right-of-use assets Right-of-use assets $ 397,187
Operating lease liabilities Lease liabilities 513,875

Finance Leases
Property and equipment, gross Right-of-use assets 2,356
Accumulated depreciation Right-of-use assets (577 )
Property and equipment, net 1,779
Finance lease liabilities Lease liabilities 1,789

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


		Three Months Ended June 30,			Six Months Ended June 30,				Three Months Ended September 30,			Nine Months Ended September 30,
	Classification	2019			2019			Classification	2019			2019
		(in thousands)							(in thousands)
Operating lease cost	General and administrative	$	26,506		$	53,648		General and administrative	$	26,181		$	79,829

Financing lease cost:
Amortization of right-of-use assets	General and administrative	291			577			General and administrative	355			932
Interest on lease liabilities	Interest expense	15			32			Interest expense	20			52
Total finance lease cost		306			609				375			984
Variable lease cost ⁽¹⁾	General and administrative	9,876			19,749			General and administrative	10,588			30,337
Sublease income	General and administrative	(13,988		)	(28,451		)	General and administrative	(14,021		)	(42,472		)
Net lease cost		$	22,700		$	45,555			$	23,123		$	68,678

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

The ~~sublease~~sub-lease income represents all revenues received from ~~subtenants.~~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 ~~subtenant~~sub-tenant income is derived from our New York metro ~~subtenant~~sub-tenant agreements. ~~Subtenant~~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		Operating Leases			Financing Leases			Total
Year ending December 31,	(in thousands)								(in thousands)
2019 (excluding the six months ended June 30, 2019)	$	63,580		$	599		$	64,179
2019 (excluding the nine months ended September 30, 2019)									$	28,748		$	377		$	29,125
2020	111,011			941			111,952		112,678			1,251			113,929
2021	102,040			296			102,336		102,964			607			103,571
2022	88,118			—			88,118		89,187			245			89,432
2023	81,395			—			81,395		81,972			126			82,098
Thereafter	120,111			—			120,111		121,626			23			121,649
Total lease payments	566,255			1,836			568,091		537,175			2,629			539,804
Less interest	(52,380		)	(47		)			(48,583		)	(94		)
Present value of lease liabilities	$	513,875		$	1,789				$	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	~~5.53~~5.38
Finance leases	~~1.75~~2.43
Weighted average discount rate
Operating leases	~~3.5~~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

Six Months Ended June 30, 2019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 69,309
Operating cash flows from financing leases 32
Financing cash flows from finance leases 567
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 4,156
Finance leases —
⁽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

June 30, 2019 December 31, 2018
(in thousands)
VIEs VOEs Total VIEs VOEs Total
Cash and cash equivalents $ 8,915
$ 1,750
$ 10,665
$ 11,880
$ 1,238
$ 13,118
Investments 304,067
166,368
470,435
217,840
133,856
351,696
Other assets 14,450
14,169
28,619
6,024
16,816
22,840
Total assets $ 327,432
$ 182,287
$ 509,719
$ 235,744
$ 151,910
$ 387,654

Liabilities $ 17,536
$ 18,047
$ 35,583
$ 5,215
$ 17,395
$ 22,610
Redeemable non-controlling interest 166,285
46,461
212,746
117,523
28,398
145,921
Partners' capital attributable to AB Unitholders 143,611
117,779
261,390
113,006
106,117
219,123
Total liabilities, redeemable non-controlling interest and partners' capital $ 327,432
$ 182,287
$ 509,719
$ 235,744
$ 151,910
$ 387,654

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 ~~June~~September 30, 2019 and December 31, 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
June 30, 2019:
  Investments - VIEs $ 27,049
$ 266,235
$ 10,783
$ —
$ 304,067
  Investments - VOEs 95,439
69,878
1,051
—
166,368
  Derivatives - VIEs 1,454
2,575
—
—
4,029
  Derivatives - VOEs 145
972
—
—
1,117
Total assets measured at fair value $ 124,087
$ 339,660
$ 11,834
$ —
$ 475,581

Derivatives - VIEs 317
3,686
—
—
4,003
  Derivatives - VOEs 345
922
—
—
1,267
Total liabilities measured at fair value $ 662
$ 4,608
$ —
$ —
$ 5,270

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

See Note 11 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.

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 June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)

Balance as of beginning of period $ 10,261
$ 5,901
$ 8,373
$ 2,264
Transfers (out) in (89 ) 337
(186 ) 324
Purchases 5,680
2,100
7,791
6,134
Sales (4,065 ) (2,290 ) (4,349 ) (2,623 )
Realized gains (losses), net 21
(104 ) 23
(99 )
Unrealized gains (losses), net 20
(75 ) 169
(133 )
Accrued discounts 6
2
13
4
Balance as of end of period $ 11,834
$ 5,871
$ 11,834
$ 5,871

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 ~~June~~September 30, 2019 and December 31, 2018, the VIEs held $0.1 million and $0.5 million (net), respectively, of futures, forwards and swaps within their portfolios. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, we recognized ~~$1.6~~$0.6 million and ~~$2.7~~$3.3 million of gains, respectively, on these derivatives. For the three and ~~six~~nine months ended ~~June~~September 30, 2018 we recognized ~~$15.8~~$0.5 million of losses and ~~$0.9~~$0.4 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 ~~June~~September 30, 2019 and December 31, 2018, the VIEs held $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 ~~June~~September 30, 2019 and December 31, 2018, the VIEs delivered ~~$2.7~~$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 ~~both June~~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 ~~six~~nine months ended ~~June~~September 30, 2019, we recognized ~~$0.6~~$1.0 million and $0.5 million of ~~losses,~~gains, respectively, on these derivatives. For the three and ~~six~~nine months ended ~~June~~September 30, 2018 we recognized ~~$1.8~~$0.2 million and ~~$1.3~~$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 ~~June~~September 30, 2019 and December 31, 2018, the VOEs held ~~$0.4~~$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 ~~June~~September 30, 2019 and December 31, 2018, the VOEs delivered ~~$0.8~~$1.3 million and $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.

Offsetting Assets and Liabilities

Offsetting of derivative assets of consolidated company-sponsored investment funds as of ~~June~~September 30, 2019 and December 31, 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

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)
June 30, 2019:
Derivatives - VIEs $ 4,029
$ —
$ 4,029
$ —
$ (1,351 ) $ 2,678
Derivatives - VOEs $ 1,117
$ —
$ 1,117
$ —
$ (422 ) $ 695
December 31, 2018:

Derivatives - VIEs $ 3,410
$ —
$ 3,410
$ —
$ (856 ) $ 2,554
Derivatives - VOEs $ 3,816
$ —
$ 3,816
$ —
$ (225 ) $ 3,591

Index

Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of ~~June~~September 30, 2019 and December 31, 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)
June 30, 2019:
Derivatives - VIEs $ 4,003
$ —
$ 4,003
$ —
$ (2,690 ) $ 1,313
Derivatives - VOEs $ 1,267
$ —
$ 1,267
$ —
$ (824 ) $ 443
December 31, 2018:

Derivatives - VIEs $ 3,891
$ —
$ 3,891
$ —
$ (829 ) $ 3,062
Derivatives - VOEs $ 3,830
$ —
$ 3,830
$ —
$ (547 ) $ 3,283

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 ~~June~~September 30, 2019, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately ~~$100.9~~$72.0 billion, and our maximum risk of loss is our investment of ~~$13.1~~$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 ~~six-month~~nine-month period ended ~~June~~September 30, 2019 were as follows:




Outstanding as of December 31, 2018	268,850,276
Options exercised	~~406,235~~443,800
Units issued	~~2,068,514~~2,073,854
Units retired ⁽¹⁾	(~~2,509,460~~3,184,973	)
Balance as of ~~June~~September 30, 2019	~~268,815,565~~268,182,957

⁽¹⁾ Includes ~~882~~982 AB Units purchased in private transactions and retired during the first ~~six~~nine months of 2019.


16.	Debt

As of ~~June~~September 30, 2019 and December 31, 2018, AB had ~~$444.1~~$304.7 million and $523.2 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 2.2% and 2.7% ~~for both periods.~~, respectively. Debt included in the statement of financial condition is presented net of issuance costs of ~~$1.7~~$1.6 million and $1.9 million as of ~~June~~September 30, 2019 and December 31, 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 ~~six~~nine months of 2019 and the full year 2018 were ~~$516.7~~$464.5 million and $350.3 million, respectively, with weighted average interest rates of approximately ~~2.7%~~2.6% and 2.0%, respectively.

Index

~~June~~September 30, 2019 ~~we had noamounts outstanding under the Revolver. As of~~and December 31, 2018, we had ~~$25.0~~$80.0 millionand$25.0 million outstanding under the Revolver, respectively, with an interest ~~rate~~rates of 2.9% and 3.4%., respectively. Average daily borrowing under the Revolver during the first ~~six~~nine months of 2019 and full year 2018 were ~~$33.0~~$28.0 million and $19.4 million, respectively, with weighted average interest rates of approximately 3.4% and 2.8%, respectively.


17.	Non-controlling Interests

Non-controlling interest in net income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 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 June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Non-redeemable non-controlling interests:
    Consolidated company-sponsored investment funds $ —
$ (11 ) $ —
$ (53 )
    Other 58
73
74
171
Total non-redeemable non-controlling interests 58
62
74
118
Redeemable non-controlling interests:
    Consolidated company-sponsored investment funds 7,699
199
17,799
22,793
Total non-controlling interest in net income $ 7,757
$ 261
$ 17,873
$ 22,911

Non-redeemable non-controlling interest as of ~~June~~September 30, 2019 and December 31, 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

June 30, 2019 December 31, 2018
(in thousands)
Consolidated company-sponsored investment funds $ —
$ —
CPH 1,020
949
Total non-redeemable non-controlling interest $ 1,020
$ 949

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

Index

June 30, 2019 December 31, 2018
(in thousands)
Consolidated company-sponsored investment funds $ 212,746
$ 145,921
CPH 2,888
2,888
Total redeemable non-controlling interest $ 215,634
$ 148,809



	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

~~Index~~

at the time of acquisition. The Autonomous acquisition did not have a material impact on our financial condition or results of operations.

Index

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, 2019 were $592.4 billion, up $11.6 billion, or 2.0%, compared to June 30, 2019, ~~were $580.8 billion, up $26.1 billion, or 4.7%, compared to March 31, 2019,~~ and up ~~$41.0~~$42.0 billion, or 7.6%, compared to ~~June~~September 30, 2018. During the ~~second~~third quarter of 2019, AUM increased as a result of ~~market appreciation of $17.5 billion and~~ net inflows of ~~$9.5~~$8.1 billion (Retail net inflows of ~~$5.9~~$7.4 billion and Institutional net inflows of ~~$4.2~~$1.5 billion, offset by net outflows of ~~$0.6~~$0.8 billion ~~for~~from Private Wealth Management). and market appreciation of $3.5 billion. During the twelve months ended ~~June~~September 30, 2019, AUM increased as a result of market appreciation of ~~$29.3~~$23.4 billion and net inflows of ~~$12.6~~$19.5 billion (Retail net inflows of ~~$13.1~~$19.3 billion and Institutional net inflows of ~~$0.3~~$2.1 billion, offset by net outflows of ~~$0.8~~$1.9 billion ~~for~~from Private Wealth Management).

Institutional AUM increased ~~$12.5~~$3.8 billion, or ~~4.9%~~1.4%, to ~~$269.1~~$272.9 billion during the ~~second~~third quarter of 2019, due to market appreciation of ~~$8.3~~$2.3 billion and net inflows of $1.5 billion. Gross sales decreased sequentially from $5.5 billion during the second quarter of 2019 to $2.9 billion during the third quarter of 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 ~~$3.4~~$18.8 billion during the ~~first~~second quarter of 2019 to ~~$5.5~~$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 ~~$5.2~~$3.6 billion to ~~$1.3~~$3.2 billion.

