Docoh
Loading...

Alliancebernstein

Filed: 11 Feb 21, 6:45am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to
Commission file number 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, NY  10105
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (212) 969-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class Trading SymbolName of each exchange on which registered
Units of Limited Partnership Interest NoneNone
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   No
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   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No

 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes   No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   No
The number of units of limited partnership interest outstanding as of December 31, 2020 was 270,509,658.
DOCUMENTS INCORPORATED BY REFERENCE
This Form 10-K does not incorporate any document by reference.


i

Glossary of Certain Defined Terms

AB” – AllianceBernstein L.P. (Delaware limited partnership formerly known as Alliance Capital Management L.P., “Alliance Capital”), the operating partnership, and its subsidiaries and, where appropriate, its predecessors, AB Holding and ACMC, Inc. and their respective subsidiaries.

AB Holding” – AllianceBernstein Holding L.P. (Delaware limited partnership).

AB Holding Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB Holding, dated as of October 29, 1999 and as amended February 24, 2006.

AB Holding Units” – units representing assignments of beneficial ownership of limited partnership interests in AB Holding.

AB Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB, dated as of October 29, 1999 and as amended February 24, 2006.

AB Units” – units of limited partnership interest in AB.

AUM” – AB's assets under management.

AXA” – AXA (société anonyme organized under the laws of France) is the holding company for the AXA Group, a worldwide leader in financial protection.

Bernstein Transaction” – AB's acquisition of the business and assets of SCB Inc., formerly known as Sanford C. Bernstein Inc., and the related assumption of the liabilities of that business, completed on October 2, 2000.

Equitable America” – Equitable Financial Insurance Company of America (f/k/a MONY Life Insurance Company of America, an Arizona corporation) and a subsidiary of Equitable Holdings.

Equitable Financial” – Equitable Financial Life Insurance Company (New York stock life insurance company), a subsidiary of Equitable Holdings, and its subsidiaries other than AB and its subsidiaries.

Equitable Holdings” or “EQH” – Equitable Holdings, Inc. (Delaware corporation) and its subsidiaries other than AB and its subsidiaries.

Exchange Act” – the Securities Exchange Act of 1934, as amended.

ERISA” – the Employee Retirement Income Security Act of 1974, as amended.

"GAAP" – U.S. Generally Accepted Accounting Principles.

General Partner” – AllianceBernstein Corporation (Delaware corporation), the general partner of AB and AB Holding and a subsidiary of Equitable Holdings, and, where appropriate, ACMC, LLC, its predecessor.

Investment Advisers Act” – the Investment Advisers Act of 1940, as amended.

Investment Company Act” – the Investment Company Act of 1940, as amended.

NYSE” – the New York Stock Exchange, Inc.

Partnerships” – AB and AB Holding together.

SEC” – the United States Securities and Exchange Commission.

Securities Act” – the Securities Act of 1933, as amended.



ii

PART I

Item 1.    Business

The words “we” and “our” in this Form 10-K refer collectively to AB Holding and AB and its subsidiaries, or to their officers and employees. Similarly, the words “company” and “firm” refer to both AB Holding and AB. Where the context requires distinguishing between AB Holding and AB, we identify which company is being discussed. Cross-references are in italics.

We use “global” in this Form 10-K to refer to all nations, including the United States; we use “international” or “non-U.S.” to refer to nations other than the United States.

We use “emerging markets” in this Form 10-K to refer to countries included in the Morgan Stanley Capital International (“MSCI”) emerging markets index, which are, as of December 31, 2020: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

Clients

We provide diversified investment management, research and related services globally to a broad range of clients through our three buy-side distribution channels: Institutions, Retail and Private Wealth Management, and our sell-side business, Bernstein Research Services.  See “Distribution Channels” in this Item 1 for additional information.

As of December 31, 2020, 2019 and 2018, our AUM were approximately $686 billion, $623 billion and $516 billion, respectively, and our net revenues were approximately $3.7 billion, $3.5 billion and $3.4 billion, as of December 31, 2020, 2019 and 2018, respectively. EQH (our parent company) and its subsidiaries, whose AUM consist primarily of fixed income investments, is our largest client. Our EQH affiliates represented approximately 19%, 18% and 18% of our AUM as of December 31, 2020, 2019 and 2018, and we earned approximately 3% of our net revenues from services we provided to them in each of those years. Also, AXA and its subsidiaries represented approximately 3%, 5% and 6% of our AUM as of December 31, 2020, 2019 and 2018, and we earned approximately 2% of our net revenues from services we provided to them in each of those years. See “Distribution Channels” below and “Assets Under Management” and “Net Revenues” in Item 7 for additional information regarding our AUM and net revenues.

Generally, we are compensated for our investment services on the basis of investment advisory and services fees calculated as a percentage of AUM. For additional information about our investment advisory and services fees, including performance-based fees, seeRisk Factorsin Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.

Research

Our high-quality, in-depth research is the foundation of our business. We believe that our global team of research professionals, whose disciplines include economic, fundamental equity, fixed income and quantitative research, gives us a competitive advantage in achieving investment success for our clients. We also have experts focused on multi-asset strategies, wealth management, environmental, social and governance (“ESG”) and alternative investments.

Corporate Responsibility
At AB, we constantly are working to become a better firm. To us, this means giving back to the communities in which we work through our firm-wide philanthropic initiative, AB Gives Back, and reducing our environmental footprint by increasing our use of “green buildings,” such as our new headquarters in Nashville, Tennessee. Additionally, by promoting diversity and inclusion, we are afforded different perspectives and ways of thinking, which can lead to better outcomes for our clients (See Diversity and Inclusion below).

Also, striving to be more responsible gives us a richer perspective for evaluating other companies. As longtime fundamental investors with a strong research heritage, we have integrated ESG considerations into various processes. This helps us make fully informed risk/return assessments and draw insightful investment conclusions. Our investors — research analysts and portfolio managers — understand the companies and industries they cover in-depth. This positions them well to determine which ESG issues are material to particular companies, to determine the financial impact of an ESG issue and to incorporate that insight into their cash-flow, earnings and credit models. And, we continue to invest in technology and innovation to further enable our investment teams to formalize their ESG evaluations and share insights from our engagements with other companies.

1

COVID-19 has caused vast suffering and disruption to the global economy, while also causing significant volatility in the financial markets through much of 2020. As a firm, AB has adapted rapidly to protect our employees' health and welfare, support our communities and ensure we can continue managing clients' investments safely and securely. Furthermore, COVID-19 has become a prominent theme in engagement: it not only impacts business models but also highlights corporate ESG practices. We are advocating that issuers be responsible corporate citizens, and we are working to better understand opportunities and threats created by the pandemic.

We provide additional information in this regard in our corporate responsibility report, which is entitled "Advancing Responsible Investing" and can be found under “Corporate Responsibility - Overview” on www.alliancebernstein.com.

Investment Services

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;
Alternative investments, including hedge funds, fund of funds, direct lending, real estate and private equity;
Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds, and
Some passive management, including index and enhanced index strategies.

Our AUM by client domicile and investment service as of December 31, 2020, 2019 and 2018 were as follows:

By Client Domicile ($ in billions): ablp-20201231_g1.jpg








2

By Investment Service ($ in billions):
ablp-20201231_g2.jpg

Distribution Channels

Institutions

We offer to our institutional clients, which include private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and affiliates such as EQH and its subsidiaries, separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles (“Institutional Services”).

We manage the assets of our institutional clients pursuant to written investment management agreements or other arrangements,  which generally are terminable at any time or upon relatively short notice by either party. In general, our written investment management agreements may not be assigned without the client's consent. For information about our institutional investment advisory and services fees, including performance-based fees, seeRisk Factorsin Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.

EQH and its subsidiaries constitute our largest institutional client. EQH and its subsidiaries combined AUM accounted for approximately 29%, 28% and 26% of our institutional AUM as of December 31, 2020, 2019 and 2018, respectively, and approximately 18%, 17% and 16% of our institutional revenues for 2020, 2019 and 2018, respectively. Also, AXA and its subsidiaries combined AUM accounted for approximately 5%, 10% and 11% of our institutional AUM as of December 31, 2020, 2019 and 2018, respectively, and approximately 12%, 11% and 11% of our institutional revenues for 2020, 2019 and 2018, respectively. No single institutional client other than EQH, AXA and their respective subsidiaries accounted for more than approximately 1% of our net revenues for the year ended December 31, 2020.

3

As of December 31, 2020, 2019 and 2018, Institutional Services represented approximately 46%, 45% and 48%, respectively, of our AUM, and the fees we earned from providing these services represented approximately 14% of our net revenues for each of those years. Our AUM and revenues are as follows:

Institutional Services Assets Under Management
(by Investment Service)
December 31,% Change
2020201920182020-192019-18
(in millions)
Equity Actively Managed:
U.S.$17,435 $13,861 $9,629 25.8 %44.0 %
Global & Non-US42,632 30,767 23,335 38.6 31.8 
Total60,067 44,628 32,964 34.6 35.4 
Equity Passively Managed(1):
U.S.23,806 21,349 17,481 11.5 22.1 
Global & Non-US4,067 3,951 3,174 2.9 24.5 
Total27,873 25,300 20,655 10.2 22.5 
Total Equity87,940 69,928 53,619 25.8 30.4 
Fixed Income Taxable:
U.S.115,488 107,436 96,913 7.5 10.9 
Global & Non-US48,560 50,281 51,156 (3.4)(1.7)
Total164,048 157,717 148,069 4.0 6.5 
Fixed Income Tax-Exempt:
U.S.1,271 1,209 1,046 5.1 15.6 
Global & Non-US— — — — — 
Total1,271 1,209 1,046 5.1 15.6 
Fixed Income Passively Managed(1):
U.S.74 69 73 7.2 (5.5)
Global & Non-US10 20 15 (50.0)33.3 
Total84 89 88 (5.6)1.1 
Total Fixed Income165,403 159,015 149,203 4.0 6.6 
Alternatives/Multi-Asset Solutions(2):
U.S.6,104 5,568 5,024 9.6 10.8 
Global & Non-US56,151 48,179 38,433 16.5 25.4 
Total Alternatives/Multi-Asset Solutions62,255 53,747 43,457 15.8 23.7 
Total:
U.S.164,178 149,492 130,166 9.8 14.8 
Global & Non-US151,420 133,198 116,113 13.7 14.7 
Total$315,598 $282,690 $246,279 11.6 14.8 
Affiliated - EQH$91,396 $78,506 $64,447 16.4 21.8 
AXA16,448 27,136 25,948 (39.4)4.6 
Non-affiliated207,754 177,048 155,884 17.3 13.6 
Total$315,598 $282,690 $246,279 11.6 14.8 
________________________________________________________________________________________________________________________
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services not included in equity or fixed income services.

4

Revenues from Institutional Services
(by Investment Service)
Years Ended December 31,% Change
2020201920182020-192019-18
(in thousands)
Equity Actively Managed:
U.S.$66,118 $62,252 $60,465 6.2 %3.0 %
Global & Non-US104,684 98,169 103,763 6.6 (5.4)
Total170,802 160,421 164,228 6.5 (2.3)
Equity Passively Managed(1):
U.S.3,677 3,846 3,713 (4.4)3.6 
Global & Non-US2,174 1,992 1,880 9.1 6.0 
Total5,851 5,838 5,593 0.2 4.4 
Total Equity176,653 166,259 169,821 6.3 (2.1)
Fixed Income Taxable:
U.S.103,414 103,735 102,356 (0.3)1.3 
Global & Non-US90,612 100,352 106,314 (9.7)(5.6)
Total194,026 204,087 208,670 (4.9)(2.2)
Fixed Income Tax-Exempt:
U.S.1,355 1,309 1,217 3.5 7.6 
Global & Non-US— — — — — 
Total1,355 1,309 1,217 3.5 7.6 
Fixed Income Passively Managed(1):
U.S.47 86 49 (45.3)75.5 
Global & Non-US35 21 28 66.7 (25.0)
Total82 107 77 (23.4)39.0 
Fixed Income Servicing(2):
U.S.14,108 13,215 12,708 6.8 4.0 
Global & Non-US— — — — — 
Total14,108 13,215 12,708 6.8 4.0 
Total Fixed Income209,571 218,718 222,672 (4.2)(1.8)
Alternatives/Multi-Asset Solutions(3):
U.S.52,222 54,582 52,131 (4.3)4.7 
Global & Non-US73,354 39,405 33,530 86.2 17.5 
Total Alternatives/Multi-Asset Solutions125,576 93,987 85,661 33.6 9.7 
Total Investment Advisory and Services Fees:
U.S.240,941 239,025 232,639 0.8 2.7 
Global & Non-US270,859 239,939 245,515 12.9 (2.3)
Consolidated company-sponsored investment funds— — (372)— 100.0 
Total511,800 478,964 477,782 6.9 0.2 
Distribution Revenues588 704 757 (16.5)(7.0)
Shareholder Servicing Fees526 476 529 10.5 (10.0)
Total$512,914 $480,144 $479,068 6.8 0.2 
Affiliated - EQH(4)
$90,101 $82,413 $78,011 9.3 5.6 
AXA62,999 55,135 53,745 14.3 2.6 
Non-affiliated(4)
359,814 342,596 347,312 5.0 (1.4)
Total$512,914 $480,144 $479,068 6.8 0.2 
________________________________________________________________________________________________________________________
(1)Includes index and enhanced index services.
(2)Fixed Income Servicing includes advisory-related services fees that are not based on AUM, including derivative transaction fees, capital purchase program-related advisory services and other fixed income advisory services.
(3)Includes certain multi-asset solutions and services not included in equity or fixed income services.
(4)Amounts in 2019 and 2018 have been reclassified to conform to the current period's presentation.
5

Retail

We provide investment management and related services to a wide variety of individual retail investors, both in the U.S. and internationally, through retail mutual funds we sponsor, mutual fund sub-advisory relationships, separately-managed account programs (see below), and other investment vehicles (“Retail Products and Services”).

We distribute our Retail Products and Services through financial intermediaries, including broker-dealers, insurance sales representatives, banks, registered investment advisers and financial planners. These products and services include open-end and closed-end funds that are either (i) registered as investment companies under the Investment Company Act (“U.S. Funds”), or (ii) not registered under the Investment Company Act and generally not offered to U.S. persons (“Non-U.S. Funds” and, collectively with the U.S. Funds, “AB Funds”). They also include separately-managed account programs, which are sponsored by financial intermediaries and generally charge an all-inclusive fee covering investment management, trade execution, asset allocation, and custodial and administrative services. In addition, we provide distribution, shareholder servicing, transfer agency services and administrative services for our Retail Products and Services. See “Net Revenues – Investment Advisory and Services Fees” in Item 7 for information about our retail investment advisory and services fees. See Note 2 to AB’s consolidated financial statements in Item 8 for a discussion of the commissions we pay to financial intermediaries in connection with the sale of open-end AB Funds.

Fees paid by the U.S. Funds are reflected in the applicable investment management agreement, which generally must be approved annually by the board of directors or trustees of those funds, by a majority vote of the independent directors or trustees. Increases in these fees must be approved by fund shareholders; decreases need not be, including any decreases implemented by a fund’s directors or trustees. In general, each investment management agreement with the U.S. Funds provides for termination by either party, at any time, upon 60 days’ notice.

Fees paid by Non-U.S. Funds are reflected in management agreements that continue until they are terminated. Increases in these fees generally must be approved by the relevant regulatory authority, depending on the domicile and structure of the fund, and Non-U.S. Fund shareholders must be given advance notice of any fee increases.

The mutual funds we sub-advise for EQH and its subsidiaries constitute our largest retail client. EQH and its subsidiaries accounted for approximately 14%, 14% and 16% of our retail AUM as of December 31, 2020, 2019 and 2018, respectively, and approximately 1%, 2% and 2% of our retail net revenues for the years ended December 31, 2020, 2019 and 2018, respectively. Also, AXA and its subsidiaries accounted for approximately 2%, 2% and 3% of our retail AUM as of December 31, 2020, 2019 and 2018, respectively, and approximately 1%, 1% and 2% of our retail net revenues for the years ended December 31, 2020, 2019 and 2018, respectively.

HSBC was responsible for approximately 6%, 14% and 7% of our open-end mutual fund sales in 2020, 2019 and 2018, respectively. HSBC is not under any obligation to sell a specific amount of AB Fund shares and is not our affiliate.