Retail AUM increased $12.6 billion, or 6.2%, to $214.5 billion during the second quarter of 2019, due to market appreciation of $6.7 billion and net inflows of $5.9 billion. Gross sales increased sequentially from $16.4 billion during the first quarter of 2019 to $18.8 billion during the second quarter of 2019. Redemptions and terminations increased sequentially from $10.1 billion to $11.2 billion.

Private Wealth Management AUM increased $1.0 billion, or 1.0%, to $97.2 billion during the second quarter of 2019, due to market appreciation of $2.5 billion, offset by adjustments of $0.9 billion, relating to the removal of non-investment management fee earning assets, and net outflows of $0.6 billion. Gross sales decreased sequentially from $3.3 billion during the first quarter of 2019 to $3.0 billion during the second quarter of 2019. Redemptions and terminations increased sequentially from $2.9 billion to $3.6 billion.

Bernstein Research Services revenue for the ~~second~~third quarter of 2019 was ~~$106.0~~$102.0 million, down ~~$0.2~~$1.6 million, or ~~0.2%~~1.5%, compared to the ~~second~~third quarter of 2018 ~~as a decline in~~due to lower global customer activity and trading commissions ~~following a period of heightened volatility and client activity last year~~which was partially offset by ~~higher research revenues and~~ the inclusion of revenues from our recent acquisition of Autonomous.

Net revenues for the ~~second~~third quarter of 2019 increased ~~$13.1~~$27.7 million, or ~~1.5%~~3.3%, to ~~$857.8~~$877.9 million from ~~$844.7~~$850.2 million in the second quarter of 2018. The most significant contributors to the increase were higher investment advisory base fees of $22.3 million, higher investment gains of $10.7 million and higher distribution revenue of $3.2 million, offset by lower performance-based fees of $24.0 million. Operating expenses for the second quarter of 2019 increased $18.3 million, or 2.8%, to $673.6 million from $655.3 million in the secondthird quarter of 2018. The increase was primarily due to higher investment advisory base fees of $39.8 million, higher distribution revenues of $14.1 million and higher investment gains of $3.9 million, offset by lower performance-based fees of $33.5 million. Operating expenses for the third quarter of 2019 increased $38.7 million, or 6.1%, to $675.1 million from $636.4 million in the third quarter of 2018. The increase was primarily due to higher promotion and servicing expenses of $23.3 million, higher general and administrative expenses of ~~$11.3~~$9.8 million and higher employee compensation and benefits expenses of ~~$5.5 million and higher promotion and servicing expenses of $5.4 million, offset by lower real estate charges of $6.4~~$4.4 million. Our operating income decreased ~~$5.2~~$11.0 million, or ~~2.8%~~5.2%, to ~~$184.2~~$202.8 million from ~~$189.4~~$213.8 million and our operating margin declined to ~~20.6%~~22.6% in the ~~second~~third quarter of 2019 from ~~22.4%~~25.1% in the ~~second~~third quarter of 2018.

Market Environment

~~Global~~U.S. equity markets ended the third quarter mostly higher, despite mixed economic data and ~~fixed income markets were~~continued trade tensions. Specifically, the Dow Jones industrial average, S&P 500, and Nasdaq 100 all finished marginally higher in the ~~second~~third quarter of ~~2019, despite intra-quarter volatility, and added~~2019. The U.S. continued to ~~year-to-date strength~~outperform international equities, as the S&P 500 reached an all-time high. While returns have been strong in 2019, they have been driven primarily by rising valuations as investors remain cautious about the pace of global growth. The global economy continues to face headwinds, such as weak economic data, including disappointing manufacturing surveys in the U.S., China, Japan and Europe, global trade tensions that remain unresolved, political uncertainty in Europe and low inflation levels. Current market pricing reflects investors' expectations that Central Banks will introduce or continue stimulus efforts in 2019 in order to maintain economic expansion. dollar strengthened. In the U.S., the Federal Reserve ~~took~~showed its commitment to addressing a ~~more proactive stance and indicated that it would take appropriate action~~possible slowdown by cutting rates twice in ~~order to sustain expansion, likely~~a quarter for the first time in ten years. Despite these cuts, the ~~form of~~yield curve remains inverted. As a ~~rate cut as early as this year.~~result, the Federal Reserve has implemented daily repurchase operations for the first time since emerging from the financial crisis. In Europe, the European Central Bank ~~indicated~~announced a fresh stimulus package in September that ~~monetary policy would be loosened, unless~~pushed the ~~economy improves, with further quantitative easing and interest rates reduced~~deposit rate further into negative ~~territory if necessary.~~territory. Interest rates in Europe are likely to stay near zero for the foreseeable future. In China, ~~reserve requirements for banks~~the need to negotiate a form of trade deal with the U.S. or introduce new measures of stimulus continued, as several announcements on stimulus measures have been ~~reduced multiple times since 2018 and large amounts of liquidity have been injected into the financial system.~~made.

Index

MiFID II

In Europe, MiFID II, which became effective on January 3, 2018, has made significant modifications to the manner in which European broker-dealers can be compensated for research. These modifications are believed to have significantly reduced the overall research spend by European buy-side firms, which has decreased the revenues we derive from our European clients. Our European clients may continue to reduce their research budgets, which could result in a significant decline in our sell-side revenues.

Also, while MiFID II is not applicable to firms operating outside of Europe, competitive and client pressures may force buy-side firms operating outside of Europe to pay for research from their own resources instead of through bundled trading commissions. If that occurs, we would expect that research budgets from those clients will decrease further, which could result in an additional significant decline in our sell-side revenues. Additionally, these competitive and client pressures may result in our buy-side operation paying for research out of our own resources instead of through bundled trading commissions, which could increase our firm's expenses and decrease our operating income.

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

AXA Equitable Holdings IPO

While to date we have not experienced adverse effects from the IPO and we cannot at this time predict the eventual impact, if any, on AB of this transaction, such impact could include a reduction in the support AXA has provided to AB in the past with respect to AB's investment management business, resulting in a decrease in our revenues and ability to initiate new investment services. Also, AB relies on AXA, including its subsidiary, AXA Business Services, for a number of significant services and AB 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/returns and (iii) subject to applicable fiduciary duties.

Relocation Strategy

On May 2, 2018, we announced that we would establish our corporate headquarters in, and relocate approximately 1,050 jobs located in the New York metro area to, Nashville, TN. Our Nashville headquarters will house Finance, IT, Operations, Legal, Compliance, Internal Audit, Human Capital, and Sales and Marketing. We have begun relocating jobs and expect this transition to take several years. We will continue to maintain a principal location in New York City, which will house our Portfolio 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 began in 2018 and is expected to continue through 2024, we currently estimate that we will incur transition costs of approximately $155 million to $165 million. These costs include employee relocation, severance, recruitment, and overlapping compensation and occupancy costs. Over this same period, we expect to realize total expense savings of approximately ~~$190~~$180 million to ~~$200~~$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 ~~$16~~$25 million in the ~~six~~nine months ended ~~June~~September 30, 2019. This compares to estimated expense savings of approximately $7$11 million for the first ~~six~~nine months of 2019. We currently anticipate that the largest reduction in net income per unit ("EPU") during the transition period will be approximately $0.08 in 2019. We expect to achieve breakeven or a slight accretion in EPU in 2021 and then achieve EPU accretion in each year thereafter. Beginning in 2025, once the transition period has been completed, we estimate ongoing annual expense savings of approximately $70 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

~~Index~~

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 are 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” and “Cautions Regarding Forward-Looking Statements” in this 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 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 previously adopted a goal of increasing our adjusted operating margin to a target of 30% by 2020 (the “2020 Margin Target”), subject to the assumptions, factors and contingencies described as part of the initial disclosure of this target. Our adjusted operating margin, which was 29.1% during 2018, declined to ~~24.7%~~25.7% during the first ~~six~~nine months of 2019.

Our AUM and, therefore, our investment advisory revenues, including performance-based fee revenues, are heavily dependent upon the level and volatility of the financial markets. Based upon our current revenue and expense projections, we do not believe that achieving the 2020 Margin Target is likely. However, we are taking additional actions to better align our expenses with our ~~lower~~ expected revenues. We remain committed to achieving an adjusted operating margin of 30% in years subsequent to 2020 and will take continued actions in this regard, subject to prevailing market conditions and the evolution of our business mix.

Index

Assets Under Management

Assets under management by distribution channel are as follows:


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

Institutions	$	269.1	$	254.4	$	14.7	5.8	%	$	272.9	$	257.0	$	15.9		6.2	%
Retail	214.5		190.3		24.2		12.7		222.5		196.3		26.2			13.3
Private Wealth Management	97.2		95.1		2.1		2.2		97.0		97.1		(0.1		)	(0.1	)
Total	$	580.8	$	539.8	$	41.0	7.6		$	592.4	$	550.4	$	42.0		7.6

Assets under management by investment service are as follows:


	As of June 30,									As of September 30,
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(in billions)									(in billions)
Equity
Actively Managed	$	161.8	$	147.2	$	14.6		9.9	%	$	159.9	$	155.9	$	4.0		2.5	%
Passively Managed⁽¹⁾	57.4		53.8		3.6			6.6		56.8		56.0		0.8			1.5
Total Equity	219.2		201.0		18.2			9.0		216.7		211.9		4.8			2.2

Fixed Income
Actively Managed
Taxable	240.8		225.9		14.9			6.6		252.9		224.8		28.1			12.5
Tax–exempt	44.3		41.6		2.7			6.6		45.8		42.0		3.8			9.2
	285.1		267.5		17.6			6.6		298.7		266.8		31.9			12.0

Passively Managed⁽¹⁾	9.5		10.1		(0.6		)	(5.9	)	9.4		9.9		(0.5		)	(4.7	)
Total Fixed Income	294.6		277.6		17.0			6.2		308.1		276.7		31.4			11.4

Other⁽²⁾
Actively Managed	65.8		60.4		5.4			8.8		66.2		61.0		5.2			8.7
Passively Managed⁽¹⁾	1.2		0.8		0.4			61.3		1.4		0.8		0.6			52.6
Total Other	67.0		61.2		5.8			9.4		67.6		61.8		5.8			9.3
Total	$	580.8	$	539.8	$	41.0		7.6		$	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, ~~six-month~~nine-month and twelve-month periods ended ~~June~~September 30, 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 March 31, 2019	$	256.6		$	201.9		$	96.2		$	554.7
Balance as of June 30, 2019													$	269.1		$	214.5		$	97.2		$	580.8
Long-term flows:
Sales/new accounts	5.5			18.8			3.0			27.3			2.9			21.1			2.3			26.3
Redemptions/terminations	(1.3		)	(11.2		)	(3.6		)	(16.1		)	(4.2		)	(11.2		)	(3.2		)	(18.6		)
Cash flow/unreinvested dividends	—			(1.7		)	—			(1.7		)	2.8			(2.5		)	0.1			0.4
Net long-term inflows (outflows)	4.2			5.9			(0.6		)	9.5			1.5			7.4			(0.8		)	8.1
Adjustments⁽³⁾	—			—			(0.9		)	(0.9		)
Market appreciation	8.3			6.7			2.5			17.5			2.3			0.6			0.6			3.5
Net change	12.5			12.6			1.0			26.1			3.8			8.0			(0.2		)	11.6
Balance as of June 30, 2019	$	269.1		$	214.5		$	97.2		$	580.8
Balance as of September 30, 2019													$	272.9		$	222.5		$	97.0		$	592.4