Most open-end U.S. Funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out of assets of the fund, distribution and service fees for the distribution and sale of its shares (“Rule 12b-1 Fees”). The open-end U.S. Funds have entered into such agreements with us, and we have entered into selling and distribution agreements pursuant to which we pay sales commissions to the financial intermediaries that distribute our open-end U.S. Funds. These agreements are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares.

As of December 31, 2020, retail U.S. Fund AUM were approximately $62 billion, or 23% of retail AUM, as compared to $55 billion, or 23%, as of December 31, 2019, and $43 billion, or 24%, as of December 31, 2018. Non-U.S. Fund AUM, as of December 31, 2020, totaled $110 billion, or 41% of retail AUM, as compared to $103 billion, or 43%, as of December 31, 2019, and $71 billion, or 39%, as of December 31, 2018.

6

Our Retail Services represented approximately 39%, 39% and 35% of our AUM as of December 31, 2020, 2019 and 2018, respectively, and the fees we earned from providing these services represented approximately 49%, 46% and 44% of our net revenues for the years ended December 31, 2020, 2019 and 2018, respectively. Our AUM and revenues are as follows:

Retail Services Assets Under Management
(by Investment Service)
December 31,% Change
2020201920182020-192019-18
(in millions)
Equity Actively Managed:
U.S.$79,569 $57,125 $41,450 39.3 %37.8 %
Global & Non-US27,297 24,497 19,475 11.4 25.8 
Total106,866 81,622 60,925 30.9 34.0 
Equity Passively Managed(1):
U.S.28,937 27,153 22,658 6.6 19.8 
Global & Non-US7,058 7,530 6,697 (6.3)12.4 
Total35,995 34,683 29,355 3.8 18.2 
Total Equity142,861 116,305 90,280 22.8 28.8 
Fixed Income Taxable:
U.S.8,510 9,093 7,029 (6.4)29.4 
Global & Non-US76,144 79,315 53,413 (4.0)48.5 
Total84,654 88,408 60,442 (4.2)46.3 
Fixed Income Tax-Exempt:
U.S.23,167 20,706 16,403 11.9 26.2 
Global & Non-US35 44 42 (20.5)4.8 
Total23,202 20,750 16,445 11.8 26.2 
Fixed Income Passively Managed(1):
U.S.4,460 5,031 4,965 (11.3)1.3 
Global & Non-US3,771 3,794 3,964 (0.6)(4.3)
Total8,231 8,825 8,929 (6.7)(1.2)
Total Fixed Income116,087 117,983 85,816 (1.6)37.5 
Alternatives/Multi-Asset Solutions(2):
U.S.3,071 2,470 2,476 24.3 (0.2)
Global & Non-US3,321 2,408 2,197 37.9 9.6 
Total Alternatives/Multi-Asset Solutions6,392 4,878 4,673 31.0 4.4 
Total:
U.S.147,714 121,578 94,981 21.5 28.0 
Global & Non-US117,626 117,588 85,788 — 37.1 
Total$265,340 $239,166 $180,769 10.9 32.3 
Affiliated - EQH$36,765 $34,448 $29,206 6.7 17.9 
AXA6,150 5,680 5,471 8.3 3.8 
Non-affiliated222,425 199,038 146,092 11.8 36.2 
Total$265,340 $239,166 $180,769 10.9 32.3 
________________________________________________________________________________________________________________________
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services not included in equity or fixed income services.

7

Revenues from Retail Services
(by Investment Service)
Years Ended December 31,% Change
2020201920182020-192019-18
(in thousands)
Equity Actively Managed:
U.S.$346,538 $283,461 $235,611 22.3 %20.3 %
Global & Non-US162,435 153,156 149,995 6.1 2.1 
Total508,973 436,617 385,606 16.6 13.2 
Equity Passively Managed(1):
U.S.9,004 9,179 8,901 (1.9)3.1 
Global & Non-US5,343 6,994 7,861 (23.6)(11.0)
Total14,347 16,173 16,762 (11.3)(3.5)
Total Equity523,320 452,790 402,368 15.6 12.5 
Fixed Income Taxable:
U.S.25,127 26,963 25,194 (6.8)7.0 
Global & Non-US509,037 479,886 438,048 6.1 9.6 
Total534,164 506,849 463,242 5.4 9.4 
Fixed Income Tax-Exempt:
U.S.70,661 65,375 58,824 8.1 11.1 
Global & Non-US73 99 132 (26.3)(25.0)
Total70,734 65,474 58,956 8.0 11.1 
Fixed Income Passively Managed(1):
U.S.6,037 5,972 6,086 1.1 (1.9)
Global & Non-US6,192 6,133 6,809 1.0 (9.9)
Total12,229 12,105 12,895 1.0 (6.1)
Total Fixed Income617,127 584,428 535,093 5.6 9.2 
Alternatives/Multi-Asset Solutions(2):
U.S.57,069 51,958 63,232 9.8 (17.8)
Global & Non-US12,723 8,946 8,575 42.2 4.3 
Total Alternatives/Multi-Asset Solutions69,792 60,904 71,807 14.6 (15.2)
Total Investment Advisory and Services Fees:
U.S.514,436 442,908 397,848 16.1 11.3 
Global & Non-US695,803 655,214 611,420 6.2 7.2 
Consolidated company-sponsored investment funds733 883 1,047 (17.0)(15.7)
Total1,210,972 1,099,005 1,010,315 10.2 8.8 
Distribution Revenues522,056 447,050 411,996 16.8 8.5 
Shareholder Servicing Fees78,920 73,777 72,134 7.0 2.3 
Total$1,811,948 $1,619,832 $1,494,445 11.9 8.4 
Affiliated - EQH$27,130 $27,737 $27,814 (2.2)(0.3)
AXA23,762 23,293 24,946 2.0 (6.6)
Non-affiliated1,761,056 1,568,802 1,441,685 12.3 8.8 
Total$1,811,948 $1,619,832 $1,494,445 11.9 8.4 
________________________________________________________________________________________________________________________
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services not included in equity or fixed income services.

8

Private Wealth Management

We offer to our private wealth clients, which include high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities, separately-managed accounts, hedge funds, mutual funds and other investment vehicles (“Private Wealth Services”).

We manage these accounts pursuant to written investment advisory agreements, which generally are terminable at any time or upon relatively short notice by any party, and may not be assigned without the client's consent. For information about our investment advisory and services fees, including performance-based fees, seeRisk Factorsin Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.

Our Private Wealth Services represented approximately 15%, 16% and 17% of our AUM as of December 31, 2020, 2019 and 2018, respectively. The fees we earned from providing these services represented approximately 24%, 26% and 26% of our net revenues for 2020, 2019 and 2018, respectively. Our AUM and revenues are as follows:

Private Wealth Services Assets Under Management
(by Investment Service)
December 31,% Change
2020201920182020-192019-18
(in millions)
Equity Actively Managed:
U.S.$28,135 $26,840 $22,504 4.8 %19.3 %
Global & Non-US22,719 24,094 19,809 (5.7)21.6 
Total50,854 50,934 42,313 (0.2)20.4 
Equity Passively Managed(1):
U.S.641 142 113 n/m25.7 
Global & Non-US25 32 42 (21.9)(23.8)
Total666 174 155 n/m12.3 
Total Equity51,520 51,108 42,468 0.8 20.3 
Fixed Income Taxable:
U.S.9,293 7,583 7,022 22.6 8.0 
Global & Non-US5,222 4,587 4,154 13.8 10.4 
Total14,515 12,170 11,176 19.3 8.9 
Fixed Income Tax-Exempt:
U.S.25,749 25,102 24,129 2.6 4.0 
Global & Non-US15 15 15 — — 
Total25,764 25,117 24,144 2.6 4.0 
Fixed Income Passively Managed(1):
U.S.— — 11 — (100.0)
Global & Non-US195 372 404 (47.6)(7.9)
Total195 372 415 (47.6)(10.4)
Total Fixed Income40,474 37,659 35,735 7.5 5.4 
Alternatives/Multi-Asset Solutions(2):
U.S.5,927 6,808 5,762 (12.9)18.2 
Global & Non-US7,064 5,484 5,340 28.8 2.7 
Total Alternatives/Multi-Asset Solutions12,991 12,292 11,102 5.7 10.7 
Total:
U.S.69,745 66,475 59,541 4.9 11.6 
Global & Non-US35,240 34,584 29,764 1.9 16.2 
Total$104,985 $101,059 $89,305 3.9 13.2 
________________________________________________________________________________________________________________________
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services not included in equity or fixed income services.
9

Revenues from Private Wealth Services
(by Investment Service)
Years Ended December 31,% Change
2020201920182020-192019-18
(in thousands)
Equity Actively Managed:
U.S.$262,885 $267,671 $274,320 (1.8)%(2.4)%
Global & Non-US(3)
225,014 243,240 240,332 (7.5)1.2 
Total487,899 510,911 514,652 (4.5)(0.7)
Equity Passively Managed(1):
U.S.1,053 144 117 n/m23.1 
Global & Non-US60 190 254 (68.4)(25.2)
Total1,113 334 371 n/m(10.0)
Total Equity489,012 511,245 515,023 (4.3)(0.7)
Fixed Income Taxable:
U.S.36,789 34,546 33,034 6.5 4.6 
Global & Non-US34,786 29,418 28,358 18.2 3.7 
Total71,575 63,964 61,392 11.9 4.2 
Fixed Income Tax-Exempt:
U.S.123,871 122,350 118,811 1.2 3.0 
Global & Non-US81 97 109 (16.5)(11.0)
Total123,952 122,447 118,920 1.2 3.0 
Fixed Income Passively Managed(1):
U.S.13 156 (53.8)(91.7)
Global & Non-US(3)
2,885 4,462 5,312 (35.3)(16.0)
Total2,891 4,475 5,468 (35.4)(18.2)
Total Fixed Income198,418 190,886 185,780 3.9 2.7 
Alternatives/Multi-Asset Solutions(2):
U.S.109,169 123,216 122,686 (11.4)0.4 
Global & Non-US(3)
76,065 68,728 51,839 10.7 32.6 
Total Alternatives/Multi-Asset Solutions185,234 191,944 174,525 (3.5)10.0 
Total Investment Advisory and Services Fees:
U.S.533,773 547,940 549,124 (2.6)(0.2)
Global & Non-US338,891 346,135 326,204 (2.1)6.1 
Consolidated company-sponsored investment funds— — (1,214)— 100.0 
Total872,664 894,075 874,114 (2.4)2.3 
Distribution Revenues7,137 7,289 5,809 (2.1)25.5 
Shareholder Servicing Fees2,871 3,141 3,311 (8.6)(5.1)
Total$882,672 $904,505 $883,234 (2.4)2.4 
________________________________________________________________________________________________________________________
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services not included in equity or fixed income services.
(3)Amounts in 2019 have been reclassified to conform to the current period's presentation.
10

Bernstein Research Services

We offer high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options to institutional investors, such as pension fund, hedge fund and mutual fund managers, and other institutional investors (“Bernstein Research Services”). We serve our clients, which are based in the United States and in other major markets around the world, through our trading professionals, who are primarily based in New York, London and Hong Kong, and our sell-side analysts, who provide fundamental company and industry research along with quantitative research into securities valuation and factors affecting stock-price movements.

We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to a lesser but increasing extent, by paying us directly for research through commission sharing agreements or cash payments. Bernstein Research Services accounted for approximately 12%, 12% and 13% of our net revenues as of December 31, 2020, 2019 and 2018, respectively.

For information regarding trends in fee rates charged for brokerage transactions, see “Risk Factors” in Item 1A.

Our Bernstein Research Services revenues are as follows:

Revenues from Bernstein Research Services
Years Ended December 31,% Change
2020201920182020-192019-18
(in thousands)  
Bernstein Research Services$459,744 $407,911 $439,432 12.7 %(7.2)%
Custody

Our U.S. based broker-dealer subsidiary acts as custodian for the majority of our Private Wealth Management AUM and some of our Institutional AUM. Other custodian arrangements, directed by clients, include banks, trust companies, brokerage firms and other financial institutions.

Human Capital Management

As a leading global investment-management and research firm, we bring together a wide range of insights, expertise and innovations to advance the interests of our clients around the world. The intellectual capital of our employees is collectively the most important asset of our firm, so the long-term sustainability of our firm is heavily dependent on our people. We are constantly focused on:
fostering an inclusive culture by incorporating diversity and inclusion in all levels of our business;
encouraging innovation;
developing, retaining and recruiting high-quality talent; and
aligning employees’ incentives and risk taking with those of the firm.

As a result, we have a strong firm culture that helps us maximize performance and drive excellence. Further, our firm’s role as a fiduciary is embedded in our culture. As a fiduciary, our firm’s primary objective is to help our clients reach their financial goals.

Also, our Board of Directors and committees of the Board, particularly our Compensation and Workplace Practices Committee, provide oversight into various human capital matters, including emerging human capital management risks and strategies to mitigate our exposure to those risks. Furthermore, our Board and Board committees evaluate the overall effectiveness of our social responsibility policies, goals and programs and recommend changes to management as necessary. These collaborative efforts contribute to the overall framework that guides how AB attracts, retains and develops a workforce that supports our values and strategic initiatives.

Talent Acquisition
AB seeks to achieve excellence in business and investment performance by recruiting and hiring a workforce with diversity of thought, backgrounds and experiences. We believe that diverse and inclusive teams generate better ideas and reach more balanced decisions. We seek to leverage the unique backgrounds of our employees to meet the needs of a broad range of clients
11

and engage with the communities in which we operate. We engage several external organizations to assist in attracting and recruiting top talent at all levels, with a particular focus on attracting diverse talent. We have a sizable group of internal human capital associates focused on recruiting, and we have implemented various human capital initiatives to develop and provide for a balanced workforce. Additionally, we offer internship programs for students to work in positions across functional areas of the firm; an important part of our college recruitment strategy is to convert a high percentage of our interns into full-time employees.

Employee Engagement
We believe a workforce is most productive, effective and highly engaged when they feel connected to our business and culture. We seek to provide diverse work experiences, professional development opportunities, competitive compensation and benefits, an inclusive and diverse culture and social engagement projects to keep our employees motivated, connected to our firm and engaged throughout their careers. We strive to create a culture of intellectual curiosity and collaboration, creating an environment where our employees can thrive and do their best work. We foster growth and advancement through different training avenues to develop skill sets, create opportunities for networking, both internally and externally, and we encourage internal mobility as a part of our employees' career trajectory. It is important that our employees are not only connected to our business but also to the communities in which we operate. As such, AB offers many opportunities for our employees to volunteer in the communities in which we serve including our firm-wide philanthropic initiative, AB Gives Back. Other initiatives in support of these objectives include a five-year refresh award for employees that mark a five-year anniversary are eligible to receive two additional weeks off. In addition, we utilize AB Voice, a periodic survey designed to measure employee satisfaction and engagement, allowing us to identify and address performance gaps.

Diversity and Inclusion
As noted previously, we believe that diverse and inclusive teams generate better ideas and best serve the needs of our clients. As such, we strive to cultivate a dynamic, diverse and inclusive workplace where employees feel challenged and valued for their contributions. We offer leadership development programs that cater to the needs of various groups, including an African American Leadership program, an Asian Leadership program, a Women's leadership program and a variety of Employee Resource Groups ("ERGs"). These ERG programs, which are central to our diversity and inclusion efforts, share a common purpose, interest and backgrounds and accelerate the advancement of our employees from traditionally underrepresented groups. Our ERG groups are spread across seven categories, including AB Asians, Black ERG, Family Matters, AB Veterans, AB Out (LGBTQ), Synergy (Women) and Adelante (Latinx). These groups serve as a source of inclusion, and they help to support our acquisition of diverse talent. Our senior leadership is committed to our diversity and inclusion efforts and is active in a variety of coalitions pledging to advance diversity and inclusion. Additionally, the Firm has implemented several measures to help ensure accountability for contributing to our diversity and inclusion initiatives. For instance, our senior business leaders have diversity and inclusion objectives embedded in their annual performance goals.

Compensation and Benefits
We have demonstrated a history of investing in our workforce by offering competitive compensation. We utilize a variety of compensation elements, including base salaries, annual short-term compensation awards (i.e., cash bonuses) and, for those of our employees who earn more than $200,000 annually, a long-term compensation award program. Long-term incentive compensation awards generally are denominated in restricted AB Holding Units. We utilize this structure to foster a stronger sense of ownership and align the interests of our employees directly with the interests of our Unitholders and indirectly with the interests of our clients, as strong performance for our clients generally contributes directly to increases in assets under management and improved financial performance for the firm. Furthermore, we offer health and welfare, 401(k) profit-sharing and other benefits programs to all eligible employees. In the U.S. (and elsewhere, although benefits may differ by jurisdiction):
We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location;
We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive compensation and benefit programs, as well as consulting services relating to the amount and form of compensation paid to employees other than executives, and to provide benchmarking against our peers;
We provide merit-based and performance-based annual increases and incentive compensation, which are communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion; and
The firm makes benefits available to all eligible employees, including, health insurance, paid and unpaid leaves, a retirement plan and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow employees to select the options that meet their needs, including flexible time-off, telemedicine, paid parental leave,
12

adoption assistance, prescription savings solutions, Veterans' Health Administration coverage in U.S. medical plans, a personalized wellness program and a financial wellness program.

Health and Safety
The health and safety of our employees is our highest priority and is evident in our response to the COVID-19 pandemic around the globe. At the initial onset of COVID-19 during the first quarter of 2020, we quickly responded in the various jurisdictions where we operate, including the U.S., EMEA (including the U.K., Luxembourg, France and other jurisdictions), Hong Kong, Shanghai, Singapore and Taiwan. We implemented business continuity measures, including travel restrictions and a work-from-home requirement for almost all personnel (other than a relatively small number of employees whose physical presence in our offices was considered critical), which has remained in place (except in our Asia offices, most of which have reopened), to ensure operating continuity for all critical functions. We also instituted a confidential notification process for any employee who tests positive for COVID-19 or has been exposed to someone else who has tested positive. As the COVID-19 crisis has continued to evolve since the lockdown in the first quarter, certain key functions of the business, such as Risk Management, Business Continuity, Finance and Human Capital, have maintained constant communication and monitored the evolution of the pandemic to keep our employees safe and advised of key developments. Additionally, we continue to monitor communications from the World Health Organization and the U.S. Centers for Disease Control and Prevention to ensure we have current information. We have also instituted various other protocols in response to the COVID-19 pandemic, such as increased cleaning protocols, modifying workspaces to allow for social distancing and requiring masks to be worn in all office locations when social distancing cannot be maintained.

Employees
As of December 31, 2020, our firm had 3,929 full-time employees, representing a 3.1% increase compared to the end of 2019.

As of December 31, 2020, our employees reflected the following by gender and region:
Region:Female% FemaleMale% MaleGrand Total% of Total
Americas1,08437 %1,87163 %2,95575 %
Asia ex Japan21052 %19748 %40710 %
EMEA17536 %30764 %48212 %
Japan4148 %4452 %85%
Grand Total1,51038 %2,41962 %3,929100 %


In connection with our establishing 1,250 roles in Nashville, Tennessee, we have relocated many of our employees from our New York City and White Plains, New York, locations. Employees whose roles are in-scope for the move, but who are not relocating, will receive a separation package. We expect layoffs to continue on a rolling basis until all in-scope roles are filled in Nashville.

Information about our Executive Officers
Please refer to "Item 10. Directors, Executive Officers and Corporate Governance" below for information relating to our firm's executive officers.
Service Marks

We have registered a number of service marks with the U.S. Patent and Trademark Office and various foreign trademark offices, including the mark “AllianceBernstein.”  The logo set forth below is a service mark of AB:
    ablp-20201231_g3.jpg
In 2015, we established a new brand identity by prominently incorporating “AB” into our brand architecture, while maintaining the legal names of our corporate entities. With this and other related refinements, our company, and our Institutional and Retail businesses, are referred to as “AllianceBernstein (AB)” or simply “AB.” Private Wealth Management and Bernstein Research Services are referred to as “AB Bernstein.” Also, we adopted the logo service mark described above.

In connection with the Bernstein Transaction, we acquired all of the rights in, and title to, the Bernstein service marks, including the mark “Bernstein.”
13


In connection with an acquisition we completed in 2013, we acquired all of the rights in, and title to, the W.P. Stewart & Co. service marks, including the logo “WPSTEWART.”

Service marks are generally valid and may be renewed indefinitely, as long as they are in use and/or their registrations are properly maintained.

Regulation

Virtually all aspects of our business are subject to various federal and state laws and regulations, rules of various securities regulators and exchanges, and laws in the foreign countries in which our subsidiaries conduct business. These laws and regulations primarily are intended to protect clients and fund shareholders and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. Possible sanctions that may be imposed on us include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment adviser or broker-dealer, censures and fines.

AB, AB Holding, the General Partner and five of our subsidiaries (Sanford C. Bernstein & Co., LLC (“SCB LLC”), AB Broadly Syndicated Loan Manager LLC, AB Custom Alternative Solutions LLC, AB Private Credit Investors LLC and W.P. Stewart Asset Management LLC) are registered with the SEC as investment advisers under the Investment Advisers Act. Additionally, AB Holding is an NYSE-listed company and, accordingly, is subject to applicable regulations promulgated by the NYSE. Also, AB, SCB LLC and AB Custom Alternative Solutions LLC are registered with the Commodity Futures Trading Commission (“CFTC”) as commodity pool operators and commodity trading advisers; SCB LLC also is registered with the CFTC as a commodities introducing broker.

Each U.S. Fund is registered with the SEC under the Investment Company Act and each Non-U.S. Fund is subject to the laws in the jurisdiction in which the fund is registered. For example, our platform of Luxembourg-based funds operates pursuant to Luxembourg laws and regulations, including Undertakings for the Collective Investment in Transferable Securities Directives, and is authorized and supervised by the Commission de Surveillance du Secteur Financier (“CSSF”), the primary regulator in Luxembourg. AllianceBernstein Investor Services, Inc., one of our subsidiaries, is registered with the SEC as a transfer and servicing agent.

SCB LLC and another of our subsidiaries, AllianceBernstein Investments, Inc., are registered with the SEC as broker-dealers, and both are members of the Financial Industry Regulatory Authority. In addition, SCB LLC is a member of the NYSE and other principal U.S. exchanges.

Many of our subsidiaries are subject to the oversight of regulatory authorities in the jurisdictions outside the United States in which they operate, including the Ontario Securities Commission, the Investment Industry Regulatory Organization of Canada, the European Securities and Markets Authority, the Financial Conduct Authority in the U.K., the CSSF in Luxembourg, the Financial Services Agency in Japan, the Securities & Futures Commission in Hong Kong, the Monetary Authority of Singapore, the Financial Services Commission in South Korea, the Financial Supervisory Commission in Taiwan and The Securities and Exchange Board of India. While these regulatory requirements often may be comparable to the requirements of the SEC and other U.S. regulators, they are sometimes more restrictive and may cause us to incur substantial expenditures of time and money related to our compliance efforts. For additional information relating to the regulations that impact our business, please refer to "Risk Factors" in Item 1A.

History and Structure

We have been in the investment research and management business for more than 50 years. Bernstein was founded in 1967. Alliance Capital was founded in 1971 when the investment management department of Donaldson, Lufkin & Jenrette, Inc. (since November 2000, a part of Credit Suisse Group) merged with the investment advisory business of Moody’s Investors Service, Inc.

In April 1988, AB Holding “went public” as a master limited partnership. AB Holding Units, which trade under the ticker symbol “AB,” have been listed on the NYSE since that time.

In October 1999, AB Holding reorganized by transferring its business and assets to AB, a newly-formed operating partnership, in exchange for all of the AB Units (“Reorganization”). Since the date of the Reorganization, AB has conducted the business formerly conducted by AB Holding and AB Holding’s activities have consisted of owning AB Units and engaging in related
14

activities. Unlike AB Holding Units, AB Units do not trade publicly and are subject to significant restrictions on transfer. The General Partner is the general partner of both AB and AB Holding.

In October 2000, our two legacy firms, Alliance Capital and Bernstein, combined, bringing together Alliance Capital’s expertise in growth equity and corporate fixed income investing and its family of retail mutual funds, with Bernstein’s expertise in value equity investing, tax-exempt fixed income management, and its Private Wealth Management and Bernstein Research Services businesses.

As of December 31, 2020, the condensed ownership structure of AB is as follows (for a more complete description of our ownership structure, see “Principal Security Holders” in Item 12):
ablp-20201231_g4.jpg

The General Partner owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB. Including these general partnership interests, EQH, directly and through certain of its subsidiaries (see “Principal Security Holders” in Item 12), had an approximate 64.8% economic interest in AB as of December 31, 2020.

Competition

We compete in all aspects of our business with numerous investment management firms, mutual fund sponsors, brokerage and investment banking firms, insurance companies, banks, savings and loan associations, and other financial institutions that often provide investment products with similar features and objectives as those we offer. Our competitors offer a wide range of financial services to the same customers that we seek to serve. Some of our competitors are larger, have a broader range of product choices and investment capabilities, conduct business in more markets, and have substantially greater resources than we do. These factors may place us at a competitive disadvantage, and we can give no assurance that our strategies and efforts to maintain and enhance our current client relationships, and create new ones, will be successful.

In addition, EQH and its subsidiaries provide financial services, some of which compete with those we offer. The AB Partnership Agreement specifically allows EQH and its subsidiaries (other than the General Partner) to compete with AB and to pursue opportunities that may be available to us. EQH and certain of its subsidiaries have substantially greater financial resources than we do and are not obligated to provide resources to us.

To grow our business, we believe we must be able to compete effectively for AUM. Key competitive factors include:
15

our investment performance for clients;
our commitment to place the interests of our clients first;
the quality of our research;
our ability to attract, motivate and retain highly skilled, and often highly specialized, personnel;
the array of investment products we offer;
the fees we charge;
Morningstar/Lipper rankings for the AB Funds;
our ability to sell our actively-managed investment services despite the fact that many investors favor passive services;
our operational effectiveness;
our ability to further develop and market our brand; and
our global presence.
Competition is an important risk that our business faces and should be considered along with the other factors we discuss in “Risk Factors” in Item 1A.

Available Information

AB and AB Holding file or furnish annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports, and other reports (and amendments thereto) required to comply with federal securities laws, including Section 16 beneficial ownership reports on Forms 3, 4 and 5, registration statements and proxy statements. We maintain an Internet site (http://www.alliancebernstein.com) where the public can view these reports, free of charge, as soon as reasonably practicable after each report is filed with, or furnished to, the SEC. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.


16

Item 1A. Risk Factors

Please consider this section along with the description of our business in Item 1, the competition section immediately above and AB’s financial information contained in Items 6, 7 and 8. The majority of the risk factors discussed below directly affect AB. These risk factors also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB. See also “Cautions Regarding Forward-Looking Statements” in Item 7.

Business-related Risks, including risks relating to COVID-19

Our revenues and results of operations depend on the market value and composition of our AUM, which can fluctuate significantly based on various factors, including many factors outside of our control.

We derive most of our revenues from investment advisory and services fees, which typically are calculated as a percentage of the value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and vary with the type of investment service, the size of the account and the total amount of assets we manage for a particular client. The value and composition of our AUM can be adversely affected by several factors, including:

Market Factors. The dramatic securities market declines experienced during March 2020, which resulted from the global effects of COVID-19, caused a significant reduction in our AUM. Markets and AUM levels have since recovered to new highs following unprecedented, coordinated monetary and fiscal policy support and, more recently, the approval of vaccines to help remedy the global pandemic. However, we recognize that, due to continued uncertainty associated with these circumstances, markets may remain volatile and, accordingly, there remains risk of a significant reduction in our revenues and net income in future periods, particularly if the negative effects on the global economy from COVID accelerate.
Global economies and financial markets are increasingly interconnected, which increases the probability that conditions in one country or region might adversely impact a different country or region. Conditions affecting the general economy, including political, social or economic instability at the local, regional or global level, such as the civil unrest centered around racial inequity experienced across the U.S. during the second, third and fourth quarters of 2020, and the riot experienced in Washington D.C. in January 2021 surrounding the transition to a new Presidential administration, may also affect the market value of our AUM. Health crises, such as the COVID-19 pandemic, as well as other incidents that interrupt the expected course of events, such as natural disasters, war or civil disturbance, acts of terrorism (whether foreign or domestic), power outages and other unforeseeable and external events, and the public response to or fear of such diseases or events, have had and may in the future have a significant adverse effect on financial markets and our AUM, revenues and net income. Furthermore, the preventative and protective health-related actions, such as business activity suspensions and population lock-downs, that governments have taken, and may continue to take, in response to COVID-19 have resulted, and may continue to result, in periods of business interruption, inability to obtain raw materials, supplies and component parts, and reduced or disrupted operations. These circumstances have caused, and may continue to cause, significant economic disruption and high levels of unemployment, which will adversely affect the financial condition and results of operations of many of the companies in which we invest, and likely reduce the market value of their securities and thus our AUM and revenues. Furthermore, the significant market volatility and uncertainty, and reductions in the availability of margin financing, we experienced during the first quarter of 2020 severely limited the liquidity of certain asset backed and other securities, making it at times impossible to sell these securities at prices reflecting their true economic value. While liquidity conditions have improved considerably since the first quarter following the stimulus programs announced by the U.S. Federal Reserve and U.S. Treasury, we recognize the possibility that conditions could deteriorate in the future. Lack of liquidity makes it more difficult for our funds to meet redemption requests. If liquidity were to worsen, this may have a significant adverse effect on our AUM, revenues and net income in the future.
Client Preferences. Generally, our clients may withdraw their assets at any time and on short notice. Also, changing market dynamics and investment trends, particularly with respect to sponsors of defined benefit plans choosing to invest in less risky investments and the ongoing shift to lower-fee passive services described below, may continue to reduce interest in some of the investment products we offer, and/or clients and prospects may continue to seek investment products that we may not currently offer. Loss of, or decreases in, AUM reduces our investment advisory and services fees and revenues.
Our Investment Performance.  Our ability to achieve investment returns for clients that meet or exceed investment returns for comparable asset classes and competing investment services is a key consideration when clients decide to keep their assets with us or invest additional assets, and when a prospective client is deciding whether to invest with
17

us. Poor investment performance, both in absolute terms and/or relative to peers and stated benchmarks, may result in clients withdrawing assets and prospective clients choosing to invest with competitors.
Investing Trends. Our fee rates can vary significantly among the various investment products and services we offer to our clients (see “Net Revenues” in Item 7 for additional information regarding our fee rates); our fee realization rate fluctuates as clients shift assets between accounts or products with different fee structures.
Service Changes. We may be required to reduce our fee levels, restructure the fees we charge and/or adjust the services we offer to our clients because of, among other things, regulatory initiatives (whether industry-wide or specifically targeted), changing technology in the asset management business (including algorithmic strategies and emerging financial technology), court decisions and competitive considerations. A reduction in fee levels would reduce our revenues.
A decrease in the value of our AUM, a decrease in the amount of AUM we manage, an adverse mix shift in our AUM and/or a reduction in the level of fees we charge would adversely affect our investment advisory fees and revenues. A reduction in revenues, without a commensurate reduction in expenses, adversely affects our results of operations.

The industry-wide shift from actively-managed investment services to passive services has adversely affected our investment advisory and services fees, revenues and results of operations, and this trend may continue.

Our competitive environment has become increasingly difficult over the past decade, as active managers, which invest based on individual security selection, have, on average, consistently underperformed passive services, which invest based on market indices. Active performance relative to benchmarks in the first half of 2020 remained mixed, with 51% of active managers outperforming their passive benchmarks for the six months ended June 30, 2020 (latest data available). Non-U.S. stock active funds fared better with 60% outperforming benchmarks, while 48% of U.S. stock active funds outperformed and just 40% of active bond funds outperformed their benchmarks. Also, results varied among growth, value and core managers.
Demand for passive strategies persisted, and while active equity managers continued to struggle to attract new assets, flows to active fixed income managers remained positive. In the U.S., total industry-wide active mutual fund outflows of $196 billion in 2020 increased from net outflows of $12 billion in 2019. Active equity U.S. mutual fund outflows of $338 billion in 2020 increased by 23% year-over-year. Active fixed income U.S. mutual funds showed continued strength with inflows of $246 billion in 2020, though they decreased 9% from $271 billion in 2019. Fixed income active flows were positive in each quarter in 2020 following the sell-off in March 2020. Total industry-wide passive mutual fund inflows of $361 billion declined by 20% from last year's inflows of $450 billion. In this environment, organic growth through positive net inflows is difficult to achieve for active managers, such as AB, and requires taking market share from other active managers.
The significant shift from active services to passive services adversely affects Bernstein Research Services revenues as well. While global market trading volumes increased in 2020 due to higher market volatility, predominantly relating to COVID, the broader trend in recent years has been declines, which we would expect to continue, fueled by persistent active equity outflows and passive equity inflows. As a result, portfolio turnover has declined and investors hold fewer shares that are actively traded by managers.
Our reputation could suffer if we are unable to deliver consistent, competitive investment performance.