Balance as of December 31, 2018	$	246.3		$	180.8		$	89.3		$	516.4		$	246.3		$	180.8		$	89.3		$	516.4
Long-term flows:
Sales/new accounts	8.8			35.2			6.3			50.3
Redemptions/terminations	(6.5		)	(21.2		)	(6.5		)	(34.2		)
Cash flow/unreinvested dividends	(2.8		)	(2.8		)	0.1			(5.5		)
Net long-term (outflows) inflows	(0.5		)	11.2			(0.1		)	10.6
Adjustments⁽³⁾	—			—			(0.9		)	(0.9		)
Transfers	0.1			—			(0.1		)	—
Market appreciation	23.2			22.5			9.0			54.7
Net change	22.8			33.7			7.9			64.4
Balance as of June 30, 2019	$	269.1		$	214.5		$	97.2		$	580.8

Balance as of June 30, 2018	$	254.4		$	190.3		$	95.1		$	539.8
Long-term flows:
Sales/new accounts	16.2			62.9			11.8			90.9			11.7			56.4			8.6			76.7
Redemptions/terminations	(12.2		)	(43.0		)	(12.2		)	(67.4		)	(10.7		)	(32.4		)	(9.7		)	(52.8		)
Cash flow/unreinvested dividends	(3.7		)	(6.8		)	(0.4		)	(10.9		)	—			(5.4		)	0.2			(5.2		)
Net long-term inflows (outflows)	0.3			13.1			(0.8		)	12.6			1.0			18.6			(0.9		)	18.7
Adjustments⁽³⁾	—			—			(0.9		)	(0.9		)	—			—			(0.9		)	(0.9		)
Transfers	0.2			0.2			(0.4		)	—			0.1			—			(0.1		)	—
Market appreciation	14.2			10.9			4.2			29.3			25.5			23.1			9.6			58.2
Net change	14.7			24.2			2.1			41.0			26.6			41.7			7.7			76.0
Balance as of June 30, 2019	$	269.1		$	214.5		$	97.2		$	580.8
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
Long-term flows:
Sales/new accounts													15.3			71.4			11.1			97.8
Redemptions/terminations													(14.8		)	(44.6		)	(13.1		)	(72.5		)
Cash flow/unreinvested dividends													1.6			(7.5		)	0.1			(5.8		)
Net long-term inflows (outflows)													2.1			19.3			(1.9		)	19.5
Adjustments⁽³⁾													—			—			(0.9		)	(0.9		)
Transfers													(0.1		)	0.2			(0.1		)	—
Market appreciation													13.9			6.7			2.8			23.4
Net change													15.9			26.2			(0.1		)	42.0
Balance as of September 30, 2019													$	272.9		$	222.5		$	97.0		$	592.4

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 March 31, 2019	$	155.1		$	55.8		$	227.2		$	43.8		$	9.3		$	63.5		$	554.7
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	8.8			—			13.1			2.6			—			2.8			27.3			6.9			0.3			16.2			2.5			—			0.4			26.3
Redemptions/terminations	(6.7		)	—			(6.5		)	(2.4		)	(0.1		)	(0.4		)	(16.1		)	(7.2		)	(0.6		)	(8.8		)	(1.5		)	(0.1		)	(0.4		)	(18.6		)
Cash flow/unreinvested dividends	(1.1		)	(0.6		)	0.3			(0.1		)	(0.1		)	(0.1		)	(1.7		)	(1.1		)	(0.8		)	2.0			—			(0.1		)	0.4			0.4
Net long-term inflows (outflows)	1.0			(0.6		)	6.9			0.1			(0.2		)	2.3			9.5
Adjustments⁽³⁾	—			—			(0.4		)	(0.5		)	—			—			(0.9		)
Market appreciation	5.7			2.2			7.1			0.9			0.4			1.2			17.5
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	6.7			1.6			13.6			0.5			0.2			3.5			26.1			(1.9		)	(0.6		)	12.1			1.5			(0.1		)	0.6			11.6
Balance as of June 30, 2019	$	161.8		$	57.4		$	240.8		$	44.3		$	9.5		$	67.0		$	580.8
Balance as of September 30, 2019																						$	159.9		$	56.8		$	252.9		$	45.8		$	9.4		$	67.6		$	592.4

Balance as of December 31, 2018	$	136.2		$	50.2		$	219.7		$	41.7		$	9.4		$	59.2		$	516.4		$	136.2		$	50.2		$	219.7		$	41.7		$	9.4		$	59.2		$	516.4
Long-term flows:
Sales/new accounts	16.7			(0.1		)	24.6			5.2			0.1			3.8			50.3			23.7			0.2			40.8			7.6			0.1			4.3			76.7
Redemptions/terminations	(12.9		)	—			(15.7		)	(4.0		)	(0.2		)	(1.4		)	(34.2		)	(20.1		)	(0.6		)	(24.5		)	(5.5		)	(0.3		)	(1.8		)	(52.8		)
Cash flow/unreinvested dividends	(1.8		)	(1.3		)	(2.8		)	(0.2		)	(0.4		)	1.0			(5.5		)	(2.9		)	(2.1		)	(0.9		)	(0.1		)	(0.5		)	1.3			(5.2		)
Net long-term inflows (outflows)	2.0			(1.4		)	6.1			1.0			(0.5		)	3.4			10.6			0.7			(2.5		)	15.4			2.0			(0.7		)	3.8			18.7
Adjustments⁽³⁾	—			—			(0.4		)	(0.5		)	—			—			(0.9		)	—			—			(0.4		)	(0.5		)	—			—			(0.9		)
Market appreciation	23.6			8.6			15.4			2.1			0.6			4.4			54.7			23.0			9.1			18.2			2.6			0.7			4.6			58.2
Net change	25.6			7.2			21.1			2.6			0.1			7.8			64.4			23.7			6.6			33.2			4.1			—			8.4			76.0
Balance as of June 30, 2019	$	161.8		$	57.4		$	240.8		$	44.3		$	9.5		$	67.0		$	580.8
Balance as of September 30, 2019																						$	159.9		$	56.8		$	252.9		$	45.8		$	9.4		$	67.6		$	592.4

Balance as of June 30, 2018	$	147.2		$	53.8		$	225.9		$	41.6		$	10.1		$	61.2		$	539.8
Balance as of September 30, 2018																						$	155.9		$	56.0		$	224.8		$	42.0		$	9.9		$	61.8		$	550.4
Long-term flows:
Sales/new accounts	33.9			2.9			38.5			8.8			0.1			6.7			90.9			32.1			3.2			47.4			9.3			0.1			5.7			97.8
Redemptions/terminations	(23.4		)	(0.3		)	(32.5		)	(7.6		)	(0.6		)	(3.0		)	(67.4		)	(25.9		)	(0.8		)	(35.0		)	(7.7		)	(0.5		)	(2.6		)	(72.5		)
Cash flow/unreinvested dividends	(3.9		)	(3.0		)	(3.8		)	(0.6		)	(0.6		)	1.0			(10.9		)	(3.9		)	(2.7		)	(0.3		)	(0.4		)	(0.7		)	2.2			(5.8		)
Net long-term inflows (outflows)	6.6			(0.4		)	2.2			0.6			(1.1		)	4.7			12.6			2.3			(0.3		)	12.1			1.2			(1.1		)	5.3			19.5
Adjustments⁽³⁾	—			—			(0.4		)	(0.5		)	—			—			(0.9		)	—			—			(0.4		)	(0.5		)	—			—			(0.9		)
Market appreciation	8.0			4.0			13.1			2.6			0.5			1.1			29.3			1.7			1.1			16.4			3.1			0.6			0.5			23.4
Net change	14.6			3.6			14.9			2.7			(0.6		)	5.8			41.0			4.0			0.8			28.1			3.8			(0.5		)	5.8			42.0
Balance as of June 30, 2019	$	161.8		$	57.4		$	240.8		$	44.3		$	9.5		$	67.0		$	580.8
Balance as of September 30, 2019																						$	159.9		$	56.8		$	252.9		$	45.8		$	9.4		$	67.6		$	592.4

~~Index~~

(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

Index

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, ~~six-month~~nine-month and twelve-month periods ended ~~June~~September 30, 2019 are as follows:


	Periods Ended June 30, 2019									Periods Ended September 30, 2019
	Three-months			Six-months			Twelve-months			Three-months			Nine-months			Twelve-months
	(in billions)									(in billions)
Actively Managed
Equity	$	1.0		$	2.0		$	6.6		$	(1.4	)	$	0.7		$	2.3
Fixed Income	7.0			7.1			2.8			10.4			17.4			13.3
Other	2.2			3.2			4.3			0.3			3.5			4.8
	10.2			12.3			13.7			9.3			21.6			20.4
Passively Managed
Equity	(0.6		)	(1.4		)	(0.4		)	(1.1		)	(2.5		)	(0.3		)
Fixed Income	(0.2		)	(0.5		)	(1.1		)	(0.2		)	(0.7		)	(1.1		)
Other	0.1			0.2			0.4			0.1			0.3			0.5
	(0.7		)	(1.7		)	(1.1		)	(1.2		)	(2.9		)	(0.9		)
Total net long-term inflows	$	9.5		$	10.6		$	12.6		$	8.1		$	18.7		$	19.5

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


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(in billions)									(in billions)									(in billions)									(in billions)
Distribution Channel:
Institutions	$	262.1	$	256.7	$	5.4		2.1	%	$	257.2	$	262.7	$	(5.5	)	(2.1	)%	$	270.7	$	256.6	$	14.1		5.5	%	$	261.4	$	261.1	$	0.3		0.1	%
Retail	207.3		191.0		16.3			8.6		200.1		192.7		7.4			3.9		218.5		194.0		24.5			12.6		206.1		193.4		12.7			6.5
Private Wealth Management	96.5		94.5		2.0			2.1		94.9		94.2		0.7			0.7		97.1		96.3		0.8			0.8		95.5		95.0		0.5			0.6
Total	$	565.9	$	542.2	$	23.7		4.4		$	552.2	$	549.6	$	2.6		0.5		$	586.3	$	546.9	$	39.4		7.2		$	563.0	$	549.5	$	13.5		2.4
Investment Service:
Equity Actively Managed	$	157.4	$	145.4	$	12.0		8.2	%	$	152.6	$	144.4	$	8.2		5.7	%	$	160.3	$	152.4	$	7.9		5.2	%	$	154.8	$	147.3	$	7.5		5.1	%
Equity Passively Managed⁽¹⁾	56.1		52.7		3.4			6.5		54.9		53.7		1.2			2.3		57.1		55.3		1.8			3.2		55.6		54.3		1.3			2.2
Fixed Income Actively Managed – Taxable	233.5		230.6		2.9			1.3		228.6		236.9		(8.3		)	(3.5	)	246.9		225.5		21.4			9.5		234.7		233.4		1.3			0.5
Fixed Income Actively Managed – Tax-exempt	44.1		41.1		3.0			7.3		43.3		40.8		2.5			6.0		45.3		41.9		3.4			8.2		44.0		41.2		2.8			6.8
Fixed Income Passively Managed⁽¹⁾	9.4		10.0		(0.6		)	(6.0	)	9.4		10.0		(0.6		)	(5.8	)	9.5		10.0		(0.5		)	(4.9	)	9.4		10.0		(0.6		)	(5.4	)
Other ⁽²⁾	65.4		62.4		3.0			4.6		63.4		63.8		(0.4		)	(0.7	)	67.2		61.8		5.4			8.7		64.5		63.3		1.2			2.0
Total	$	565.9	$	542.2	$	23.7		4.4		$	552.2	$	549.6	$	2.6		0.5		$	586.3	$	546.9	$	39.4		7.2		$	563.0	$	549.5	$	13.5		2.4

(1)Includes index and enhanced index services.