Our business is based on the trust and confidence of our clients. Damage to our reputation, resulting from poor or inconsistent investment performance, among other factors, can reduce substantially our AUM and impair our ability to maintain or grow our business.

EQH and its subsidiaries, and to a lesser extent AXA and its subsidiaries, provide a significant amount of our AUM and fund a significant portion of our seed investments, and if our agreements with them terminate or they withdraw capital support, whether as a result of EQH's public offerings since 2018 or another factor, it could have a material adverse effect on our business, results of operations and/or financial condition.
EQH (our parent company) and its subsidiaries is our largest client. Our EQH affiliates represented approximately 19%, of our AUM as of December 31, 2020, and we earned approximately 3% of our net revenues from services we provided to them in 2020. Also, AXA and its subsidiaries represented approximately 3% of our AUM as of December 31, 2020, and we earned approximately 2% of our net revenues from services we provided to them in 2020. Our related investment management agreements are terminable at any time or on short notice by either party, and neither EQH nor AXA is under any obligation to maintain any level of AUM with us. A material adverse effect on our business, results of operations and/or financial condition could result if EQH were to terminate its investment management agreements with us.
18

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 and taken other steps, most recently during the fourth quarter of 2019. As a result, AXA owned less than 10% of the outstanding common stock of EQH as of December 31, 2020.

While we cannot at this time predict the full impact on AB of this transaction, such impact has included a reduction in the support AXA provided to AB in the past with respect to AB's investment management business, resulting in a modest decrease in our revenues and ability to initiate new investment services. Also, AB relies on AXA, including its subsidiary, AXA Business Services, for several significant services, and AB has benefited from its affiliation with AXA in certain common vendor relationships. Some of these arrangements have changed, and others are expected to change, with immaterial financial implications for AB.

Our business is dependent on investment advisory agreements with clients, and selling and distribution agreements with various financial intermediaries and consultants, which generally are subject to termination or non-renewal on short notice.
 
We derive most of our revenues pursuant to written investment management agreements (or other arrangements) with institutional investors, mutual funds and private wealth clients, and selling and distribution agreements with financial intermediaries that distribute AB Funds. Generally, the investment management agreements (and other arrangements), including our agreements with EQH and its subsidiaries, are terminable at any time or upon relatively short notice by either party. The investment management agreements pursuant to which we manage the U.S. Funds must be renewed and approved by the Funds’ boards of directors annually. A significant majority of the directors are independent. Consequently, there can be no assurance that the board of directors of each fund will approve the fund’s investment management agreement each year, or will not condition its approval on revised terms that may be adverse to us. In addition, investors in AB Funds can redeem their investments without notice. Any termination of, or failure to renew, a significant number of these agreements, or a significant increase in redemption rates, could have a material adverse effect on our results of operations and business prospects.

Similarly, the selling and distribution agreements with securities firms, brokers, banks and other financial intermediaries are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares. These intermediaries generally offer their clients investment products that compete with our products. In addition, certain institutional investors rely on consultants to advise them about choosing an investment adviser and some of our services may not be considered among the best choices by these consultants. As a result, investment consultants may advise their clients to move their assets invested with us to other investment advisers, which could result in significant net outflows.

Lastly, our Private Wealth Services rely on referrals from financial planners, registered investment advisers and other professionals. We cannot be certain that we will continue to have access to, or receive referrals from, these third parties. Loss of such access or referrals could have a material adverse effect on our results of operations and business prospects.

Performance-based fee arrangements with our clients may cause greater fluctuations in our net revenues.

We sometimes charge our clients performance-based fees, whereby we charge a base advisory fee and are eligible to earn an 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 under-performs relative to its performance target (whether in absolute terms or relative to a specified benchmark), it must gain back such under-performance before we can collect future performance-based fees. Therefore, if we fail to achieve the performance target for a particular period, we will not earn a performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-based fees will be impaired.

We are eligible to earn performance-based fees on 6.0%, 8.5% and 0.8% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, 4.4% of our AUM). If the percentage of our AUM subject to performance-based fees increases, seasonality and volatility of revenue and earnings are likely to become more significant. Our performance-based fees were $132.6 million, $99.6 million and $118.1 million in 2020, 2019 and 2018, respectively.

The revenues generated by Bernstein Research Services may be adversely affected by circumstances beyond our control, including declines in brokerage transaction rates, declines in global market volumes, failure to settle our trades by significant counterparties and the effects of MiFID II.

Electronic, or “low-touch,” trading represents a significant percentage of buy-side trading activity and typically produces transaction fees that are significantly lower than the price of traditional full service fee rates. As a result, blended pricing throughout our industry is lower now than it was historically, and price declines may continue. In addition, fee rates we charge
19

and charged by other brokers for brokerage services have historically experienced price pressure, and we expect these trends to continue. Also, while increases in transaction volume and market share often can offset decreases in rates, this may not continue.

In addition, the failure or inability of any of our broker-dealer's significant counterparties to perform could expose us to substantial expenditures and adversely affect our revenues. For example, SCB LLC, as a member of clearing and settlement organizations, would be required to settle open trades of any non-performing counterparty. This exposes us to the mark-to-market adjustment on the trades between trade date and settlement date, which could be significant, especially during periods of severe market volatility. Also, our ability to access liquidity in such situations may be limited by what our funding relationships are able to offer us at such times.

We discuss the risks associated with the second installment of the Markets in Financial Instruments Directive II (“MiFID II”) below in "Legal and Regulatory-related Risks" in this Item 1A.

Fluctuations in the exchange rates between the U.S. dollar and various other currencies can adversely affect our AUM, revenues and results of operations.

Although significant portions of our net revenues and expenses, as well as our AUM, presently are denominated in U.S. dollars, we have subsidiaries and clients outside of the United States with functional currencies other than the U.S. dollar. Weakening of these currencies relative to the U.S. dollar adversely affects the value in U.S. dollar terms of our revenues and our AUM denominated in these other currencies. Accordingly, fluctuations in U.S. dollar exchange rates affect our AUM, revenues and reported financial results from one period to the next.

We may not be successful in our efforts to hedge our exposure to such fluctuations, which could negatively impact our revenues and reported financial results.

Our seed capital investments are subject to market risk. While we enter into various futures, forwards, swap and option contracts to economically hedge many of these investments, we also may be exposed to market risk and credit-related losses in the event of non-performance by counterparties to these derivative instruments.

We have a seed investment program for the purpose of building track records and assisting with the marketing initiatives pertaining to our firm's new products. These seed capital investments are subject to market risk. Our risk management team oversees a seed hedging program that attempts to minimize this risk, subject to practical and cost considerations. Also, not all seed investments are deemed appropriate to hedge, and in those cases we are exposed to market risk. In addition, we may be subject to basis risk in that we cannot always hedge with precision our market exposure and, as a result, we may be subject to relative spreads between market sectors. As a result, volatility in the capital markets may cause significant changes in our period-to-period financial and operating results.

We use various derivative instruments, including futures, forwards, swap and option contracts, in conjunction with our seed hedging program.  While in most cases broad market risks are hedged, our hedges are imperfect and some market risk remains. In addition, our use of derivatives results in counterparty risk (i.e., the risk that we may be exposed to credit-related losses in the event of non-performance by counterparties to these derivative instruments), regulatory risk (e.g., short selling restrictions) and cash/synthetic basis risk (i.e., the risk that the underlying positions do not move identically to the related derivative instruments).

We may engage in strategic transactions that could pose risks.

As part of our business strategy, we consider potential strategic transactions, including acquisitions, dispositions, mergers, consolidations, joint venture partnerships and similar transactions, some of which may be material. These transactions, if undertaken, may involve various risks and present financial, managerial and operational challenges, including:.

adverse effects on our earnings if acquired intangible assets or goodwill become impaired;
existence of unknown liabilities or contingencies that arise after closing;
potential disputes with counterparties; and
the possible need for us to increase our firm's leverage or, if we fund the purchase price of a transaction with AB Units or AB Holding Units, likely dilution to our existing unitholders.
20

Acquisitions also pose the risk that any business we acquire may lose customers or employees or could under-perform relative to expectations. Additionally, the loss of investment personnel poses the risk that we may lose the AUM we expected to manage, which could adversely affect our results of operations.

We may not accurately value the securities we hold on behalf of our clients or our company investments.

In accordance with applicable regulatory requirements, contractual obligations or client direction, we employ procedures for the pricing and valuation of securities and other positions held in client accounts or for company investments. We have established a Valuation Committee, consisting of senior officers and employees, which oversees pricing controls and valuation processes. If market quotations for a security are not readily available, the Valuation Committee determines a fair value for the security.

Extraordinary volatility in financial markets, significant liquidity constraints or our failure to adequately consider one or more factors when determining the fair value of a security based on information with limited market observability could result in our failing to properly value securities we hold for our clients or investments accounted for on our balance sheet. Improper valuation likely would result in our basing fee calculations on inaccurate AUM figures, our striking incorrect net asset values for company-sponsored mutual funds or hedge funds or, in the case of company investments, our inaccurately calculating and reporting our financial condition and operating results. Although the overall percentage of our AUM that we fair value based on information with limited market observability is not significant, inaccurate fair value determinations can harm our clients, create regulatory issues and damage our reputation.

We may not have sufficient information to confirm or review the accuracy of valuations provided to us by underlying external managers for the funds in which certain of our alternative investment products invest.

Certain of our alternative investment services invest in funds managed by external managers (“External Managers”) rather than investing directly in securities and other instruments. As a result, our abilities will be limited with regard to (i) monitoring such investments, (ii) regularly obtaining complete, accurate and current information with respect to such investments and (iii) exercising control over such investments. Accordingly, we may not have sufficient information to confirm or review the accuracy of valuations provided to us by External Managers. In addition, we will be required to rely on External Managers’ compliance with any applicable investment guidelines and restrictions. Any failure of an External Manager to operate within such guidelines or to provide accurate information with respect to the investment could subject our alternative investment products to losses and cause damage to our reputation.
 
The quantitative models we use in certain of our investment services may contain errors, resulting in imprecise risk assessments and unintended output.

We use quantitative models in a variety of our investment services, generally in combination with fundamental research. These models are developed by senior quantitative professionals and typically are implemented by IT professionals. Our Model Risk Oversight Committee oversees the model governance framework and associated model review activities, which are then executed by our Model Risk Team. However, due to the complexity and large data dependency of such models, it is possible that errors in the models could exist and our controls could fail to detect such errors. Failure to detect errors could result in client losses and reputational damage.

The financial services industry is intensely competitive.

We compete on the basis of a number of factors, including our investment performance for our clients, our array of investment services, innovation, reputation and price. By having a global presence, we often face competitors with more experience and more established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect our ability to expand. Furthermore, if we are unable to maintain and/or continue to improve our investment performance, our client flows may be adversely affected, which may make it more difficult for us to compete effectively.
 
Also, increased competition could reduce the demand for our products and services, which could have a material adverse effect on our financial condition, results of operations and business prospects. For additional information regarding competitive factors, see “Competition” in Item 1.




21

Human Capital-related Risks

We may be unable to continue to attract, motivate and retain key personnel, and the cost to retain key personnel could put pressure on our adjusted operating margin.

Our business depends on our ability to attract, motivate and retain highly skilled, and often highly specialized, technical, investment, managerial and executive personnel, and there is no assurance that we will be able to do so.

The market for these professionals is extremely competitive. They often maintain strong, personal relationships with investors in our products and other members of the business community so their departure may cause us to lose client accounts or result in fewer opportunities to win new business, either of which factors could have a material adverse effect on our results of operations and business prospects.

Additionally, a decline in revenues may limit our ability to pay our employees at competitive levels, and maintaining (or increasing) compensation without a revenue increase, in order to retain key personnel, may adversely affect our adjusted operating margin. As a result, we remain vigilant about aligning our cost structure (including headcount) with our revenue base. For additional information regarding our compensation practices, see "Compensation Discussion and Analysis" in Item 11.

Our process of relocating our headquarters may not be executed as we envision.

We have announced that we will establish our corporate headquarters in and relocate approximately 1,250 jobs located in the New York metropolitan area to Nashville, Tennessee (for additional information, see “Relocation Strategy” in Item 7). Although the eventual impact on AB from this process is not yet known, the uncertainty created by these circumstances could have a significant adverse effect on AB’s ability to motivate and retain current employees. Further significant managerial and operational challenges could arise, such as ineffective transfer of institutional knowledge from current employees to newly-hired employees, if AB experiences significantly greater attrition among current employees than the firm anticipates in connection with the relocation and/or if the firm encounters more difficulty than expected in hiring qualified employees to help staff our Nashville headquarters.

Additionally, our estimates for both the transition costs and the corresponding expense savings relating to our headquarters relocation, which we discuss in more detail in “Relocation Strategy” in Item 7, are based on our current assumptions of employee relocation costs, severance, and overlapping compensation and occupancy costs. If our assumptions turn out to be inaccurate, our adjusted net revenues and adjusted operating income could be adversely affected.

Operational, Technology and Cyber-related Risks

Technology failures and disruptions, including failures to properly safeguard confidential information, can significantly constrain our operations and result in significant time and expense to remediate, which could result in a material adverse effect on our results of operations and business prospects.

We are highly dependent on software and related technologies throughout our business, including both proprietary systems and those provided by third-party vendors. We use our technology to, among other things, obtain securities pricing information, process client transactions, store and maintain data, and provide reports and other services to our clients. Despite our protective measures, including measures designed to effectively secure information through system security technology and established and tested business continuity plans, we may still experience system delays and interruptions as a result of natural disasters, hardware failures, software defects, power outages, acts of war and third-party failures. We cannot predict with certainty all of the adverse effects that could result from our failure, or the failure of a third party, to efficiently address and resolve these delays and interruptions. These adverse effects could include the inability to perform critical business functions or failure to comply with financial reporting and other regulatory requirements, which could lead to loss of client confidence, reputational damage, exposure to disciplinary action and liability to our clients.

Many of the software applications that we use in our business are licensed from, and supported, upgraded and maintained by, third-party vendors. A suspension or termination of certain of these licenses or the related support, upgrades and maintenance could cause temporary system delays or interruption. Additionally, technology rapidly evolves and we cannot guarantee that our competitors may not implement more advanced technology platforms for their products and services, which may place us at a competitive disadvantage and adversely affect our results of operations and business prospects.

Also, we could be subject to losses if we fail to properly safeguard sensitive and confidential information. As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to
22

our business operations. Although we take protective measures, our systems still could be vulnerable to cyber attack or other forms of unauthorized access (including computer viruses) that have a security impact, such as an authorized employee or vendor inadvertently or intentionally causing us to release confidential or proprietary information. Such disclosure could, among other things, allow competitors access to our proprietary business information and require significant time and expense to investigate and remediate the breach. Moreover, loss of confidential client information could harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenues.

Any significant security breach of our information and cyber security infrastructure, as well as our failure to properly escalate and respond to such an incident, may significantly harm our operations and reputation.
It is critical that we ensure the continuity and effectiveness of our information and cyber security infrastructure, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through them and contracted third-party systems. Although we take protective measures, including measures to effectively secure information through system security technology, our technology systems may still be vulnerable to unauthorized access, supply chain attacks, computer viruses or other events that have a security impact, such as an external attack by one or more cyber criminals (including phishing attacks attempting to obtain confidential information and ransomware attacks attempting to block access to a computer system until a sum of money is paid), which could materially harm our operations and reputation. Additionally, while we take precautions to password protect and encrypt our laptops and sensitive information on our other mobile electronic devices, if such devices are stolen, misplaced or left unattended, they may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us.
Furthermore, although we maintain a robust cyber security infrastructure and incident preparedness strategy, which we test periodically, we may be unable to respond, both internally and externally, to a cyber incident in a sufficiently expeditious manner. Any such failure could cause significant harm to our reputation and result in litigation, regulatory scrutiny and/or significant remediation costs.
Unpredictable events, including climate change, outbreak of infectious disease, natural disaster, dangerous weather conditions, technology failure, terrorist attack and political unrest, may adversely affect our ability to conduct business.

War, terrorist attack, political unrest, power failure, climate change, natural disaster and rapid spread of infectious disease (such as the ongoing COVID-19 pandemic) could interrupt our operations by:

causing disruptions in global economic conditions, thereby decreasing investor confidence and making investment products generally less attractive;
inflicting loss of life;
triggering large-scale technology failures or delays;
breaching our information and cyber security infrastructure; and
requiring substantial capital expenditures and operating expenses to remediate damage and restore operations.
Despite the contingency plans and facilities we have in place, including system security measures, information back-up and disaster recovery processes, our ability to conduct business, including in key business centers where we have significant operations, such as New York City, London, England, and Nashville, Tennessee, may be adversely affected by a disruption in the infrastructure that supports our operations and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services we may use or third parties with which we conduct business. If a disruption occurs in one location and our employees in that location are unable to occupy our offices or communicate with or travel to other locations, our ability to conduct business with and on behalf of our clients may suffer, and we may not be able to successfully implement contingency plans that depend on communication or travel. Furthermore, unauthorized access to our systems as a result of a security breach, the failure of our systems, or the loss of data could give rise to legal proceedings or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation.

Our operations require experienced, professional staff. Loss of a substantial number of such persons or an inability to provide properly equipped places for them to work may, by disrupting our operations, adversely affect our financial condition, results of operations and business prospects. In addition, our property and business interruption insurance may not be adequate to compensate us for all losses, failures or breaches that may occur.

23

Our own operational failures or those of third parties on which we rely, including failures arising out of human error, could disrupt our business, damage our reputation and reduce our revenues.

Weaknesses or failures in our internal processes or systems could lead to disruption of our operations, liability to clients, exposure to disciplinary action or harm to our reputation. Our business is highly dependent on our ability to process, on a daily basis, large numbers of transactions, many of which are highly complex, across numerous and diverse markets. These transactions generally must comply with client investment guidelines, as well as stringent legal and regulatory standards.

Our obligations to clients require us to exercise skill, care and prudence in performing our services. Despite our employees being highly trained and skilled, the large number of transactions we process makes it highly likely that errors will occasionally occur. If we make a mistake in performing our services that causes financial harm to a client, we have a duty to act promptly to put the client in the position the client would have been in had we not made the error. The occurrence of mistakes, particularly significant ones, can have a material adverse effect on our reputation, results of operations and business prospects.

The individuals, third-party vendors or issuers on whom we rely to perform services for us or our clients may be unable or unwilling to honor their contractual obligations to us.

We rely on various counterparties and other third-party vendors to augment our existing investment, operational, financial and technological capabilities, but the use of a third-party vendor does not diminish AB's responsibility to ensure that client and regulatory obligations are met. Default rates, credit downgrades and disputes with counterparties as to the valuation of collateral increase significantly in times of market stress. Disruptions in the financial markets and other economic challenges may cause our counterparties and other third-party vendors to experience significant cash flow problems or even render them insolvent, which may expose us to significant costs and impair our ability to conduct business.

Weaknesses or failures within a third-party vendor's internal processes or systems, or inadequate business continuity plans, can materially disrupt our business operations. Also, third-party vendors may lack the necessary infrastructure or resources to effectively safeguard our confidential data. If we are unable to effectively manage the risks associated with such third-party relationships, we may suffer fines, disciplinary action and reputational damage.

We may not always successfully manage actual and potential conflicts of interest that arise in our business.

Increasingly, we must manage actual and potential conflicts of interest, including situations where our services to a particular client conflict, or are perceived to conflict, with the interests of another client. Failure to adequately address potential conflicts of interest could adversely affect our reputation, results of operations and business prospects.

We have procedures and controls that are designed to identify and mitigate conflicts of interest, including those designed to prevent the improper sharing of information. However, appropriately managing conflicts of interest is complex. Our reputation could be damaged and the willingness of clients to enter into transactions in which such a conflict might arise may be affected if we fail, or appear to fail, to deal appropriately with actual or perceived conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions.

Maintaining adequate liquidity for our general business needs depends on certain factors, including operating cash flows and our access to credit on reasonable terms.

Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow AUM and other factors beyond our control. Our ability to issue public or private debt on reasonable terms may be limited by adverse market conditions, our profitability, our creditworthiness as perceived by lenders and changes in government regulations, including tax rates and interest rates. Furthermore, our access to credit on reasonable terms is partially dependent on our firm’s credit ratings.

Both Moody’s Investors Service, Inc. and Standard & Poor's Rating Service affirmed AB’s long-term and short-term credit ratings and indicated a stable outlook in 2020. Future changes in our credit ratings are possible and any downgrade to our ratings is likely to increase our borrowing costs and limit our access to the capital markets. If this occurs, we may be forced to incur unanticipated costs or revise our strategic plans, which could have a material adverse effect on our financial condition, results of operations and business prospects.




24

An impairment of goodwill may occur.

Determining whether an impairment of the goodwill asset exists requires management to exercise a substantial amount of judgment. In addition, to the extent that securities valuations are depressed for prolonged periods of time and/or market conditions deteriorate, or if we experience significant net redemptions, our AUM, revenues, profitability and unit price will be adversely affected. Although the price of an AB Holding Unit is just one factor in the calculation of fair value, if AB Holding Unit price levels decline significantly, reaching the conclusion that fair value exceeds carrying value will, over time, become more difficult. In addition, control premiums, industry earnings multiples and discount rates are impacted by economic conditions. As a result, subsequent impairment tests may occur more frequently and be based on more negative assumptions and future cash flow projections, and may result in an impairment of goodwill. An impairment may result in a material charge to our earnings. For additional information about our impairment testing, see Item 7.

The insurance that we maintain may not fully cover all potential exposures.

We maintain professional liability, fidelity, cyber, property, casualty, business interruption and other types of insurance, but such insurance may not cover all risks associated with the operation of our business. Our coverage is subject to exclusions and limitations, including high self-insured retentions or deductibles and maximum limits and liabilities covered. In addition, from time to time, various types of insurance may not be available on commercially acceptable terms or, in some cases, at all. We can make no assurance that a claim or claims will be covered by our insurance policies or, if covered, will not exceed our available insurance coverage, or that our insurers will remain solvent and meet their obligations.
In the future, we may not be able to obtain coverage at current levels, if at all, and our premiums may increase significantly on coverage that we maintain. Also, we currently are party to certain joint insurance arrangements with subsidiaries of EQH. If our affiliates choose not to include us as insured parties under any such policies, we may need to obtain stand-alone insurance coverage, which could have coverage terms that are less beneficial to us and/or cost more.
Legal and Regulatory-related Risks

Our business is subject to pervasive, complex and continuously evolving global regulation, compliance with which involves substantial expenditures of time and money, and violation of which may result in material adverse consequences.

Virtually all aspects of our business are subject to federal and state laws and regulations, rules of securities regulators and exchanges, and laws and regulations in the foreign jurisdictions in which our subsidiaries conduct business. If we violate these laws or regulations, we could be subject to civil liability, criminal liability or sanction, including restriction or revocation of our and our subsidiaries’ professional licenses or registrations, revocation of the licenses of our employees, censures, fines, or temporary suspension or permanent bar from conducting business. Any such liability or sanction could have a material adverse effect on our financial condition, results of operations and business prospects. A regulatory proceeding, even if it does not result in a finding of wrongdoing or sanction, could require substantial expenditures of time and money and could potentially damage our reputation.

In recent years, global regulators have substantially increased their oversight of financial services. Some of the newly-adopted and proposed regulations are focused on investment management services. Others, while more broadly focused, nonetheless impact our business. Moreover, the adoption of new laws, regulations or standards and changes in the interpretation or enforcement of existing laws, regulations or standards have directly affected, and will continue to affect, our business, including making our efforts to comply more expensive and time-consuming.

For example, in 2015 the Financial Supervisory Commission in Taiwan (the “FSC”) implemented new limits on the degree to which local investors can own an offshore investment product.  While certain exemptions have been available to us, should we not continue to qualify, the FSC’s rules could force some of our local resident investors to redeem their investments in our funds sold in Taiwan (and/or prevent further sales of those funds in Taiwan), some of which funds have local ownership levels substantially above the FSC limits. This could lead to significant declines in our investment advisory and services fees and revenues earned from these funds.

In Europe, MiFID II, which became effective in January 2018, makes significant modifications to the manner in which European broker-dealers can be compensated for research. These modifications have reduced, and are believed to have significantly reduced, the overall research spend by European buy-side firms, which has decreased the revenues we derive from our European clients. Our European clients may continue to reduce their research budgets, which could result in a significant decline in our sell-side revenues.
25

Also, while MiFID II is not applicable to firms operating outside of Europe, competitive and client pressures increasingly may force buy-side firms operating outside of Europe to pay for research from their own resources instead of through bundled trading commissions. To the extent that occurs, we 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.

Additionally, in July 2017 the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. In November 2020, the ICE Benchmark Administration Limited announced a plan to extend the date as of which most U.S. LIBOR values would cease being computed from December 31, 2021 to June 30, 2023. Although financial regulators and industry working groups have suggested alternative reference rates, global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates may adversely affect the amount of interest payable or interest receivable on certain of our firm's portfolio investments. These changes may also impact the market liquidity and market value of these portfolio investments. We are finalizing our global assessment of exposure in relation to funds utilizing LIBOR based instruments and benchmarks.  Further, we are prioritizing the mitigation of risks associated with the forecast changes to financial instruments and performance benchmarks referencing existing LIBOR rates, and concurrently any impact on AB portfolios and investment strategies.

Lastly, it also is uncertain how regulatory trends will further evolve, both in the U.S. and abroad. For example, following the Brexit referendum in June 2016, the U.K.'s departure from the European Union (the "EU") resulted in the U.K. leaving the EU Single Market on December 31, 2020. While the U.K. and the EU have agreed to a trade deal, which took effect on January 1, 2021, this deal does not include specific arrangements for financial services. Accordingly, since the start of 2021, our U.K.-based buy-side and sell-side subsidiaries have implemented alternative arrangements in EU jurisdictions (utilizing AB's EU-based subsidiaries) to ensure continued operations in the EU Single Market. These arrangements are subject to potential change due to ongoing negotiations between the U.K. and the EU on future regulatory cooperation, and it is difficult to ascertain how any such changes may impact the ability of our U.K.-based subsidiaries to provide services to EU-based clients in the future.

We are involved in various legal proceedings and regulatory matters and may be involved in such proceedings in the future, any one or combination of which could have a material adverse effect on our reputation, financial condition, results of operations and business prospects.

We may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which allege significant damages, and we may be involved in additional matters in the future. Litigation is subject to significant uncertainties, particularly when plaintiffs allege substantial or indeterminate damages, the litigation is in its early stages, or when the litigation is highly complex or broad in scope.

Structure-related Risks

The partnership structure of AB Holding and AB limits Unitholders’ abilities to influence the management and operation of AB’s business and is highly likely to prevent a change in control of AB Holding and AB.

The General Partner, as general partner of both AB Holding and AB, generally has the exclusive right and full authority and responsibility to manage, conduct, control and operate their respective businesses, except as otherwise expressly stated in their respective Amended and Restated Agreements of Limited Partnership. AB Holding and AB Unitholders have more limited voting rights on matters affecting AB than do holders of common stock in a corporation. Both Amended and Restated Agreements of Limited Partnership provide that Unitholders do not have any right to vote for directors of the General Partner and that Unitholders only can vote on certain extraordinary matters (including removal of the General Partner under certain extraordinary circumstances). Additionally, the AB Partnership Agreement includes significant restrictions on the transfer of AB Units and provisions that have the practical effect of preventing the removal of the General Partner, which provisions are highly likely to prevent a change in control of AB’s management.

AB Units are illiquid and subject to significant transfer restrictions.

There is no public trading market for AB Units and we do not anticipate that a public trading market will develop. The AB Partnership Agreement restricts our ability to participate in a public trading market or anything substantially equivalent to one by providing that any transfer that may cause AB to be classified as a “publicly traded partnership” (“PTP”) as defined in
26

Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”), shall be deemed void and shall not be recognized by AB. In addition, AB Units are subject to significant restrictions on transfer, such as obtaining the written consent of EQH and the General Partner pursuant to the AB Partnership Agreement. Generally, neither EQH nor the General Partner will permit any transfer that it believes would create a risk that AB would be treated as a corporation for tax purposes. EQH and the General Partner have implemented a transfer program that requires a seller to locate a purchaser and imposes annual volume restrictions on transfers. You may request a copy of the transfer program from our Corporate Secretary (corporate_secretary@alliancebernstein.com). Also, we have filed the transfer program as Exhibit 10.07 to this Form 10-K.

Changes in the partnership structure of AB Holding and AB and/or changes in the tax law governing partnerships would have significant tax ramifications.

AB Holding, having elected under Section 7704(g) of the Code to be subject to a 3.5% federal tax on partnership gross income from the active conduct of a trade or business, is a “grandfathered” PTP for federal income tax purposes. AB Holding is also subject to the 4.0% New York City unincorporated business tax (“UBT”), net of credits for UBT paid by AB. In order to preserve AB Holding’s status as a “grandfathered” PTP for federal income tax purposes, management seeks to ensure that AB Holding does not directly or indirectly (through AB) enter into a substantial new line of business. A “new line of business” includes any business that is not closely related to AB’s historical business of providing research and diversified investment management and related services to its clients. A new line of business is “substantial” when a partnership derives more than 15% of its gross income from, or uses more than 15% of its total assets in, the new line of business.

AB is a private partnership for federal income tax purposes and, accordingly, is not subject to federal and state corporate income taxes. However, AB is subject to the 4.0% UBT. Domestic corporate subsidiaries of AB, which are subject to federal, state and local income taxes, generally are included in the filing of a consolidated federal income tax return with separate state and local income tax returns being filed. Each of AB's non-U.S. corporate subsidiaries generally is subject to taxes in the foreign jurisdiction where it is located. If our business increasingly operates in countries other than the U.S., AB’s effective tax rate will increase as our international subsidiaries are subject to corporate taxes in the jurisdictions where they are located.

In order to preserve AB’s status as a private partnership for federal income tax purposes, AB Units must not be considered publicly traded. If such units were to be considered readily tradable, AB would be subject to federal and state corporate income tax on its net income. Furthermore, as noted above, should AB enter into a substantial new line of business, AB Holding, by virtue of its ownership of AB, would lose its status as a grandfathered PTP and would become subject to corporate income tax as set forth above. If AB and AB Holding were to become subject to corporate income tax as set forth above, their net income and quarterly distributions to Unitholders would be materially reduced. For information about the significant restrictions on transfer of AB Units, see the risk factor immediately above.

If, pursuant to the Bipartisan Budget Act of 2015 ("2015 Act"), any audit by the Internal Revenue Service ("IRS") of our income tax returns for any of our taxable years beginning after December 31, 2017 results in any adjustments, the IRS may collect any resulting taxes, including any applicable penalties and interest, directly from us, in which case our net income and the cash available for quarterly Unitholder distributions may be substantially reduced.

Although the IRS, under current law, generally determines tax adjustments at the partnership level when it audits the income tax return of a partnership, the IRS, with respect to taxable years beginning on or before December 31, 2017, is required to collect any additional taxes, interest and penalties from the partnership's individual partners.  The 2015 Act modifies this procedure for audits of a partnership’s taxable years beginning after December 31, 2017 and, if a partnership meets certain requirements and makes a proper election, for audits of a partnership’s taxable years beginning before January 1, 2018. We may choose to make such an election if we receive a written notice of selection for examination for an eligible taxable year or if we file, on or after January 1, 2018, an administrative adjustment request for an eligible taxable year and otherwise qualify to make such an election.