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

~~Index~~

Our Institutional channel ~~second~~third quarter average AUM of ~~$262.1~~$270.7 billion increased ~~$5.4~~$14.1 billion, or ~~2.1%~~5.5%, compared to the ~~second~~third quarter of 2018. Our Institutional AUM increased ~~$14.7~~$15.9 billion, or ~~5.8%~~6.2%, to ~~$269.1~~$272.9 billion over the last twelve months. The ~~$14.7~~$15.9 billion increase in AUM primarily resulted from market appreciation of ~~$14.2~~$13.9 billion ~~(with $8.3 million~~and net inflows of ~~the appreciation occurring in the second quarter of 2019).~~$2.1 billion.

Index

Our Retail channel ~~second~~third quarter average AUM of ~~$207.3~~$218.5 billion increased ~~$16.3~~$24.5 billion, or ~~8.6%~~12.6%, compared to the ~~second~~third quarter of ~~2018~~. 2018. Our Retail AUM increased ~~$24.2~~$26.2 billion, or ~~12.7%~~13.3%, to ~~$214.5~~$222.5 billion over the last twelve months. The ~~$24.2~~$26.2 billion increase resulted from net inflows of ~~$13.1~~$19.3 billion and market appreciation of ~~$10.9 billion (with~~ $6.7 ~~billion of the appreciation occurring in the second quarter of 2019).~~billion.

Our Private Wealth Management channel ~~second~~third quarter average AUM of ~~$96.5~~$97.1 billion increased ~~$2.0~~$0.8 billion, or ~~2.1%~~0.8%, compared to the ~~second~~third quarter of 2018. Our Private Wealth Management AUM ~~increased $2.1~~decreased $0.1 billion, or ~~2.2%~~0.1%, to ~~$97.2~~$97.0 billion over the last twelve months. The ~~$2.1~~$0.1 billion ~~increase~~decrease resulted from net outflows of $1.9 billion and an adjustment of $0.9 billion in the second quarter of 2019 relating to the removal of non-investment management fee earning assets, partially offset by market appreciation of ~~$4.2 billion, partially offset by net outflows of $0.8 million.~~$2.8 billion.

Index

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


	1-Year		3-Year		5-Year		1-Year		3-Year		5-Year
Global High Income - Hedged (fixed income)
Absolute return	6.8	%	7.1	%	4.7	%	6.8	%	6.0	%	5.4	%
Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged)	(2.0	)	(0.1	)	(0.4	)	0.1		0.6		(0.2	)
U.S. High Yield (fixed income)
Absolute return	7.0		7.1		4.6		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	8.0		3.6		4.2		10.5		4.0		4.5
Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged)	0.3		0.6		0.4		(0.1	)	0.4		0.4
Intermediate Municipal Bonds (fixed income)
Absolute return	5.7		2.2		2.8		6.6		2.5		2.8
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg)	1.4		0.6		0.9		1.3		0.6		0.8
U.S. Strategic Core Plus (fixed income)
Absolute return	7.9		3.2		3.7		10.3		3.6		4.1
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index)	0.1		0.9		0.8		—		0.6		0.7
Emerging Market Debt (fixed income)
Absolute return	11.6		5.5		4.4		10.0		4.0		4.9
Relative return (vs. JPM EMBI Global/JPM EMBI)	0.2		0.9		—		(0.7	)	0.2		(0.2	)
Emerging Markets Value
Absolute return	3.0		9.7		1.8		(1.7	)	4.1		1.4
Relative return (vs. MSCI EM Index)	1.8		(1.0	)	(0.7	)	0.4		(1.9	)	(0.9	)
Global Strategic Value
Absolute return	(6.0	)	6.9		3.0		(6.9	)	5.0		3.8
Relative return (vs. MSCI ACWI Index)	(11.7	)	(4.7	)	(3.2	)	(8.3	)	(4.7	)	(2.8	)
U.S. Small & Mid Cap Value
Absolute return	(4.7	)	10.1		6.3		(6.9	)	7.0		7.5
Relative return (vs. Russell 2500 Value Index)	(2.8	)	1.1		0.8		(2.6	)	0.1		0.5
U.S. Strategic Value
Absolute return	(1.6	)	7.0		3.8		(2.5	)	6.6		4.2
Relative return (vs. Russell 1000 Value Index)	10.0		(3.1	)	(3.7	)	(6.5	)	(2.8	)	(3.6	)
U.S. Small Cap Growth
Absolute return	11.6		25.6		13.3		(5.3	)	19.4		13.0
Relative return (vs. Russell 2000 Growth Index)	12.1		10.9		4.7		4.3		9.6		4.0
U.S. Large Cap Growth
Absolute return	14.6		20.4		16.1		8.1		18.3		15.6
Relative return (vs. Russell 1000 Growth Index)	3.1		2.3		2.7		4.4		1.5		2.2
U.S. Small & Mid Cap Growth
Absolute return	8.1		21.7		12.2		(7.3	)	16.3		11.2
Relative return (vs. Russell 2500 Growth Index)	2.0		5.5		2.2		(3.2	)	4.0		1.0
Concentrated U.S. Growth
Absolute return	23.8		21.9		14.3		13.2		18.8		14.0
Relative return (vs. S&P 500 Index)	13.4		7.7		3.5		8.9		5.4		3.2
Select U.S. Equity
Absolute return	10.0		14.6		11.0		3.0		13.8		10.7
Relative return (vs. S&P 500 Index)	(0.4	)	0.4		0.3		(1.3	)	0.4		(0.1	)
Strategic Equities
Absolute return	10.5		13.8		10.7		4.7		12.9		10.7
Relative return (vs. Russell 3000 Index)	1.5		(0.2	)	0.6		1.8		—		0.2
Global Core Equity
Absolute return	11.1		15.2		8.5		6.3		12.7		9.2
Relative return (vs. MSCI ACWI Index)	5.3		3.6		2.4		4.9		3.0		2.5

Index

Consolidated Results of Operations


	Three Months Ended June 30,											Six Months Ended June 30,											Three Months Ended September 30,											Nine Months Ended September 30,
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change		2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
	(in thousands, except per unit amounts)																						(in thousands, except per unit amounts)
Net revenues	$	857,799		$	844,738		$	13,061		1.5	%	$	1,653,261		$	1,712,525		$	(59,264	)	(3.5	)%	$	877,867		$	850,176		$	27,691		3.3	%	$	2,531,128		$	2,562,701		$	(31,573	)	(1.2	)%
Expenses	673,579			655,274			18,305			2.8		1,300,890			1,300,390			500			—		675,084			636,357			38,727			6.1		1,975,974			1,936,747			39,227			2.0
Operating income	184,220			189,464			(5,244		)	(2.8	)	352,371			412,135			(59,764		)	(14.5	)	202,783			213,819			(11,036		)	(5.2	)	555,154			625,954			(70,800		)	(11.3	)
Income taxes	10,211			7,538			2,673			35.5		19,132			23,363			(4,231		)	(18.1	)	10,827			9,419			1,408			14.9		29,959			32,782			(2,823		)	(8.6	)
Net income	174,009			181,926			(7,917		)	(4.4	)	333,239			388,772			(55,533		)	(14.3	)	191,956			204,400			(12,444		)	(6.1	)	525,195			593,172			(67,977		)	(11.5	)
Net income of consolidated entities attributable to non-controlling interests	7,757			261			7,496			n/m		17,873			22,911			(5,038		)	(22.0	)	4,145			726			3,419			n/m		22,018			23,637			(1,619		)	(6.8	)
Net income attributable to AB Unitholders	$	166,252		$	181,665		$	(15,413	)	(8.5	)	$	315,366		$	365,861		$	(50,495	)	(13.8	)	$	187,811		$	203,674		$	(15,863	)	(7.8	)	$	503,177		$	569,535		$	(66,358	)	(11.7	)

Diluted net income per AB Unit	$	0.61		$	0.66		$	(0.05	)	(7.6	)	$	1.17		$	1.34		$	(0.17	)	(12.7	)	$	0.69		$	0.75		$	(0.06	)	(8.0	)	$	1.86		$	2.09		$	(0.23	)	(11.0	)

Distributions per AB Unit	$	0.63		$	0.69		$	(0.06	)	(8.7	)	$	1.19		$	1.49		$	(0.30	)	(20.1	)	$	0.70		$	0.76		$	(0.06	)	(7.9	)	$	1.89		$	2.25		$	(0.36	)	(16.0	)

Operating margin ⁽¹⁾	20.6		%	22.4		%						20.2		%	22.7		%						22.6		%	25.1		%						21.1		%	23.5		%

(1)Operating income excluding net income (loss) attributable to non-controlling interests as a percentage of net revenues.

Index

Net income attributable to AB Unitholders for the three months ended ~~June~~September 30, 2019 decreased ~~$15.4~~$15.9 million, or ~~8.5%~~7.8%, from the three months ended ~~June~~September 30, 2018. The decrease primarily is due to (in millions):


Lower performance-based fees	$	(24.0	)	$	(33.5	)
Higher general and administrative expenses	(11.3		)
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	(7.5		)	(3.4		)
Higher employee compensation and benefits expense	(5.5		)
Higher promotion and servicing expense	(5.4		)
Higher income tax expense	(2.7		)
Higher base advisory fees	22.3			39.8
Higher distribution revenues				14.1
Higher investment gains	10.7			3.9
Lower real estate charges	6.4
Other	1.6			0.7
	$	(15.4	)	$	(15.9	)

Net income attributable to AB Unitholders for the ~~six~~nine months ended ~~June~~September 30, 2019 decreased ~~$50.5~~$66.4 million, or ~~13.8%~~11.7%, from the ~~six~~nine months ended ~~June~~September 30, 2018. The decrease primarily is due to (in millions):


Lower performance-based fees	$	(25.9	)	$	(59.4	)
Lower Bernstein Research Services revenue	(24.4		)	(26.0		)
Higher general and administrative expenses	(8.0		)
Lower dividend and interest income, net of interest expense	(6.2		)
Lower distribution revenues	(4.3		)
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	6.6			46.5
Lower promotion and servicing expense	6.3
Higher distribution revenues				9.9
Lower real estate charges	6.1			5.8
Other	(0.7		)	(3.4		)
	$	(50.5	)	$	(66.4	)

Units Outstanding

Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the 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. ~~There was no~~The plan adopted during ~~either~~ the ~~first or second~~third quarter of 2019 expired at the close of business on October 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.

Cash Distributions

We are required to distribute all of our Available Cash Flow, as defined in the AB Partnership Agreement, to our Unitholders and the General Partner. Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that 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 6 to the condensed consolidated financial statements contained in Item 1 for a description of Available Cash Flow.

Index

Management Operating Metrics

We are providing the non-GAAP measures “adjusted net revenues,” “adjusted operating income” and “adjusted operating margin” because they are the principal operating metrics management uses in evaluating and comparing period-to-period operating performance. Management principally uses these metrics in evaluating performance because they present a clearer picture of our operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, real estate consolidation charges and other adjustment items. Similarly, we believe that these management operating metrics help investors better understand the underlying trends in our results and, accordingly, provide a valuable perspective for investors.

These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both accounting principles generally accepted in the United States of America (“US GAAP”) and non-GAAP measures in evaluating our financial performance. The non-GAAP measures alone may pose limitations because they do not include all of our revenues and expenses.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
	(in thousands, except per unit amounts)												(in thousands, except per unit amounts)
Net revenues, US GAAP basis	$	857,799		$	844,738		$	1,653,261		$	1,712,525		$	877,867		$	850,176		$	2,531,128		$	2,562,701
Adjustments:
Impact of adoption of revenue recognition standard ASC 606	—			—			—			77,844			—			—			—			77,844
Distribution-related payments	(116,254		)	(106,301		)	(222,247		)	(216,455		)	(127,726		)	(106,372		)	(349,973		)	(322,827		)
Amortization of deferred sales commissions	(3,241		)	(6,113		)	(6,743		)	(12,711		)	(3,605		)	(4,651		)	(10,348		)	(17,362		)
Pass-through fees and expenses	(13,516		)	(10,487		)	(25,997		)	(21,096		)	(14,690		)	(10,084		)	(40,687		)	(31,180		)
Impact of consolidated company-sponsored funds	(8,697		)	(1,494		)	(19,657		)	(37,530		)	(4,820		)	(1,543		)	(24,477		)	(39,073		)
Long-term incentive compensation-related investment gains and dividend and interest	(1,525		)	(698		)	(6,168		)	(582		)	(317		)	(1,383		)	(6,485		)	(1,965		)
Loss on sale of software technology													—			1,000			—			1,000
Other	—			47			—			47			—			—			—			47
Adjusted net revenues	$	714,566		$	719,692		$	1,372,449		$	1,502,042		$	726,709		$	727,143		$	2,099,158		$	2,229,185

Index


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Operating income, US GAAP basis	$	184,220		$	189,464		$	352,371		$	412,135		$	202,783		$	213,819		$	555,154		$	625,954
Adjustments:
Impact of adoption of revenue recognition standard ASC 606	—			—			—			35,156			—			—			—			35,156
Real estate charges	—			6,909			—			6,645
Real estate (credits) charges													—			(155		)	—			6,490
Acquisition-related expenses	2,718			—			2,718			—			556			—			3,275			—
Long-term incentive compensation-related items	277			585			635			1,002			517			1,820			1,151			2,822
CEO's EQH award compensation	227			—			691			—			217			—			908			—
Loss on sale of software technology													—			1,000			—			1,000
Other	—			47			—			47			—			—			—			47
Sub-total of non-GAAP adjustments	3,222			7,541			4,044			42,850			1,290			2,665			5,334			45,515
Less: Net income of consolidated entities attributable to non-controlling interests	7,757			261			17,873			22,911			4,145			726			22,018			23,637
Adjusted operating income	179,685			196,744			338,542			432,074			199,928			215,758			538,470			647,832
Adjusted income taxes	9,954			7,830			18,383			24,498			10,676			9,515			29,077			33,946
Adjusted net income	169,731			188,914			320,159			407,576			$	189,252		$	206,243		$	509,393		$	613,886

Diluted net income per AB Unit, GAAP basis	$	0.61		$	0.66		$	1.17		$	1.34		$	0.69		$	0.75		$	1.86		$	2.09
Impact of non-GAAP adjustments	0.02			0.03			0.01			0.15			0.01			0.01			0.02			0.16
Adjusted diluted net income per AB Unit	$	0.63		$	0.69		$	1.18		$	1.49		$	0.70		$	0.76		$	1.88		$	2.25

Adjusted operating margin	25.1		%	27.3		%	24.7		%	28.8		%	27.5		%	29.7		%	25.7		%	29.1		%

Adjusted operating income for the three months ended ~~June~~September 30, 2019 decreased ~~$17.1~~$15.8 million, or ~~8.7%~~7.3%, from the three months ended ~~June~~September 30, 2018, primarily due to lower performance-based fees of ~~$24.0 million, higher general and administrative expenses of $6.8~~$33.5 million, higher employee compensation and benefits expense (excluding the impact of long-term incentive compensation-related items) of ~~$4.1~~$6.1 million, ~~and~~ higher net distribution expenses of ~~$3.9~~$6.1 million higher general and administrative expenses of $5.7 million, offset by higher investment advisory base fees of ~~$19.1~~$35.8 million.

Adjusted operating income for the ~~six~~nine months ended ~~June~~September 30, 2019 decreased ~~$93.5~~$109.4 million, or ~~21.6%~~16.9%, from the ~~six~~nine months ended ~~June~~September 30, 2018, primarily due to lower performance-based fees of ~~$104.4~~$138.0 million, lower Bernstein Research Services revenue of ~~$24.4~~$26.0 million and higher general and administrative expenses of ~~$12.4~~$18.2 million, offset by lower employee compensation expense (excluding the impact of long-term incentive compensation-related items) of ~~$48.2~~$42.1 million (see discussion below). and higher investment advisory base fees of $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 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.

Index

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

~~Index~~

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 during the first quarter of 2018, 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 ~~(5)~~(6) the impact of consolidated company-sponsored investment 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.

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.

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.

Index

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.

Index

Net Revenues

The components of net revenues are as follows:


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(in thousands)									(in thousands)									(in thousands)									(in thousands)
Investment advisory and services fees:
Institutions:
Base fees	$	110,767	$	112,263	$	(1,496	)	(1.3	)%	$	220,847	$	227,871	$	(7,024	)	(3.1	)%	$	114,314	$	110,501	$	3,813		3.5	%	$	335,161	$	338,372	$	(3,211	)	(0.9	)%
Performance-based fees	2,351		3,575		(1,224		)	(34.2	)	3,549		4,763		(1,214		)	(25.5	)	3,692		9,973		(6,281		)	(63.0	)	7,241		14,737		(7,496		)	(50.9	)
	113,118		115,838		(2,720		)	(2.3	)	224,396		232,634		(8,238		)	(3.5	)	118,006		120,474		(2,468		)	(2.0	)	342,402		353,109		(10,707		)	(3.0	)
Retail:
Base fees	260,923		247,370		13,553			5.5		502,908		497,976		4,932			1.0		279,224		252,884		26,340			10.4		782,132		750,860		31,272			4.2
Performance-based fees	4,404		13,524		(9,120		)	(67.4	)	4,558		15,035		(10,477		)	(69.7	)	2,030		1,371		659			48.1		6,589		16,406		(9,817		)	(59.8	)
	265,327		260,894		4,433			1.7		507,466		513,011		(5,545		)	(1.1	)	281,254		254,255		26,999			10.6		788,721		767,266		21,455			2.8
Private Wealth Management:
Base fees	213,387		203,177		10,210			5.0		413,552		404,819		8,733			2.2		215,227		205,533		9,694			4.7		628,779		610,352		18,427			3.0
Performance-based fees	4,532		18,199		(13,667		)	(75.1	)	7,544		21,760		(14,216		)	(65.3	)	1,897		29,801		(27,904		)	(93.6	)	9,440		51,560		(42,120		)	(81.7	)
	217,919		221,376		(3,457		)	(1.6	)	421,096		426,579		(5,483		)	(1.3	)	217,124		235,334		(18,210		)	(7.7	)	638,219		661,912		(23,693		)	(3.6	)
Total:
Base fees	585,077		562,810		22,267			4.0		1,137,307		1,130,666		6,641			0.6		608,765		568,918		39,847			7.0		1,746,072		1,699,584		46,488			2.7
Performance-based fees	11,287		35,298		(24,011		)	(68.0	)	15,651		41,558		(25,907		)	(62.3	)	7,619		41,145		(33,526		)	(81.5	)	23,270		82,703		(59,433		)	(71.9	)
	596,364		598,108		(1,744		)	(0.3	)	1,152,958		1,172,224		(19,266		)	(1.6	)	616,384		610,063		6,321			1.0		1,769,342		1,782,287		(12,945		)	(0.7	)

Bernstein Research Services	105,991		106,211		(220		)	(0.2	)	196,226		220,611		(24,385		)	(11.1	)	102,014		103,581		(1,567		)	(1.5	)	298,240		324,192		(25,952		)	(8.0	)
Distribution revenues	108,347		105,118		3,229			3.1		208,856		213,122		(4,266		)	(2.0	)	118,635		104,488		14,147			13.5		327,491		317,610		9,881			3.1
Dividend and interest income	27,654		21,194		6,460			30.5		55,000		49,409		5,591			11.3		24,882		21,942		2,940			13.4		79,882		71,351		8,531			12.0
Investment gains (losses)	10,949		213		10,736			n/m		26,684		26,295		389			1.5		4,433		565		3,868			n/m		31,117		26,860		4,257			15.8
Other revenues	24,796		26,026		(1,230		)	(4.7	)	47,002		52,536		(5,534		)	(10.5	)	24,497		24,012		485			2.0		71,499		76,548		(5,049		)	(6.6	)
Total revenues	874,101		856,870		17,231			2.0		1,686,726		1,734,197		(47,471		)	(2.7	)	890,845		864,651		26,194			3.0		2,577,571		2,598,848		(21,277		)	(0.8	)
Less: Interest expense	16,302		12,132		4,170			34.4		33,465		21,672		11,793			54.4		12,978		14,475		(1,497		)	(10.3	)	46,443		36,147		10,296			28.5
Net revenues	$	857,799	$	844,738	$	13,061		1.5		$	1,653,261	$	1,712,525	$	(59,264	)	(3.5	)	$	877,867	$	850,176	$	27,691		3.3		$	2,531,128	$	2,562,701	$	(31,573	)	(1.2	)

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.

Index

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 3035 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.

We sometimes charge our clients performance-based fees. In these situations, we charge a base advisory fee and are eligible to earn an additional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. Some performance-based fees include a high-watermark provision, which generally provides that if a client account underperforms relative to its performance target (whether absolute or relative to a specified benchmark), it must gain back such underperformance before we can collect future performance-based fees. Therefore, if we fail to achieve our performance target for a particular period, we will not earn a performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-based fees will be impaired. We are eligible to earn performance-based fees on ~~7.8%~~7.6%, ~~9.4%~~9.3% and ~~0.8%~~0.7% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, ~~5.5%~~5.3% of our AUM).

For the three months ended ~~June~~September 30, 2019, our investment advisory and services fees increased by $6.3 million, or 1.0%, from the three months ended September 30, 2018, primarily due to a $39.8 million, or 7.0%, increase in base fees, which primarily resulted from a 7.2% increase in average AUM. The increase was offset by a $33.5 million decrease in performance-based fees. For the nine months ended September 30, 2019, our investment advisory and services fees decreased by ~~$1.7~~$12.9 million, or ~~0.3%~~0.7%, from the ~~three~~nine months ended ~~June~~September 30, 2018, primarily due to a ~~$24.0~~$59.4 million decrease in performance-based fees, offset by a ~~$22.3~~$46.5 million, or ~~4.0%~~2.7%, increase in base fees, which primarily resulted from a 4.4% increase in average AUM. For the six months ended June 30, 2019, our investment advisory and services fees decreased by $19.3 million, or 1.6%, from the six months ended June 30, 2018, primarily due to a $25.9 million decrease in performance-based fees, offset by a $6.6 million, or 0.6%, increase in base fees, which primarily resulted from a 0.5%2.4% increase in average AUM.

Institutional investment advisory and services fees for the three months ended ~~June~~September 30, 2019 decreased by ~~$2.7~~$2.5 million, or ~~2.3%~~2.0%, from the three months ended ~~June~~September 30, 2018, primarily due to a ~~$1.5 million, or 1.3%, decrease in base fees and a $1.2~~$6.3 million decrease in performance-based ~~fees.~~fees, offset by a $3.8 million, or 3.5%, increase in base fees, which primarily resulted from a 5.5% increase in average AUM. Institutional investment advisory and services fees for the ~~six~~nine months ended ~~June~~September 30, 2019 decreased by ~~$8.2~~$10.7 million, or ~~3.5%~~3.0%, from the ~~six~~nine months ended ~~June~~September 30, 2018, primarily due to a ~~$7.0~~$7.5 million decrease in performance-based fees and a $3.2 million, or ~~3.1%~~0.9%, decrease in base ~~fees, which primarily resulted from a 2.1% decrease in average AUM. Additionally, performance-based fees decreased $1.2 million.~~fees.