Generally, we will have the ability to collect tax liability from our Unitholders in accordance with their percentage interests during the year under audit, but there can be no assurance that we will elect to do so or be able to do so under all circumstances. If we do not collect such tax liability from our Unitholders in accordance with their percentage interests in the tax year under audit, our net income and the available cash for quarterly distributions to current Unitholders may be substantially reduced.  Accordingly, our current Unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such Unitholders did not own Units during the tax year under audit. In particular, as a publicly traded partnership, our Partnership Representative (as defined below) may, in certain instances, request that any “imputed underpayment” resulting from an audit be adjusted by amounts of certain of our passive losses. If we successfully make such a request, we would have to reduce suspended passive loss carryovers in a manner which is binding on the partners.

27

For taxable years beginning after December 31, 2017, a "partnership representative" that we designate (a “Partnership Representative”) will have the sole authority to act on our behalf for purposes of, among other things, U.S. federal income tax audits and judicial review of administrative adjustments by the IRS. If we do not make such a designation, the IRS can select any person as the Partnership Representative. Any actions taken by us or by the Partnership Representative on our behalf with respect to, among other things, U.S. federal income tax audits and judicial review of administrative adjustments by the IRS, will be binding on us and our Unitholders.

In addition, for taxable years beginning after December 31, 2017, we may, but are not required to, make an election to require our Unitholders to take into account on their income tax returns an audit adjustment made to our income tax items, also known as a “push-out” election. Also, a partnership that is a partner of another partnership may elect to have its unitholders take an audit adjustment of the lower-tier partnership into account (i.e., the upper-tier partnership may push adjustments received from the lower-tier partnership through to the partners of the upper-tier partnership). The upper-tier partnership must timely complete the “push-out” of the adjustment in order for it to be effective. Such election must be made by the extended due date for the return for the adjustment year of the audited partnership, regardless of whether the audited partnership is required to file a return for the adjustment year or timely files a request for an extension for its return.  There are a number of requirements to make a “push-out” election and we may be unable or unwilling to comply with such requirements. If we do not make a “push-out” election, we would be required to pay any tax resulting from the adjustments to our income tax items, and the cash available for distribution to unitholders would be substantially reduced.

Non-U.S. unitholders may be subject to a 10% withholding tax on the sale of their AB Units or AB Holding Units, which could reduce the value of such Units.

Gain or loss from the sale or exchange of partnership units after November 27, 2017 by a non-U.S. unitholder are treated as effectively connected with a U.S. trade or business to the extent that the non-U.S. unitholder would have had effectively connected gain or loss on a hypothetical sale by the partnership of all of its assets at fair market value as of the date of the sale or exchange of the partnership units. The Tax Cuts and Jobs Act also imposed certain withholding requirements for the sale of partnership units by a non-U.S. unitholder and authorized the IRS to issue regulations to carry out the withholding rules in the case of publicly traded partnerships.  The requirement to withhold on amounts realized in connection with the sale, exchange or disposition of certain interests in a publicly traded partnership (including by brokers) is suspended under Notice 2018-08 for transfers that occur before January 1, 2022, and therefore no withholding will apply. On November 30, 2020, the IRS published final regulations (the "1446 Final Regulations") that address withholding tax and information reporting with respect to interests in publicly traded partnerships engaged in a U.S. trade or business. The 1446 Final Regulations end the suspension of withholding on the sale, exchange or disposition of certain interests in a publicly traded partnership, effective January 1, 2022, but place the primary responsibility for such withholding obligations for transfers effected through brokers on the broker, and not the publicly trade partnership. However, a publicly traded partnership may be liable for any under-withholding by a broker that relies on a qualified notice for which the publicly traded partnership failed to make a reasonable estimate of the amounts required for determining the applicability of the "ten percent exception." The "ten percent exception" applies if, either (1) the publicly traded partnership was not engaged in a U.S. trade or business during a specified period of time, or (2) upon a hypothetical sale of the publicly traded partnership's assets at fair market value, (i) the amount of net gain that would have been effectively connected with the conduct of a trade or business within the United States would be less than 10 percent of the total net gain, or (ii) no gain would have been effectively connected with the conduct of a trade or business in the United States.

We may be liable for any under-withholding by nominees on our Unitholder distributions after January 1, 2022.

Under the 1446 Final Regulations, for distributions made after January 1, 2022, a publicly traded partnership must post on its primary public website (and keep accessible for 10 years), and deliver to any registered holder that is a nominee, a qualified notice that states the amount of a distribution that is attributable to each type of income group specified in the 1446 Final Regulations. If the qualified notice is incorrect such that it causes a broker to under-withhold with respect to an amount in excess of cumulative net income, the publicly traded partnership is liable for any under-withholding on such amount.

Item 1B.    Unresolved Staff Comments
We have no unresolved comments from the staff of the SEC to report.
28

Item 2.    Properties

Our principal executive offices located at 1345 Avenue of the Americas, New York, New York are occupied pursuant to a lease expiring in 2024. At this location, we currently lease 999,963 square feet of space, within which we currently occupy approximately 512,284 square feet of space and have sub-let (or are seeking to sub-let) approximately 487,679 square feet of space.
 
In addition, we lease approximately 229,147 square feet of space at One North Lexington, White Plains, New York under a lease expiring in 2021. At this location, we currently do not occupy any space and have sub-let (or are seeking to sub-let) the full 229,147 square feet of space.

We entered into a 20-year lease agreement in New York, New York, at 66 Hudson Boulevard, for 190,000 square feet that is expected to commence in 2024. During the fourth quarter of 2020, we exercised an option whereby we were able to reduce our committed footprint by half a floor, reducing our square feet commitment from 190,000 square feet to approximately 166,000 square feet.

We entered into short-term leases for office space in Nashville, Tennessee during the construction of our new corporate headquarters at 501 Commerce Street, which we will vacate upon completion of 501 Commerce Street.

We entered into a 15-year lease agreement in Nashville, Tennessee, at 501 Commerce Street, for 218,976 square feet that commenced in the fourth quarter of 2020.
 
We also lease 50,792 square feet of space in San Antonio, Texas under a lease expiring April 30, 2029 with options to extend through 2039. 
 
In addition, we lease less significant amounts of space in 23 other cities in the United States.
 
Our subsidiaries lease space in 30 cities outside the United States, the most significant of which are in London, England, under a lease expiring in 2022, and in Hong Kong, China, under a lease expiring in 2027. In London, we currently lease 65,488 square feet of space, within which we currently occupy approximately 54,746 square feet of space and have sub-let approximately 10,742 square feet of space. In Hong Kong, we currently lease and occupy 35,878 square feet of space.

Item 3.    Legal Proceedings

With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages. Such is also the case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose that we are unable to predict the outcome or estimate a possible loss or range of loss.

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.

Item 4. Mine Safety Disclosures
Not applicable.
29

PART II
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for AB Holding Units and AB Units; Cash Distributions

AB Holding Units are listed on the NYSE and trade publicly under the ticker symbol “AB”. There is no established public trading market for AB Units, which are subject to significant restrictions on transfer.  For information about these transfer restrictions, see “Structure-related Risks” in Item 1A.

AB Holding’s principal source of income and cash flow is attributable to its limited partnership interests in AB.

Each of AB Holding and AB distributes on a quarterly basis all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement and the AB Partnership Agreement, respectively, to its Unitholders and the General Partner. For additional information concerning distribution of Available Cash Flow by AB Holding, see Note 2 to AB Holding’s financial statements in Item 8. For additional information concerning distribution of Available Cash Flow by AB, see Note 2 to AB’s consolidated financial statements in Item 8.

On December 31, 2020, the closing price of an AB Holding Unit on the NYSE was $33.77 per Unit. On December 31, 2020, there were (i) 974 AB Holding Unitholders of record for approximately 81,000 beneficial owners, and (ii) 378 AB Unitholders of record (we do not believe there are substantial additional beneficial owners).

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

We did not engage in any unregistered sales of our securities during the years ended December 31, 2020, 2019 and 2018.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Each quarter since the third quarter of 2011, AB has implemented plans to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. The plan adopted during the fourth quarter of 2020 expired at the close of business on February 10, 2021.  AB may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under the firm’s incentive compensation award program and for other corporate purposes. For additional information about Rule 10b5-1 plans, see “Units Outstanding” in Item 7.

AB Holding Units bought by us or one of our affiliates during the fourth quarter of 2020 are as follows:

Issuer Purchases of Equity Securities
PeriodTotal
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
10/1/20-10/31/20(1)(2)
109,738 $27.95 — — 
11/1/20-11/30/20(1)(2)
490,480 30.97 — — 
12/1/20-12/31/20(1)(2)
2,343,310 32.58 — — 
Total2,943,528 32.14   
________________________________________________________________________________________________________________________
(1)During the fourth quarter of 2020, we purchased 2,221,913 AB Holding Units from employees to allow them to fulfill statutory withholding tax requirements at the time of distribution of long-term incentive compensation awards.
(2)During the fourth quarter of 2020, we purchased 721,615 AB Holding Units on the open market pursuant to a Rule 10b5-1 plan to help fund anticipated obligations under our incentive compensation award program.
30



AB Units bought by us or one of our affiliates during the fourth quarter of 2020 are as follows:

Issuer Purchases of Equity Securities 
PeriodTotal Number
of
AB
Units
Purchased
Average
Price Paid
Per
AB
Unit, net of
Commissions
Total
Number of
AB
Units Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number (or
Approximate
Dollar Value)
of AB
Units that
May Yet Be
Purchased
Under the
Plans or
Programs
10/1/20-10/31/20— — — — 
11/1/20-11/30/20— — — — 
12/1/20-12/31/20(1)
800 32.57 — — 
Total800 $32.57   
________________________________________________________________________________________________________________________
(1)During December 2020, we purchased 800 AB Units in a private transaction.

31

Item 6. Selected Financial Data
Selected Consolidated Financial Data
 Years Ended December 31,
 20202019201820172016
 (in thousands, except per unit amounts and unless otherwise indicated)
INCOME STATEMENT DATA:
Revenues:
Investment advisory and services fees$2,595,436 $2,472,044 $2,362,211 $2,201,305 $1,933,471 
Bernstein research services459,744 407,911 439,432 449,919 479,875 
Distribution revenues529,781 455,043 418,562 412,063 384,405 
Dividend and interest income50,923 104,421 98,226 71,162 46,939 
Investment (losses) gains(16,401)38,659 2,653 92,102 93,353 
Other revenues104,703 97,559 98,676 97,135 99,859 
Total revenues3,724,186 3,575,637 3,419,760 3,323,686 3,037,902 
Less: interest expense15,650 57,205 52,399 25,165 9,123 
Net revenues3,708,536 3,518,432 3,367,361 3,298,521 3,028,779 
Expenses:  
Employee compensation and benefits:
Employee compensation and benefits1,494,198 1,442,783 1,378,811 1,313,469 1,229,721 
Promotion and servicing:  
Distribution-related payments569,283 487,965 427,186 411,467 363,603 
Amortization of deferred sales commissions27,355 15,029 21,343 31,886 41,066 
Trade execution, marketing, T&E and other189,787 219,860 222,630 213,275 216,542 
General and administrative: 
General and administrative485,544 484,750 448,996 481,488 426,147 
Real estate charges5,526 3,324 7,160 36,669 17,704 
Contingent payment arrangements1,855 (510)(2,219)267 (20,245)
Interest on borrowings6,180 13,035 10,359 8,194 4,765 
Amortization of intangible assets21,372 28,759 27,781 27,896 26,311 
Total expenses2,801,100 2,694,995 2,542,047 2,524,611 2,305,614 
Operating income907,436 823,437 825,314 773,910 723,165 
Income taxes45,653 41,754 45,816 53,110 28,319 
Net income861,783 781,683 779,498 720,800 694,846 
Net (loss) income of consolidated entities attributable to non-controlling interests(4,169)29,641 21,910 58,397 21,488 
Net income attributable to AB Unitholders$865,952 $752,042 $757,588 $662,403 $673,358 
Basic net income per AB Unit$3.19 $2.78 $2.79 $2.46 $2.48 
Diluted net income per AB Unit$3.19 $2.78 $2.78 $2.45 $2.47 
Operating margin(1)
24.6 %22.6 %23.9 %21.7 %23.2 %
CASH DISTRIBUTIONS PER AB UNIT(2)
$3.20 $2.82 $2.96 $2.57 $2.15 
BALANCE SHEET DATA AT PERIOD END:  
Total assets$9,697,840 $8,706,092 $8,789,098 $9,282,734 $8,741,158 
Debt$675,000 $560,000 $546,267 $565,745 $512,970 
Total capital$4,111,523 $4,017,101 $3,916,209 $4,063,304 $4,068,189 
ASSETS UNDER MANAGEMENT AT PERIOD END (in millions)$685,923 $622,915 $516,353 $554,491 $480,201 
(1)Operating income excluding net (loss) income attributable to non-controlling interests as a percentage of net revenues.
(2) Cash distributions per AB Unit reflect the impact of AB's non-GAAP adjustments. Refer to Item 7 for additional information concerning our non-GAAP adjustments.

32

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Impact of COVID-19
General Economic Conditions
During the first quarter of 2020, COVID-19 significantly impacted the global economy. The impact has been profound, has continued through the fourth quarter of 2020 and is likely to persist for months to come. While many businesses have re-opened, vaccinations have begun and leading economic indicators are showing signs of improvement, the overall extent and duration of COVID-19's impact on businesses and economic activity generally remains unclear. A recession in the near term remains possible. Economic effects from COVID-19, which have impacted virtually all countries and industries, include:
Many small and large businesses being forced to interrupt their operations and as a result, lay off employees or even close;
The re-opening and subsequent shuttering again of certain businesses in various countries around the world;
Temporary large-scale population lock-downs, domestic and international travel restrictions and social-distancing measures were implemented, driving sharp declines in consumer and business spending. Further, while many businesses have re-opened, some are only allowing limited capacity, imposing social distancing restrictions and providing limited hours of operation, and while consumer spending has improved during the second half of 2020, uncertainty remains;
Schools, many of which were shuttered during the first quarter, have allowed students to return to in-person instruction, but the constant concern and uncertainty of whether an outbreak may occur, have forced many schools to re-implement remote instruction, creating significant strain and uncertainty for working parents, which may slow or reverse the economic recovery;
Significant declines and increased volatility impacted global financial markets during the first quarter, including 23.2% and 20.0% declines in the Dow Jones Industrial Average (“Dow”) and S&P 500 Index (“S&P”), respectively. Although the financial markets recovered their first quarter losses to new highs in the months since, the prospect of continued volatility remains, especially given the uncertainty surrounding the continued economic effects of the virus (please see "Market Environment" below for additional details).
The initial distribution of multiple COVID-19 vaccinations was initiated in the later part of the fourth quarter, but the speed, selective nature and logistical challenges of distribution, and the concerns in some communities around the safety and efficacy of the vaccine, have caused turmoil for many, further heightening the anxiety around the virus.

Governments around the world have responded to COVID-19 with economic stimulus measures, including a $2 trillion emergency relief bill passed in the U.S during the first quarter of 2020 and an additional $900 billion in aid passed during the fourth quarter of 2020. Similar fiscal stimulus was passed by many governments around the world. These measures and possible additional stimulus and aid measures are intended to steady businesses and consumers until economic activity meaningfully recovers. The timing and magnitude of any such recovery, however, remains uncertain.
Various countries around the world have continued to experience surges in the rates of COVID-19 infections, which are likely the result of greatly increased social interactions, including at colleges and universities, after re-opening of economies, as well as more contagious strains of the virus. As a result, several countries have paused the continued progression of their re-openings or re-imposed closing mandates on certain businesses, such as bars, restaurants and entertainment venues. These circumstances may adversely affect consumer sentiment and the pace of business re-openings, and they also may delay any economic recovery.
AB Impact
At the initial onset of COVID-19 during the first quarter of 2020, we quickly responded in the various jurisdictions where we operate, including the U.S., the U.K., Hong Kong, Shanghai, Singapore and Taiwan. We implemented business continuity measures, including travel restrictions and a work-from-home requirement for almost all personnel (other than a relatively small number of employees whose physical presence in our offices was considered critical), which has remained in place (except in our Asia offices, most of which have reopened) throughout the second, third and fourth quarters, to ensure operating continuity for all critical functions. We also instituted a notification process for any employee who tests positive for COVID-19 or has been exposed to someone else who has tested positive. As the COVID-19 crisis has continued to evolve since the lockdown in the first quarter, certain key functions of the business, such as Risk Management, Business Continuity, Finance and Human Capital, have maintained constant communication and monitored the evolution of the pandemic to keep our employees safe and advise of key developments. Additionally, we continue to monitor communications from the World Health Organization and the U.S. Centers for Disease Control and Prevention to ensure we have current information.
33

We have continued to enhance our technology, which has increased the effectiveness of our remote work force. We have also continued to enhance our virtual programs to support business functions, such as training on cybersecurity and enhancements to our existing technology platforms. There has been a heightened focus on the emotional well-being of our employees, and we have provided regular touch points with employees through virtual town halls and management communications. Additionally, we have maintained regular communications and updates on the virus and the Company's response, which are posted on the Company's internal website, to ensure transparent communication with our employees. If any of our employees test positive for COVID-19 or interact with someone who has the virus, they are required to contact AB immediately for support and contact-tracing.
We continue to consider, and in some cases methodically implement, return to office programs for our U.S., European and Asia offices. However, we continue to monitor the daily evolution of the crisis in order to ensure the health and safety of our employees remains our top priority. We will modify our return to office plans, as needed, to ensure the safety of our employees and to ensure that the highest safety and cleanliness protocols are followed. We believe that our business continuity plan and technology platform will continue to support the effectiveness of our employees working remotely.
Asset managers, such as AB, rely heavily on the performance of the financial markets largely to determine assets under management (“AUM”) and revenues. Our results during the first quarter of 2020 were strong, which was primarily a reflection of financial market conditions during January and February, which were not adversely affected by COVID-19. Market conditions deteriorated dramatically during March, which negatively impacted our performance in that month. Financial markets, and hence our performance, rebounded during the ensuing months, primarily due to a U.S. Federal Government stimulus package and U.S. Treasury programs, which were instituted during March 2020 and throughout the second quarter. These programs renewed confidence in the financial markets by introducing liquidity through government purchasing of financial instruments. As various states and countries around the world eased restrictions on business and lockdown protocols during the second quarter and increasingly throughout the third and fourth quarters, increases in consumer spending, decreases in the unemployment rate and improvement in other leading economic indicators have stimulated domestic and global financial market performance. As a result of these developments, our AUM has increased in the second, third and fourth quarters. However, as U.S. states and countries globally have continued to ease restrictions, there has been a resurgence in the spread of the virus, causing certain states and countries to, among other things, shutter some businesses again or impose new social distancing restrictions. As a result, market volatility continues.
The economic impact of COVID-19 and any additional declines in the financial markets could have a significant adverse effect on our AUM and revenues, particularly if economic activity does not continue to recover. Although countries throughout the world continue to grapple with re-opening their economies, this will continue to be a gradual process, and there is a significant risk that the opening process may be further interrupted if infection rates increase. Also, although unemployment rates have declined, they are still considered high and any reluctance of consumers to resume spending will do long-term damage to the global economy, which would have an adverse effect on our business. Additionally, as most of our workforce is working remotely, we are mindful of increased risk related to cybersecurity, which could significantly disrupt our business functions.
Ultimately, the return to normal business and economic activity will likely require the broad application of effective vaccines. Although the distribution of multiple vaccines was initiated towards the end of the fourth quarter, the speed, selective nature of those who are eligible to receive the vaccination, as well as logistical challenges regarding availability and distribution of the vaccines, could mean many months until the general population has been vaccinated.
Executive Overview
Percentage change figures are calculated using assets under management rounded to the nearest million and financial statement amounts rounded to the nearest thousand.
Our total assets under management ("AUM") as of December 31, 2020 were $685.9 billion, up $63.0 billion, or 10.1%, during 2020. The increase was driven primarily by market appreciation of $65.4 billion, partially offset by net outflows of $2.6 billion (due to Private Wealth Management net outflows of $2.0 billion and Retail net outflows of $1.6 billion, offset by Institutional net inflows of $1.0 billion). Excluding AXA's redemption of low-fee fixed income mandates of $11.8 billion, the firm generated net inflows of $9.2 billion in 2020.
Institutional AUM increased $32.9 billion, or 11.6%, to $315.6 billion during 2020, primarily due to market appreciation of $30.5 billion and net inflows of $1.0 billion. Gross sales increased $13.8 billion, from $17.1 billion in 2019 to $30.9 billion in 2020. Redemptions and terminations increased $11.3 billion, from $12.0 billion in 2019 to $23.3 billion in 2020. Excluding AXA's redemption of low-fee fixed income mandates of $11.8 billion, institutional net inflows were $12.8 billion in 2020.
Retail AUM increased $26.1 billion, or 10.9%, to $265.3 billion during 2020, primarily due to market appreciation of $28.1 billion, partially offset by net outflows of $1.6 billion. Gross sales increased $3.6 billion, from $75.3 billion in 2019 to $78.9
34

billion in 2020. Redemptions and terminations increased $25.5 billion, from $44.0 billion in 2019 to $69.5 billion in 2020, due to record first quarter 2020 redemptions, reflecting the financial market sell-off in March amidst the onset of COVID-19.

Private Wealth Management AUM increased $4.0 billion, or 3.9%, to $105.0 billion during 2020, primarily due to market appreciation of $6.8 billion, partially offset by net outflows of $2.0 billion. Gross sales increased $3.0 billion, from $11.3 billion in 2019 to $14.3 billion in 2020. Redemptions and terminations increased $4.1 billion, from $12.4 billion in 2019 to $16.5 billion in 2020.
Bernstein Research Services revenue increased $51.8 million, or 12.7%, in 2020. The increase was due to higher market volatility, particularly between March and June 2020, primarily as a result of COVID-19, which led to higher customer activity and greater global trading volumes. We expect customer activity and trading volumes to gradually decrease in 2021 and to normalize in 2022, as the volatility surrounding COVID-19 begins to decline. Any decreases in customer activity and trading volumes will have a corresponding effect on Bernstein Research services revenue. Furthermore, all of 2020 reflects the inclusion of revenues from our acquisition of Autonomous Research ("Autonomous"), which closed on April 1, 2019.
Our 2020 net revenues of $3.7 billion increased $190.1 million, or 5.4%, compared to the prior year's net revenues. The most significant contributors to the increase were higher base advisory fees of $90.4 million, higher distribution revenues of $74.7 million, higher Bernstein Research Services revenue of $51.8 million and higher performance-based fees of $33.0 million, partially offset by higher investment losses of $55.1 million and lower net dividend and interest income of $11.9 million. Our operating expenses of $2.8 billion increased $106.1 million, or 3.9%, compared to the prior year's expenses. The increase primarily was due to higher promotion and servicing expenses of $63.6 million, higher employee compensation and benefits of $51.4 million and higher general and administrative expenses (including real estate charges) of $3.0 million, partially offset by lower amortization of intangible assets of $7.4 million and lower interest on borrowings of $6.9 million. Our operating income increased $84.0 million, or 10.2%, to $907.4 million from $823.4 million in 2019 and our operating margin increased from 22.6% in 2019 to 24.6% in 2020.
Market Environment
Despite 2020 being a year marked by a global pandemic, record-breaking recession and unemployment levels, and a contentious U.S. presidential election, equity markets closed the year with solid gains. The S&P 500, Dow Jones Industrial Average and Nasdaq each rallied for most of the fourth quarter, finishing the year in positive territory. In the U.S., the presidential election passed with a market-friendly outcome, the distribution of multiple COVID-19 vaccines was initiated and the unemployment rate continued to decline. Meanwhile, after months of deadlock, a COVID-19 relief package was passed in the fourth quarter, consisting of direct payments, unemployment benefits and small business aid. However, even with the increasing likelihood of COVID-19 vaccines potentially boosting activity in 2021, significant slack in the economy and labor market by the end of this year are likely. As a result, the U.S. Federal Reserve will likely keep interest rates near zero as the economy improves.

In the U.K., COVID-19 and Brexit uncertainty resulted in the worst performing year for its equity market since the 2008 financial crisis. However, with a Brexit deal reached in the final days of 2020 between the U.K. and the E.U. and the distribution of a COVID-19 vaccine, the U.K. economy may rebound in 2021. The Bank of England is likely to keep rates on hold during the recovery phase. In China, the economy has returned to almost pre-pandemic output levels. Chinese efforts to re-center the economy on a consumer-led model are expected to continue and fiscal policy will likely remain supportive through 2021. More stimulus may be announced in the first quarter of 2021 as the government continues to support consumption. While the economic outlook for China in 2021 appears positive, one big unknown is the future of the relationship between China and the new U.S. administration.

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.
35


The ultimate impact of MiFID II on payments for research globally remains uncertain.
Equitable Holdings IPO
During the second quarter of 2018, AXA S.A. ("AXA") completed the sale of a minority stake in Equitable Holdings, Inc. (“EQH”) through an initial public offering ("IPO"). Since then, AXA has completed additional offerings and taken other steps, most recently during the fourth quarter of 2019. As a result, AXA owned less than 10% of the outstanding common stock of EQH as of December 31, 2020.

While we cannot at this time predict the full impact on AB of this transaction, such impact has included a reduction in the support AXA provided to AB in the past with respect to AB's investment management business, resulting in a modest decrease in our revenues and ability to initiate new investment services. Also, AB relies on AXA, including its subsidiary, AXA Business Services, for several significant services and AB has benefited from its affiliation with AXA in certain common vendor relationships. Some of these arrangements have changed, and others are expected to change, with immaterial financial implications for AB.

Our ending AUM at December 31, 2020 reflects $11.8 billion in 2020 outflows resulting from AXA's redemption of certain low-fee fixed income mandates. We expect these redemptions to total approximately $14 billion, with the remaining redemptions expected to be completed during the first half of 2021. The revenue we earn from the management of these assets is not significant.
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. Subsequently, on January 14, 2020, we announced our plans to relocate an additional 200 jobs to Nashville thereby increasing the total relocated jobs to 1,250. The decision to add the additional jobs was the result of the growth in our business, select investments we are making, and the in-sourcing of roles typically performed by consultants. Our Nashville headquarters will house Finance, IT, Operations, Legal, Compliance, Internal Audit, Human Capital, and Sales and Marketing. We have been actively 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 we will incur transition costs of approximately $145 million to $155 million, which is less than our previous estimate of $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 $205 million to $215 million, which is greater than our previous estimate of $185 million to $195 million, and is an amount greater than the total transition costs. However, we did incur some transition costs before we began to realize expense savings. For the period beginning in 2018 and ending in 2020, we incurred $70 million of cumulative transition costs compared to $46 million of cumulative savings. In 2020, expense savings of $30 million were greater than transition costs of $26 million, resulting in a net increase of $0.01 in net income per unit (“EPU”). We currently anticipate an EPU increase in 2021 of approximately $0.02 and expect to achieve increasing EPU accretion in each year thereafter. Beginning in 2025, once the transition period has been completed, we estimate ongoing annual expense savings towards the upper end of the range of $75 million to $80 million, which will result from a combination of occupancy and compensation-related savings. Our estimates for both the transition costs and the corresponding expense savings are based upon our current assumptions of employee relocation costs, severance, and overlapping compensation and occupancy costs. In addition, our estimates for both the timing of when we incur transition costs and realize the related expense savings 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 may differ from our current estimates as we implement each phase of our headquarters relocation.

During October 2018, we signed a lease, which commenced in the fourth quarter of 2020, relating to 218,976 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 $134 million.

36

Although we have presented our transition costs and annual expense savings with numerical specificity, and we believe these targets to be reasonable as of the date of this report, the uncertainties surrounding the assumptions we discuss above create a significant risk that these targets may not be achieved.  Accordingly, the expenses we actually incur and the savings we actually realize may differ from our targets, particularly if actual events adversely differ from one or more of our key assumptions.  The transition costs and expense savings, together with their underlying assumptions, are Forward-Looking Statements and can be affected by any of the factors discussed in “Risk Factors” and “Cautions Regarding Forward-Looking Statements” in this 10-K.  We strongly caution investors not to place undue reliance on any of these assumptions or our cost and 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 our initial disclosure of this target. Our adjusted operating margin, which was 27.5% for 2019, increased to 30.1% for 2020, achieving our target. We do not currently expect to set a new adjusted operating margin target going forward.
 
Our AUM and, therefore, our investment advisory revenues, including performance-based fee revenues, are heavily dependent on the level and volatility of the financial markets, which ended 2020 favorably. Despite the challenges faced from the COVID-19 pandemic (please refer to “Impact of COVID-19” above and “Risk Factors” in Item 1A), we benefited from certain of our adjusted operating expenses declining significantly, such as costs associated with travel and entertainment and client meetings during 2020. We do not anticipate the COVID-19-related cost-savings or market tailwinds to be indicative of future performance. We also expect continued investments in growth initiatives for our firm. Considering these factors, our adjusted operating margin may be less favorable in future periods, although we will continue to strive for improvement over the long-term.




37

Assets Under Management
Assets under management by distribution channel are as follows: 
 As of December 31,    % Change  
 2020201920182020-192019-18
 (in billions)      
Institutions$315.6 $282.7 $246.3 11.6 %14.8 %
Retail265.3 239.2 180.8 10.9 32.3 
Private Wealth Management105.0 101.0 89.3 3.9 13.2 
Total$685.9 $622.9 $516.4 10.1 20.6 
Assets under management by investment service are as follows:
 As of December 31,% Change
 2020201920182020-192019-18
 (in billions)  
Equity  
Actively Managed$217.8 $177.2 $136.2 22.9 %30.1 %
Passively Managed (1)
64.5 60.1 50.2 7.3 19.9 
Total Equity282.3 237.3 186.4 19.0 27.4 
Fixed Income   
Actively Managed   
Taxable263.2 258.3 219.7 1.9 17.6 
Tax-exempt50.3 47.1 41.7 6.7 13.1 
 313.5 305.4 261.4 2.6 16.9 
Passively Managed (1)
8.5 9.3 9.4 (8.4)(1.5)
Total Fixed Income322.0 314.7 270.8 2.3 16.2 
Alternatives/Multi-Asset Solutions(2)
Actively Managed79.1 69.3 58.3 14.2 18.8 
Passively Managed (1)
2.5 1.6 0.9 54.1 76.8 
Total Other81.6 70.9 59.2 15.1 19.7 
Total$685.9 $622.9 $516.4 10.1 20.6 
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services not included in equity or fixed income services.