Retail investment advisory and services fees for the three months ended ~~June~~September 30, 2019 increased by ~~$4.4~~$27.0 million, or ~~1.7%~~10.6%, from the three months ended ~~June~~September 30, 2018, due to aan increase in base fees of ~~$13.5~~$26.3 million, or ~~5.5%~~10.4%, primarily resulting from a ~~8.6%~~12.6% increase in average AUM. Additionally, performance-based fees increased $0.7 million. Retail investment advisory and services fees for the nine months ended September 30, 2019 increased by $21.5 million, or 2.8%, from the nine months ended September 30, 2018, due to an increase in base fees of $31.3 million, or 4.2%, primarily resulting from a 6.5% increase in average AUM. The increase was partially offset by a decrease in performance-based fees of ~~$9.1~~$9.8 million. Retail investment advisory and services fees for the six months ended June 30, 2019 decreased by $5.5 million, or 1.1%, from the six months ended June 30, 2018, due to a decrease in performance-based fees of $10.4 million. The decrease was partially offset by an increase in base fees of $4.9 million, or 1.0%, primarily resulting from a 3.9% increase in average AUM.

Private Wealth Management investment advisory and services fees for the three months ended ~~June~~September 30, 2019 decreased by ~~$3.5~~$18.2 million, or ~~1.6%~~7.7%, from the three months ended ~~June~~September 30, 2018, primarily due to a decrease in performance-based fees of ~~$13.7~~$27.9 million. The decrease was partially offset by an increase in base fees of ~~$10.2~~$9.7 million, or ~~5.0%~~4.7%, ~~primarily~~ resulting from a ~~2.1% increase in average AUM.~~shift to higher earning fee funds. Private Wealth Management investment advisory and services fees for the ~~six~~nine months ended ~~June~~

Index

September 30, 2019 decreased by ~~$5.5~~$23.7 million, or ~~1.3%~~3.6%, from the ~~six~~nine months ended ~~June~~September 30, 2018, primarily due to a decrease in performance-based fees of ~~$14.2~~$42.1 million.

~~Index~~

The decrease was partially offset by an increase in base fees of ~~$8.7~~$18.4 million, or ~~2.2%~~3.0%, ~~primarily~~ resulting from a ~~0.7% increase in average AUM.~~shift to higher earning fee funds.

Bernstein Research Services

We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to a lesser extent by paying us directly for research through commission sharing agreements or cash payments.

Revenues from Bernstein Research Services for the three months ended ~~June~~September 30, 2019 decreased ~~$0.2~~$1.6 million, or ~~0.2%~~1.5%, compared to the corresponding period in 2018 ~~as a decline in~~due to lower global customer activity and trading commissions ~~following a period of heightened volatility and client activity last year~~which was partially offset by ~~higher research revenues and~~ the inclusion of revenues from our recent acquisition of Autonomous (which closed on April 1, 2019). For the ~~six~~nine months ended ~~June~~September 30, 2019, Bernstein Research Services revenue decreased ~~$24.4~~$26.0 million, or ~~11.1%~~8.0%, compared to the corresponding period in 2018 due to a decline in ~~trading commissions following a period of heightened volatility and~~global client activity ~~last year,~~and trading commissions, partially offset by the inclusion of results from our recent acquisition of Autonomous.

Distribution Revenues

Two of our subsidiaries act as distributors and/or placing agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. Period-over-period fluctuations of distribution revenues typically are in line with fluctuations of the corresponding average AUM of these mutual funds.

Distribution revenues for the three months ended ~~June~~September 30, 2019 increased ~~$3.2~~$14.1 million, or ~~3.1%~~13.5%, compared to the corresponding period in 2018, primarily due to the corresponding average AUM of these mutual funds increasing ~~5.1%~~13.9%, partially offset by the impact of a shift in product mix from mutual funds which have higher distribution rates to mutual funds with lower distribution rates. For the ~~six~~nine months ended ~~June~~September 30, 2019 distribution revenues ~~decreased $4.3~~increased $9.9 million, or ~~2.0%~~3.1% compared to the corresponding period in 2018, primarily due to the corresponding average AUM of these mutual funds increasing 4.7%, offset by the impact of a shift in product mix from mutual funds which have higher distribution rates to mutual funds with lower distribution rates.

Dividend and Interest Income and Interest Expense

Dividend and interest income consists primarily of investment income and interest earned on customer margin balances and U.S. Treasury Bills as well as dividend and interest income in our consolidated company-sponsored investment funds. Interest expense principally reflects interest accrued on cash balances in customers’ brokerage accounts. Dividend and interest income ~~net of interest expense,~~ for the three months ended ~~June~~September 30, 2019 increased ~~$2.3~~$2.9 million, or ~~25.3%~~13.4%, compared to the corresponding period in 2018, primarily due to higher dividend and interest income ~~from~~in our consolidated company-sponsored investment ~~funds and higher~~funds. Interest expense for the three months ended September 30, 2019 decreased $1.5 million, or 10.3%, compared to the corresponding period in 2018 due to lower broker dealer ~~dividends and interest.~~interest expense. For the ~~six~~nine months ended ~~June~~September 30, 2019, dividend and interest income ~~net of interest expense, decreased $6.2~~increased $8.5 million, or ~~22.4%~~12.0%, compared to the corresponding period in 2018, primarily due to higher broker dealer interest income, offset by lower dividend and interest income in our consolidated company-sponsored investment ~~funds, offset by~~funds. Interest expense for the nine months ended September 30, 2019 increased $10.3 million, or 28.5%, compared to the corresponding period in 2018 due to higher broker dealer ~~dividends and interest.~~interest expense.

Investment Gains (Losses)

Investment gains (losses) consist primarily of realized and unrealized investment gains or losses on: (i) employee long-term incentive compensation-related investments, (ii) U.S. Treasury Bills, (iii) market-making in exchange-traded options and equities, (iv) seed capital investments, (v) derivatives and (vi) investments in our consolidated company-sponsored investment funds. Investments gains (losses) also include equity in earnings of proprietary investments in limited partnership hedge funds that we sponsor and manage.

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Investment gains (losses) are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
	(in thousands)												(in thousands)
Long-term incentive compensation-related investments
Realized gains (losses)	$	834		$	290		$	1,630		$	2,172		$	—		$	50		$	1,631		$	2,222
Unrealized gains (losses)	554			253			4,255			(1,839		)	187			1,202			4,442			(637		)

Investments held by consolidated company-sponsored funds
Realized gains (losses)	2,039			1,150			1,935			2,833			4,358			(1,458		)	6,293			1,375
Unrealized gains (losses)	10,243			(2,930		)	32,173			20,463
Unrealized (losses) gains													(2,651		)	3,292			29,522			23,755

Seed capital investments
Realized gains (losses)
Seed capital and other	806			(4,902		)	3,436			(4,494		)	1,879			3,608			5,314			(885		)
Derivatives	(4,322		)	90			(18,116		)	(703		)	(8,654		)	(3,541		)	(26,770		)	(4,244		)
Unrealized gains (losses)
Seed capital and other	5,345			6,755			12,387			5,373			1,035			225			13,423			5,597
Derivatives	(4,761		)	(498		)	(10,714		)	2,679			8,446			(2,200		)	(2,269		)	479

Brokerage-related investments
Realized gains (losses)	(459		)	(183		)	(1,106		)	279			263			(1,236		)	(843		)	(957		)
Unrealized gains (losses)	670			188			804			(468		)
Unrealized (losses) gains													(430		)	623			374			155
	$	10,949		$	213		$	26,684		$	26,295		$	4,433		$	565		$	31,117		$	26,860

Other Revenues

Other revenues consist of fees earned for transfer agency services provided to company-sponsored mutual funds, fees earned for administration and recordkeeping services provided to company-sponsored mutual funds and the general accounts of AXA, EQH and their respective subsidiaries, and other miscellaneous revenues. Other revenues for the three months ended ~~June~~September 30, 2019 ~~decreased $1.2~~increased $0.5 million, or ~~4.7%~~2.0%, compared to the corresponding period in 2018, primarily due to ~~lower brokerage income.~~higher shareholder servicing fees. Other revenues for the ~~six~~nine months ended ~~June~~September 30, 2019 decreased ~~$5.5~~$5.0 million, or ~~10.5%~~6.6%, compared to the corresponding period in 2018, primarily due to lower brokerage income and lower ~~shareholder servicing fees.~~investment income related to our consolidated company-sponsored investment funds.

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Expenses

The components of expenses are as follows:


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended September 30,										Nine Months Ended September 30,
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018			$ Change			% Change		2019		2018		$ Change			% Change
	(in thousands)									(in thousands)									(in thousands)										(in thousands)
Employee compensation and benefits	$	363,702	$	358,248	$	5,454		1.5	%	$	703,011	$	702,073	$	938		0.1	%	$	361,822	$	357,442		$	4,380		1.2	%	$	1,064,833	$	1,059,515	$	5,318		0.5	%
Promotion and servicing:										��
Distribution-related payments	116,254		106,301		9,953			9.4		222,247		216,455		5,792			2.7		127,726		106,372			21,354			20.1		349,973		322,827		27,146			8.4
Amortization of deferred sales commissions	3,241		6,113		(2,872		)	(47.0	)	6,743		12,711		(5,968		)	(47.0	)	3,605		4,651			(1,046		)	(22.5	)	10,348		17,362		(7,014		)	(40.4	)
Trade execution, marketing, T&E and other	57,550		59,259		(1,709		)	(2.9	)	107,198		113,302		(6,104		)	(5.4	)	53,814		50,793			3,021			5.9		161,012		164,095		(3,083		)	(1.9	)
	177,045		171,673		5,372			3.1		336,188		342,468		(6,280		)	(1.8	)	185,145		161,816			23,329			14.4		521,333		504,284		17,049			3.4
General and administrative:
General and administrative	120,180		108,836		11,344			10.4		238,028		230,070		7,958			3.5		117,056		107,526			9,530			8.9		355,084		337,596		17,488			5.2
Real estate charges	548		6,909		(6,361		)	(92.1	)	548		6,645		(6,097		)	(91.8	)
Real estate charges (credits)																			153		(155		)	308			n/m		701		6,490		(5,789		)	(89.2	)
	120,728		115,745		4,983			4.3		238,576		236,715		1,861			0.8		117,209		107,371			9,838			9.2		355,785		344,086		11,699			3.4
Contingent payment arrangements	829		52		777			n/m		883		105		778			n/m		829		52			777			n/m		1,712		157		1,555			n/m
Interest	3,990		2,629		1,361			51.8		7,973		5,241		2,732			52.1		2,802		2,711			91			3.4		10,775		7,952		2,823			35.5
Amortization of intangible assets	7,285		6,927		358			5.2		14,259		13,788		471			3.4		7,277		6,965			312			4.5		21,536		20,753		783			3.8
Total	$	673,579	$	655,274	$	18,305		2.8		$	1,300,890	$	1,300,390	$	500		—		$	675,084	$	636,357		$	38,727		6.1		$	1,975,974	$	1,936,747	$	39,227		2.0

Employee Compensation and Benefits

Employee compensation and benefits consist of base compensation (including salaries and severance), annual short-term incentive compensation awards (cash bonuses), annual long-term incentive compensation awards, commissions, fringe benefits and other employment costs (including recruitment, training, temporary help and meals).

Compensation expense as a percentage of net revenues was ~~42.4%~~41.2% and 42.0% for the three months ended ~~June~~September 30, 2019 and ~~2018.~~2018, respectively. Compensation expense as a percentage of net revenues was ~~42.5%~~42.1% and ~~41.0%~~41.3% for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively. Compensation expense generally is determined on a discretionary basis and is primarily a function of our firm’s current-year financial performance. The amounts of incentive compensation we award are designed to motivate, reward and retain top talent while aligning our executives' interests with the interests of our Unitholders. Senior management, with the approval of the Compensation and Workplace Practices Committee of the Board of Directors of AllianceBernstein Corporation (“Compensation Committee”), periodically confirms that the appropriate metric to consider in determining the amount of incentive compensation is the ratio of adjusted employee compensation and benefits expense to adjusted net revenues. Adjusted net revenues used in the adjusted compensation ratio are the same as the adjusted net revenues presented as a non-GAAP measure (discussed earlier in this MD&A). Adjusted employee compensation and benefits expense is total employee compensation and benefits expense minus other employment costs such as recruitment, training, temporary help and meals (which were 1.1% and 1.2%, respectively, of adjusted net revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2019, and ~~1.1%~~1.2% and ~~1.0%~~1.1%, respectively, of net adjusted ~~net~~ revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2018), and excludes the impact of mark-to-market vesting expense, as well as dividends and interest expense, associated with employee long-term incentive

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compensation-related investments and the amortization expense associated with the CEO's EQH awards. Senior management, with the approval of the Compensation Committee, has established

~~Index~~

as an objective that adjusted employee compensation and benefits expense generally should not exceed 50% of our adjusted net revenues, except in unexpected or unusual circumstances. Our ratio of adjusted compensation expense as a percentage of adjusted net revenues was ~~49.5%~~48.5% and 49.2% for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and ~~48.5%~~47.5% and 48.2%, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2018.

For the three months ended ~~June~~September 30, 2019, employee compensation and benefits expense increased ~~$5.5~~$4.4 million, or ~~1.5%~~1.2%, compared to the three months ended ~~June~~September 30, 2018, primarily due to higher base compensation of ~~$12.0~~$10.0 million and higher fringes of ~~$6.3~~$5.6 million, offset by lower incentive compensation of ~~$11.5 million and lower commissions of $1.4~~$10.1 million. For the ~~six~~nine months ended ~~June~~September 30, 2019, employee compensation and benefits expense increased ~~$0.9~~$5.3 million, or ~~0.1%~~0.5%, compared to the ~~six~~nine months ended ~~June~~September 30, 2018, primarily due to higher base compensation of ~~$18.2~~$28.1 million and higher fringes of ~~$9.0~~$14.6 million, offset by lower incentive compensation of ~~$26.0~~$36.0 million and lower commissions of $2.4 million.

Promotion and Servicing

Promotion and servicing expenses include distribution-related payments to financial intermediaries for distribution of AB mutual funds and amortization of deferred sales commissions paid to financial intermediaries for the sale of back-end load shares of AB mutual funds. Also included in this expense category are costs related to travel and entertainment, advertising and promotional materials.

Promotion and servicing expenses increased ~~$5.4~~$23.3 million, or ~~3.1%~~14.4%, during the three months ended ~~June~~September 30, 2019 compared to the three months ended ~~June~~September 30, 2018. The increase primarily was due to higher distribution-related payments of ~~$10.0~~$21.4 million, ~~offset by lower deferred sales commissions~~higher travel and entertainment of ~~$2.9~~$1.0 million and ~~lower~~higher marketing and communication ~~expenses~~ of ~~$1.4~~$1.0 million. Promotion and servicing expenses ~~decreased $6.3~~increased $17.0 million, or ~~1.8%~~3.4%, during the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the ~~six~~nine months ended ~~June~~September 30, 2018. The ~~decrease~~increase primarily was due to higher distribution-related payments of $27.1 million and higher travel and entertainment of $2.4 million, offset by lower amortization of deferred sales commissions of ~~$6.0~~$7.0 million and lower trade execution and clearing costs of ~~$4.8 million and lower transfer fees of $1.3 million, offset by higher distribution-related payments of $5.8~~$4.6 million.

General and Administrative

General and administrative expenses include portfolio services expenses, technology expenses, professional fees and office-related expenses (occupancy, communications and similar expenses). General and administrative expenses as a percentage of net revenues were ~~14.1%~~13.4% and ~~13.7%~~12.6% for the three months ended ~~June~~September 30, 2019 and 2018, respectively. General and administrative expenses increased ~~$5.0~~$9.8 million, or ~~4.3%~~9.2%, during the three months ended ~~June~~September 30, 2019 compared to the corresponding period in 2018,, primarily due to higher ~~technology~~portfolio service fees of ~~$3.8 million, higher professional fees of $2.2~~$4.0 million, higher occupancy costs of ~~$1.8~~$3.2 million and higher ~~portfolio service~~technology fees of ~~$1.6 million and lower exchange rate gains of $0.8 million, offset by lower real estate charges of $6.4~~$2.7 million. General and administrative expenses as a percentage of net revenues were ~~14.4%~~14.1% and ~~13.8%~~13.4% for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively. General and administrative expenses increased ~~$1.9~~$11.7 million, or ~~0.8%~~3.4%, during the first ~~six~~nine months of 2019 compared to the same period in 2018, primarily due to higher professional fees of ~~$8.9~~$9.1 million and higher technology fees of $7.7 million, offset by lower real estate charges of ~~$6.1~~$5.8 million.

Contingent Payment Arrangements

Contingent payment arrangements reflect changes in estimates of contingent payment liabilities associated with acquisitions in previous periods, as well as accretion expense of these liabilities. There were no changes in the estimates during the first ~~six~~nine months of 2019 or 2018.

Income Taxes

AB, a private limited partnership, is not subject to federal or state corporate income taxes, but is subject to a 4.0% New York City unincorporated business tax (“UBT”). Our domestic corporate subsidiaries are subject to federal, state and local income taxes, and generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are filed. Foreign corporate subsidiaries generally, are subject to taxes in the foreign jurisdictions where they are located.

Income tax expense for the three months ended ~~June~~September 30, 2019 increased ~~$2.7~~$1.4 million, or ~~35.5%~~14.9%, compared to the three months ended ~~June~~September 30, 2018. The increase is due to a higher effective tax rate in the current quarter of ~~5.5%~~5.3% compared to ~~4.0%~~4.4% in the ~~second~~third quarter of 2018, driven by a ~~less favorable mix~~$1.5 million increase of ~~earnings across~~a FIN 48 reserve based on new information received during the ~~AB tax filing groups, as a result of higher taxed foreign earnings versus lower taxed domestic earnings.~~quarter. Income tax expense for the ~~six~~nine months ended ~~June~~September 30, 2019 decreased ~~$4.2~~$2.8 million, or ~~18.1%~~8.6%, compared to the ~~six~~nine months ended ~~June~~September 30, 2018. The decrease is driven by a more favorable mix of earnings across the AB tax filing groups.

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earnings, as a result of lower taxed domestic earnings versus higher taxed foreign earnings. There were no material changes to uncertain tax positions (FIN 48 reserves) or valuation allowances against deferred tax assets during the current year.

Net Income (Loss) of Consolidated Entities Attributable to Non-Controlling Interests

Net income (loss) of consolidated entities attributable to non-controlling interests primarily consists of limited partner interests owned by other investors in our consolidated company-sponsored investment funds. During the first ~~six~~nine months of 2019, we had ~~$17.9~~$22.0 million of net gains of consolidated entities attributable to non-controlling interests compared to net gains of ~~$22.9~~$23.6 million during the first ~~six~~nine months of 2018. Fluctuations period-to-period result primarily from the number of consolidated company-sponsored investment funds and their respective market performance.

CAPITAL RESOURCES AND LIQUIDITY

During the first ~~six~~nine months of 2019, net cash provided by operating activities was ~~$547.0~~$806.0 million, compared to ~~$765.5 million~~$1.1 billion during the corresponding 2018 period. The change reflects net activity of our consolidated funds of ~~$380.6~~$456.7 million and a decrease in broker-dealer related payables (net of receivables and segregated U.S. Treasury bills activity) of ~~$336.0~~$273.8 million, offset by lower net purchases of broker-dealer investments of ~~$565.3~~$437.7 million.

During the first ~~six~~nine months of 2019, net cash used in investing activities was ~~$6.0~~$19.1 million, compared to ~~$11.5~~$27.0 million during the corresponding 2018 period. The change is primarily due to the acquisition of Autonomous, net of cash acquired, of $5.3 million.

During the first ~~six~~nine months of 2019, net cash used byin financing activities was ~~$473.1~~$710.2 million, compared to ~~$1.1~~$1.5 billion during the corresponding 2018 period. The change reflects net subscriptions in consolidated company-sponsored investments funds compared to net redemptions in the corresponding 2018 period (impact of ~~$564.9~~$642.3 million) ~~and~~, lower distributions to the General Partner and Unitholders of ~~$123.1~~$138.7 million as a result of lower earnings (distributions on earnings are paid one quarter in arrears), and proceeds from bank loans versus repayment of bank loans in 2018 for $130.0 million, partially offset by ~~the~~an increase in net repayments of commercial paper in 2019 ~~compared to net issuances in 2018 (impact~~ of ~~$105.9 million).~~$130.2 million.

As of ~~June~~September 30, 2019, AB had ~~$710.3~~$705.0 million of cash and cash equivalents (excluding cash and cash equivalents of consolidated company-sponsored investment funds), all of which are available for liquidity, but consist primarily of cash on deposit for our broker-dealers related to various customer clearing activities, and cash held by foreign subsidiaries of ~~$459.0~~$443.7 million.

Debt and Credit Facilities

AB has a $800.0 million committed, unsecured senior revolving credit facility (the “Credit Facility”) with a group of commercial banks and other lenders, which matures on September 27, 2023.The Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $200.0 million; any such increase is subject to the consent of the affected lenders. The Credit Facility is available for AB and Sanford C. Bernstein & Co., LLC ("SCB LLC") business purposes, including the support of AB’s commercial paper program. Both AB and SCB LLC can draw directly under the Credit Facility and management may draw on the Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Credit Facility.

The Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of ~~June~~September 30, 2019, we were in compliance with these covenants. The Credit Facility also includes customary events of default (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the Credit Facility would automatically become immediately due and payable, and the lender’s commitments would automatically terminate.

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Amounts under the Credit Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. Voluntary prepayments and commitment reductions requested by us are permitted at any time without fee (other than customary breakage costs relating to the prepayment of any drawn loans) upon proper notice and subject to a minimum dollar requirement. Borrowings under the Credit Facility bear interest at a rate per annum, which will be, at our option, a rate equal to an applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indexes: London Interbank Offered Rate; a floating base rate; or the Federal Funds rate.

As of ~~June~~September 30, 2019 and December 31, 2018, we had no amounts outstanding under the Credit Facility. During the first ~~six~~nine months of 2019 and the full year 2018, we did not draw upon the Credit Facility.

AB has a $200.0 million committed, unsecured senior revolving credit facility (the "Revolver") with a leading international bank, which matures on November 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 which are identical to those of the Credit Facility. As of ~~June~~September 30, 2019 ~~we had no amounts outstanding under the Revolver. As of~~and December 31, 2018, we had ~~$25.0~~$80.0 millionand$25.0 million outstanding under the Revolver, respectively, with an interest ~~rate~~rates of 2.9% and 3.4%., respectively. Average daily borrowing under the Revolver during the first ~~six~~nine months of 2019 and full year 2018 were ~~$33.0~~$28.0 million and $19.4 million, respectively, with weighted average interest rates of approximately 3.4% and 2.8%, respectively.

In addition, SCB LLC currently has three uncommitted lines of credit with three financial institutions. Two of these lines of credit permit us to borrow up to an aggregate of approximately $175.0 million, with AB named as an additional borrower, while the other line has no stated limit. As of ~~June~~September 30, 2019 and December 31, 2018, SCB LLC had no bank loans outstanding. Average daily borrowings of bank loans during the first ~~six~~nine months of 2019 and full year 2018 were ~~$1.8~~$2.3 million and $2.7 million, respectively, with weighted average interest rates of approximately ~~1.7%~~1.8% and 1.6%, respectively.

Our financial condition and access to public and private debt markets should provide adequate liquidity for our general business needs. Management believes that cash flow from operations and the issuance of debt and AB Units or AB Holding Units will provide us with the resources we need to meet our financial obligations. See “Cautions Regarding Forward-Looking ~~Statements~~Statements.”.

COMMITMENTS AND CONTINGENCIES

AB’s capital commitments, which consist primarily of operating leases for office space, generally are funded from future operating cash flows.

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.

During 2010, as general partner of AllianceBernstein U.S. Real Estate L.P. (“Real Estate Fund”), we committed to invest $25.0 million in the Real Estate Fund. As of ~~June~~September 30, 2019, we had funded $22.4 million of this commitment. During 2014, as general partner of AllianceBernstein U.S. Real Estate II L.P. (“Real Estate Fund II”), we committed to invest $28.0 million, as amended in 2015, in Real Estate Fund II. As of ~~June~~September 30, 2019, we had funded ~~$18.8~~$19.4 million of this commitment.

See Note 12 for discussion of contingencies.

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CRITICAL ACCOUNTING ESTIMATES

The preparation of the condensed consolidated financial statements and notes to condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

There have been no updates to our critical accounting estimates from those disclosed in “Management’s Discussion and Analysis of Financial Condition” in our Form 10-K for the year ended December 31, 2018.

ACCOUNTING PRONOUNCEMENTS

See Note 2 to AB’s condensed consolidated financial statements contained in Item 1.

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CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS

Certain statements provided by management in this report and in the portion of AB’s Form 10-Q attached hereto as Exhibit 99.1 are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately-managed accounts, general economic conditions, industry trends, future acquisitions, integration of acquired companies, competitive conditions and government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. We caution readers to carefully consider such factors. Further, these forward-looking statements speak only as of the date on which such statements are made; we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ,see “Risk Factors” in Part I, Item 1A of our Form 10-K for the year ended December 31, 2018 and Part II, Item 1Ain this Form 10-Q. Any or all of the forward-looking statements that we make in our Form 10-K, this Form 10-Q, other documents we file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in “Risk Factors” and those listed below could also adversely impact our revenues, financial condition, results of operations and business prospects.

The forward-looking statements referred to in the preceding paragraph, most of which directly affect AB but also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB, include statements regarding:

•

Our belief that the cash flow AB Holding realizes from its investment in AB will provide AB Holding with the resources it needs to meet its financial obligations: AB Holding’s cash flow is dependent on the quarterly cash distributions it receives from AB. Accordingly, AB Holding’s ability to meet its financial obligations is dependent on AB’s cash flow from its operations, which is subject to the performance of the capital markets and other factors beyond our control.

•

Our financial condition and ability to access the public and private capital markets providing adequate liquidity for our general business needs: Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to access public and private capital markets on reasonable terms may be limited by adverse market conditions, our firm’s credit ratings, our profitability and changes in government regulations, including tax rates and interest rates.

~~Our belief that the cash flow AB Holding realizes from its investment in AB will provide AB Holding with the resources it needs to meet its financial obligations:~~ AB Holding’s cash flow is dependent on the quarterly cash distributions it receives from AB. Accordingly, AB Holding’s ability to meet its financial obligations is dependent on AB’s cash flow from its operations, which is subject to the performance of the capital markets and other factors beyond our control.


•	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.

•

The possibility that we will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases.


•	Our determination that adjusted employee compensation expense should not exceed 50% of our adjusted net revenues: Aggregate employee compensation reflects employee performance and competitive compensation levels. Fluctuations in our revenues and/or changes in competitive compensation levels could result in adjusted employee compensation expense exceeding 50% of our adjusted net revenues.

•

Our Relocation Strategy: While the expenses, expense savings and EPU impact we expect will result from our Relocation Strategy are presented with numerical specificity, and we believe these figures to be reasonable as of the date of this report, the uncertainties surrounding the assumptions on which our estimates are based create a significant risk that our current estimates may not be realized. These assumptions include:

~~Our financial condition and ability to access the public and private capital markets providing adequate liquidity for our general business needs:~~ Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to access public and private capital markets on reasonable terms may be limited by adverse market conditions, our firm’s credit ratings, our profitability and changes in government regulations, including tax rates and interest rates.

~~The outcome of litigation:~~ Litigation is inherently unpredictable, and excessive damage awards do occur. Though we have stated that we do not expect any pending legal proceedings to have a material adverse effect on our results of operations, financial condition or liquidity, any settlement or judgment with respect to a legal proceeding could be significant, and could have such an effect.

~~The possibility that we will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program:~~ The number of AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases.

~~Our determination that adjusted employee compensation expense should not exceed 50% of our adjusted net revenues:~~ Aggregate employee compensation reflects employee performance and competitive compensation levels. Fluctuations in our revenues and/or changes in competitive compensation levels could result in adjusted employee compensation expense exceeding 50% of our adjusted net revenues.

~~Our Relocation Strategy:~~ While the expenses, expense savings and EPU impact we expect will result from our Relocation Strategy are presented with numerical specificity, and we believe these figures to be reasonable as of the date of this report, the uncertainties surrounding the assumptions on which our estimates are based create a significant risk that our current estimates may not be realized. These assumptions include:

the amount and timing of employee relocation costs, severance and overlapping compensation and occupancy costs we experience; and

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the timing for execution of each phase of our relocation implementation plan.

~~Our 2020 Margin Target~~: We previously adopted a goal of increasing our adjusted operating margin to a target of 30% by 2020, subject to the assumptions, factors and contingencies described as part of the initial disclosure of this target. Our adjusted operating margin, which was 29.1% during 2018, declined to 24.7% during the first six months of 2019.


•	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.

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in AB’s market risk from the information provided under “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of AB's Form 10-K for the year ended December 31, 2018.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

Each of AB Holding and AB maintains a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our reports under the Exchange Act is (i) recorded, processed, summarized and reported in a timely manner, and (ii) accumulated and communicated to management, including the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), to permit timely decisions regarding our disclosure.

As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the CEO and the CFO, of the effectiveness of the design and operation of the disclosure controls and procedures. Based on this evaluation, the CEO and the CFO concluded that the disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the ~~second~~third quarter of 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II

OTHER INFORMATION


Item 1.	Legal Proceedings

See Note 12 to the condensed consolidated financial statements contained in Part I, Item 1.


Item 1A.	Risk Factors

There have been no material changes in our risk factors from those disclosed in AB’s Form 10-K for the year ended December 31, 2018.


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

There were no AB Units sold by AB in the period covered by this report that were not registered under the Securities Act.

AB Units bought by us or one of our affiliates during the ~~second~~third quarter of 2019 are as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

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
4/1/19 - 4/30/19 —
$ —
—
—
5/1/19 - 5/31/19 —
—
—
—
6/1/19 - 6/30/19⁽¹⁾
582
27.92
—
—
Total 582
$ 27.92
—
—



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
7/1/19 - 7/31/19	—	$	—	—	—
8/1/19 - 8/31/19	—	—		—	—
9/1/19 - 9/30/19⁽¹⁾	500	28.67		—	—
Total	500	$	28.67	—	—

⁽¹⁾ During ~~June~~September 2019, AB purchased ~~582~~500 AB units in private transactions.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

None.

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Item 5.	Other Information

Iran Threat Reduction and Syria Human Rights Act

AB, AB Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act, nor were they involved in the AXA Group matters described immediately below.

The non-U.S. based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions in which they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see Note 1 to the condensed financial statements in Part 1, Item 1 of this Form 10-Q.

AXA has informed us that AXA Konzern AG, an AXA insurance subsidiary organized under the laws of Germany, providesaccident and health insurance to diplomats based at the Iranian Embassy in Berlin, Germany. The total annual premium of these policies is approximately $109,150 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $18,385.

In addition, AXA has informed us that AXA Insurance Ireland, an AXA insurance subsidiary, provides statutorily required car insurance under four separate policies to the Iranian Embassy in Dublin, Ireland. AXA has informed us that compliance with the Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to assume the coverage. The total annual premium for these policies is approximately $7,115 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $853.

Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of the Republic of Turkey, provides car insurance coverage for vehicle pools and compulsory earthquake coverage of the Iranian General Consulate and the Iranian Embassy in Istanbul, Turkey. Motor liability insurance coverage is compulsory in Turkey and cannot be canceled unilaterally. The total annual premium in respect of these policies is approximately $3,150 and the annual net profit, which is difficult to calculate with precision, is estimated to be $473.

Additionally, AXA has informed us that AXA Winterthur, an AXA insurance subsidiary organized under the laws of Switzerland, provides Naftiran Intertrade, a wholly-owned subsidiary of the Iranian state-owned National Iranian Oil Company, with life, disability and accident coverage for its employees. In addition, AXA Winterthur also provides car and property insurance coverage for the Iranian Embassy in Bern. The provision of these forms of coverage is mandatory in Switzerland. The total annual premium of these policies is approximately $396,597 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $59,489.

Also, AXA has informed us that AXA Egypt, an AXA insurance subsidiary organized under the laws of Egypt, provides the Iranian state-owned Iran Development Bank, two life insurance contracts, covering individuals who have loans with the bank. The total annual premium of these policies is approximately $20,650 and annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $2,000.

In addition, AXA has informed us that AXA Hong Kong, an AXA insurance subsidiary organized under the laws of Hong Kong, provided the Iranian state-owned Hong Kong Branch of Melli Bank PLC, which was re-designated on November 5, 2018 pursuant to E.O. 13224, with group health insurance for its employees. This business has now been canceled. The total annual premium of these policies is approximately $27,122 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $4,339.

Lastly, AXA has informed us that AXA XL, which AXA acquired during the third quarter of 2018, through various non-U.S. subsidiaries, provides insurance to marine policyholders located outside of the U.S. or reinsurance coverage to non-U.S. insurers of marine risks as well as mutual associations of ship owners that provide their members with protection and liability coverage. The provision of these coverages may involve entities or activities related to Iran, including transporting crude oil, petrochemicals and refined petroleum products. AXA XL’s non-U.S. subsidiaries insure or reinsure multiple voyages and fleets containing multiple ships, so they are unable to attribute gross revenues and net profits from such marine policies to activities with Iran. As the activities of these insureds and re-insureds are permitted under applicable laws and regulations, AXA XL intends for its non-U.S. subsidiaries to continue providing such coverage to its insureds and re-insureds to the extent permitted by applicable law.

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The aggregate annual premium for the above-referenced insurance policies is approximately ~~$536,662,~~$563,784, representing approximately ~~0.0007%~~0.0006% of AXA’s 2018 consolidated revenues, which exceed $100 billion. The related net profit, which is difficult to calculate with precision, is estimated to be ~~$81,200,~~$85,539, representing approximately 0.002% of AXA’s 2018 aggregate net profit.

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Item 6.	Exhibits



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.

101.INS		XBRL Instance ~~Document.~~Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

101.LAB		XBRL Taxonomy Extension Label Linkbase.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

101.DEF		XBRL Taxonomy Extension Definition Linkbase.

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).

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date:	~~July 25,~~October 24, 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

5962



	Classification	June 30, 2019
		(in thousands)
Operating Leases
Operating lease right-of-use assets	Right-of-use assets	$	397,187
Operating lease liabilities	Lease liabilities	513,875

Finance Leases
Property and equipment, gross	Right-of-use assets	2,356
Accumulated depreciation	Right-of-use assets	(577		)
Property and equipment, net		1,779
Finance lease liabilities	Lease liabilities	1,789



	Six Months Ended June 30, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	69,309
Operating cash flows from financing leases	32
Financing cash flows from finance leases	567
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	4,156
Finance leases	—