38

Changes in assets under management during 2020 and 2019 are as follows:
 Distribution Channel
 InstitutionsRetailPrivate
Wealth
Management
Total
 (in billions)
Balance as of December 31, 2019$282.7 $239.2 $101.0 $622.9 
Long-term flows:    
Sales/new accounts30.9 78.9 14.3 124.1 
Redemptions/terminations(23.3)(69.5)(16.5)(109.3)
Cash flow/unreinvested dividends(6.6)(11.0)0.2 (17.4)
Net long-term inflows (outflows)(2)
1.0 (1.6)(2.0)(2.6)
Acquisitions— 0.2 — 0.2 
Transfers1.4 (0.6)(0.8)— 
Market appreciation30.5 28.1 6.8 65.4 
Net change32.9 26.1 4.0 63.0 
Balance as of December 31, 2020$315.6 $265.3 $105.0 $685.9 
Balance as of December 31, 2018$246.3 $180.8 $89.3 $516.4 
Long-term flows:
Sales/new accounts17.1 75.3 11.3 103.7 
Redemptions/terminations(12.0)(44.0)(12.4)(68.4)
Cash flow/unreinvested dividends(2.7)(7.5)0.1 (10.1)
Net long-term inflows (outflows)2.4 23.8 (1.0)25.2 
Adjustments(1)
— — (0.9)(0.9)
Transfers— 0.1 (0.1)— 
Market appreciation34.0 34.5 13.7 82.2 
Net change36.4 58.4 11.7 106.5 
Balance as of December 31, 2019$282.7 $239.2 $101.0 $622.9 
(1)Approximately $900 million of non-investment management fee earning taxable and tax-exempt money market assets
    were removed from assets under management during the second quarter of 2019.
(2)Institutional net flows for 2020 include $11.8 billion of AXA redemptions of certain low-fee fixed income mandates.
39

 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)
Alternatives/Multi-Asset Solutions(2)
Total
(in billions)
Balance as of December 31, 2019$177.2 $60.1 $258.3 $47.1 $9.3 $70.9 $622.9 
Long-term flows:      
Sales/new accounts51.4 1.7 54.3 10.3 — 6.4 124.1 
Redemptions/terminations(36.7)(1.9)(58.3)(9.5)(0.3)(2.6)(109.3)
Cash flow/unreinvested dividends(7.3)(4.4)(5.8)0.2 (1.3)1.2 (17.4)
Net long-term inflows (outflows)(3)
7.4 (4.6)(9.8)1.0 (1.6)5.0 (2.6)
Acquisition— — — — — 0.2 0.2 
Market appreciation33.2 9.0 14.7 2.2 0.8 5.5 65.4 
Net change40.6 4.4 4.9 3.2 (0.8)10.7 63.0 
Balance as of December 31, 2020$217.8 $64.5 $263.2 $50.3 $8.5 $81.6 $685.9 
Balance as of December 31, 2018$136.2 $50.2 $219.7 $41.7 $9.4 $59.2 $516.4 
Long-term flows:      
Sales/new accounts34.7 0.5 53.0 10.0 0.1 5.4 103.7 
Redemptions/terminations(26.4)(0.8)(31.5)(6.8)(0.4)(2.5)(68.4)
Cash flow/unreinvested dividends(4.3)(3.8)(2.8)(0.2)(0.6)1.6 (10.1)
Net long-term inflows (outflows)4.0 (4.1)18.7 3.0 (0.9)4.5 25.2 
Adjustments(4)
— — (0.4)(0.5)— — (0.9)
Market (depreciation) appreciation37.0 14.0 20.3 2.9 0.8 7.2 82.2 
Net change41.0 9.9 38.6 5.4 (0.1)11.7 106.5 
Balance as of December 31, 2019$177.2 $60.1 $258.3 $47.1 $9.3 $70.9 $622.9 
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services not included in equity or fixed income services.
(3)Fixed income – taxable investment service net flows for 2020 include $11.8 billion of AXA redemptions of certain low-fee fixed income mandates.
(4)Approximately $900 million of non-investment management fee earning taxable and tax-exempt money market assets
    were removed from assets under management during the second quarter of 2019.
40


Net long-term inflows (outflows) for actively managed investment services as compared to passively managed investment services during 2020 and 2019 are as follows:
 Years Ended December 31,
 20202019
 (in billions)
Actively Managed
  Equity$7.4 $4.0 
 Fixed Income(8.8)21.7 
 Alternatives/Multi-Asset Solutions4.5 4.0 
3.1 29.7 
Passively Managed  
  Equity(4.6)(4.1)
 Fixed Income(1.6)(0.9)
Alternatives/Multi-Asset Solutions0.5 0.5 
 (5.7)(4.5)
Total net long-term (outflows) inflows$(2.6)$25.2 

Average assets under management by distribution channel and investment service are as follows:
 Years Ended December 31,% Change
 2020201920182020-192019-18
 (in billions)  
Distribution Channel:  
Institutions$285.9 $265.4 $258.1 7.7 %2.8 %
Retail236.5 212.3 191.8 11.4 10.7 
Private Wealth Management97.1 96.5 94.3 0.7 2.3 
Total$619.5 $574.2 $544.2 7.9 5.5 
Investment Service:
Equity Actively Managed$179.8 $158.4 $146.4 13.5 8.2 
Equity Passively Managed(1)
57.1 56.4 53.8 1.2 4.8 
Fixed Income Actively Managed – Taxable254.4 239.7 230.3 6.2 4.1 
Fixed Income Actively Managed – Tax-exempt47.9 44.6 41.3 7.5 8.0 
Fixed Income Passively Managed(1)
9.4 9.4 9.8 0.2 (4.4)
Alternatives/Multi-Asset Solutions(2)
70.9 65.7 62.6 7.8 5.1 
Total$619.5 $574.2 $544.2 7.9 5.5 
(1)Includes index and enhanced index services.
(2)Includes certain multi-asset solutions and services not included in equity or fixed income services.

During 2020, our Institutional channel average AUM of $285.9 billion increased $20.5 billion, or 7.7%, compared to 2019, primarily due to this AUM increasing $32.9 billion, or 11.6%, to $315.6 billion over the last twelve months. The $32.9 billion increase in AUM resulted primarily from market appreciation of $30.5 billion and net inflows of $1.0 billion. During 2019, our Institutional channel average AUM of $265.4 billion increased $7.3 billion, or 2.8%, compared to 2018, primarily due to this AUM increasing $36.4 billion, or 14.8%, to $282.7 billion during 2019. The $36.4 billion increase in AUM resulted from market appreciation of $34.0 billion and net inflows of $2.4 billion.

41

During 2020, our Retail channel average AUM of $236.5 billion increased $24.2 billion, or 11.4%, compared to 2019, primarily due to this AUM increasing $26.1 billion, or 10.9%, to $265.3 billion over the last twelve months. The $26.1 billion increase in AUM resulted primarily from market appreciation of $28.1 billion, partially offset by net outflows of $1.6 billion. During 2019, our Retail channel average AUM of $212.3 billion increased $20.5 billion, or 10.7%, compared to 2018, primarily due to this AUM increasing $58.4 billion, or 32.3%, to $239.2 billion during 2019. The $58.4 billion increase in AUM resulted primarily from market appreciation of $34.5 billion and net inflows of $23.8 billion.
During 2020, our Private Wealth Management channel average AUM of $97.1 billion increased $0.6 billion, or 0.7%, compared to 2019, primarily due to this AUM increasing $4.0 billion, or 3.9%, to $105.0 billion over the last twelve months. The $4.0 billion increase in AUM resulted primarily from market appreciation of $6.8 billion, partially offset by net outflows of $2.0 billion. During 2019, our Private Wealth Management channel average AUM of $96.5 billion increased $2.2 billion, or 2.3%, compared to 2018, primarily due to this AUM increasing $11.7 billion, or 13.2%, to $101.0 billion during 2019. The $11.7 billion increase in AUM resulted from market appreciation of $13.7 billion, partially offset by net outflows of $1.0 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.

Absolute investment composite returns, gross of fees, and relative performance as of December 31, 2020 compared to benchmarks for certain representative Institutional equity and fixed income services are as follows:
 1-Year3-Year5-Year
Global High Income - Hedged (fixed income)
Absolute return3.6 %4.7 %7.8 %
Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged)(2.1)(0.6)(0.1)
Global Plus - Hedged (fixed income)
Absolute return5.9 5.3 5.1 
Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged)0.3 0.1 0.6 
Intermediate Municipal Bonds (fixed income)
Absolute return4.3 3.9 3.1 
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg)0.9 0.8 0.7 
U.S. Strategic Core Plus (fixed income)
Absolute return8.0 5.7 5.3 
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index)0.5 0.4 0.8 
Emerging Market Debt (fixed income)
Absolute return8.3 5.3 8.1 
Relative return (vs. JPM EMBI Global/JPM EMBI)2.4 0.3 1.2 
Sustainable Global Thematic
Absolute return40.9 19.0 18.3 
Relative return (vs. MSCI ACWI Index)24.6 8.9 6.1 
International Strategic Core Equity
Absolute return6.9 5.5 8.3 
Relative return (vs. MSCI EAFE Index)(0.9)1.2 0.9 
42

 1-Year3-Year5-Year
U.S. Small & Mid Cap Value
Absolute return4.6 2.8 9.3 
Relative return (vs. Russell 2500 Value Index)(0.3)(1.6)(0.1)
U.S. Strategic Value
Absolute return1.8 2.0 6.4 
Relative return (vs. Russell 1000 Value Index)(1.0)(4.0)(3.3)
U.S. Small Cap Growth
Absolute return55.6 28.8 25.6 
Relative return (vs. Russell 2000 Growth Index)20.9 12.6 9.3 
U.S. Large Cap Growth
Absolute return35.4 23.4 21.0 
Relative return (vs. Russell 1000 Growth Index)(3.1)0.4 — 
U.S. Small & Mid Cap Growth
Absolute return54.0 25.1 22.5 
Relative return (vs. Russell 2500 Growth Index)13.5 5.2 3.8 
Concentrated U.S. Growth
Absolute return21.6 20.5 18.4 
Relative return (vs. S&P 500 Index)3.2 6.3 3.2 
Select U.S. Equity
Absolute return16.5 13.4 14.7 
Relative return (vs. S&P 500 Index)(1.9)(0.8)(0.6)
Strategic Equities
Absolute return18.2 13.6 14.2 
Relative return (vs. Russell 3000 Index)(2.6)(0.8)(1.2)
Global Core Equity
Absolute return11.2 11.1 13.5 
Relative return (vs. MSCI ACWI Index)(5.0)1.0 1.2 
U.S. Strategic Core Equity
Absolute return8.2 12.0 12.5 
Relative return (vs. S&P 500 Index)(10.2)(2.1)(2.7)
Select U.S. Equity Long/Short
Absolute return11.6 9.7 10.0 
Relative return (vs. S&P 500 Index)(6.8)(4.4)(5.2)
43

Consolidated Results of Operations
 Years Ended December 31,% Change
 2020201920182020-192019-18
 (in thousands, except per unit amounts)  
Net revenues$3,708,536 $3,518,432 $3,367,361 5.4 %4.5 %
Expenses2,801,100 2,694,995 2,542,047 3.9 6.0 
Operating income907,436 823,437 825,314 10.2 (0.2)
Income taxes45,653 41,754 45,816 9.3 (8.9)
Net income861,783 781,683 779,498 10.2 0.3 
Net (loss) income of consolidated entities attributable to non-controlling interests(4,169)29,641 21,910 n/m35.3 
Net income attributable to AB Unitholders$865,952 $752,042 $757,588 15.1 (0.7)
Diluted net income per AB Unit$3.19 $2.78 $2.78 14.7 — 
Distributions per AB Unit$3.20 $2.82 $2.96 13.5 (4.7)
Operating margin(1)
24.6 %22.6 %23.9 %  
(1)Operating income excluding net income (loss) attributable to non-controlling interests as a percentage of net revenues.

Net income attributable to AB Unitholders for the year ended December 31, 2020 increased $113.9 million from the year ended December 31, 2019. The increase primarily is due to (in millions):
Higher base advisory fees$90.4 
Higher distribution revenues74.7 
Higher Bernstein Research Services revenue51.8 
Higher net loss of consolidated entities attributable to non-controlling interest33.8 
Higher performance-based fees33.0 
Lower amortization of intangible assets7.4 
Lower interest on borrowings6.9 
Higher promotion and servicing expenses(63.6)
Higher investment losses(55.1)
Higher employee compensation and benefits(51.4)
Lower net dividend and interest income(11.9)
Higher general and administrative expenses (including real estate charges)(3.0)
Other0.9 
 $113.9 
44

Net income attributable to AB Unitholders for the year ended December 31, 2019 decreased $5.5 million from the year ended December 31, 2018. The decrease primarily was due to (in millions):
Higher employee compensation and benefits$(64.0)
Higher promotion and servicing expenses(51.7)
Higher general and administrative expenses (including real estate charges)(31.9)
Lower Bernstein Research Services revenue(31.5)
Lower performance-based fees(18.5)
Higher net income of consolidated entities attributable to non-controlling interest(7.7)
Higher base advisory fees128.4 
Higher distribution revenues36.5 
Higher investment gains36.0 
Other(1.1)
 $(5.5)

Units Outstanding
Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). A plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker we select has the authority to repurchase AB Holding Units on our behalf in accordance with the terms and limitations specified in the plan. Repurchases are subject to regulations promulgated by the SEC, as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the fourth quarter of 2020 expired at the close of business on February 10, 2021. 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 2 to our consolidated financial statements contained in Item 8 for a description of Available Cash Flow.
Management Operating Metrics
We are providing the non-GAAP measures “adjusted net revenues,” “adjusted operating income” and “adjusted operating margin” because they are the principal operating metrics management uses in evaluating and comparing period-to-period operating performance. Management principally uses these metrics in evaluating performance because they present a clearer picture of our operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, real estate 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.
45

Years Ended December 31,
202020192018
(in thousands)
Net revenues, US GAAP basis$3,708,536 $3,518,432 $3,367,361 
Adjustments:
Distribution-related adjustments:
Distribution revenues(529,781)(455,043)(418,562)
Investment advisory services fees(66,858)(47,951)(29,967)
Pass through adjustments:
Investment advisory services fees(18,279)(20,914)(4,395)
Other revenues(39,333)(35,926)(35,824)
Impact of consolidated company-sponsored funds954 (33,044)(38,142)
Long-term incentive compensation-related investment gains and dividend and interest(6,772)(8,939)3,509 
Write-down on investment859 — 3,733 
Impact of adoption of revenue recognition standard ASC 606— — 77,844 
Other— — 47 
Adjusted net revenues$3,049,326 $2,916,615 $2,925,604 
Operating income, US GAAP basis$907,436 $823,437 $825,314 
Adjustments:
Real estate2,880 2,623 7,160 
Long-term incentive compensation-related items(83)1,217 3,064 
CEO's EQH award compensation802 1,125 — 
Write-down of investment859 — 3,733 
Acquisition-related expenses3,301 6,734 1,924 
Contingent payment arrangements(1,366)(3,051)(2,429)
Impact of adoption of revenue recognition standard ASC 606— — 35,156 
Other— — 47 
Sub-total of non-GAAP adjustments6,393 8,648 48,655 
Less: Net (loss) income of consolidated entities attributable to non-controlling interests(4,169)29,641 21,910 
Adjusted operating income917,998 802,444 852,059 
Adjusted income taxes46,176 40,684 47,289 
Adjusted net income$871,822 $761,760 $804,770 
Diluted net income per AB Unit, GAAP basis$3.19 $2.78 $2.78 
Impact of non-GAAP adjustments0.02 0.03 0.18 
Adjusted diluted net income per AB Unit$3.21 $2.81 $2.96 
Adjusted operating margin30.1 %27.5 %29.1 %
Adjusted operating income for the year ended December 31, 2020 increased $115.6 million, or 14.4%, from the year ended December 31, 2019, primarily due to higher investment advisory base fees of $74.1 million, higher Bernstein Research Services revenue of $51.8 million, lower promotion and servicing expenses of $33.4 million, higher performance-based fees of $33.2 million, lower amortization of intangibles of $7.4 million and lower interest on borrowings of $6.9 million, partially offset by higher employee compensation expenses (excluding the impact of long-term incentive compensation-related items) of $56.1 million, higher net investment losses of $22.8 million, lower net dividend and interest income of $8.5 million and higher general and administrative expenses of $8.2 million.
Adjusted operating income for the year ended December 31, 2019 decreased $49.6 million, or 5.8%, from the year ended December 31, 2018, primarily due to lower performance-based fees of $99.3 million, lower Bernstein Research Services
46

revenue of $31.5 million, higher general and administrative expenses of $29.3 million and higher employee compensation expenses (excluding the impact of long-term incentive compensation-related items) of $8.3 million, offset by higher investment advisory base fees of $95.5 million and higher investments gains and losses revenue of $22.4 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 consolidated statement of financial condition. This amount 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 was probable that significant reversal would not occur. These amounts were included in adjusted net revenues and adjusted operating income in the first quarter of 2018.
Adjusted Net Revenues
Net Revenue, as adjusted, is reduced to exclude all of the company's distribution revenues, which are recorded as a separate line item on the consolidated statement of income, as well as a portion of investment advisory services fees received that is used to pay distribution and servicing costs. For certain products, based on the distinct arrangements, certain distribution fees are collected by us and passed through to third-party client intermediaries, while for certain other products, we collect investment advisory services fees and a portion is passed through to third-party client intermediaries. In both arrangements, the third-party client intermediary owns the relationship with the client and is responsible for performing services and distributing the product to the client on our behalf. We believe offsetting distribution revenues and certain investment advisory services fees 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. Distribution-related adjustments fluctuate each period based on the type of investment products sold, as well as the average AUM over the period. Also, we adjust distribution revenues for the amortization of deferred sales commissions as these costs, over time, will offset such revenues.
We adjust investment advisory and services fees and other revenues for pass through costs, primarily related to our transfer agent and shareholder servicing fees. These fees do not affect operating income, but they do affect our operating margin. As such, we exclude these fees from adjusted net revenues.
We adjust for the revenue impact of consolidating company-sponsored investment funds by eliminating the consolidated company-sponsored investment funds' revenues and including AB's fees from such consolidated company-sponsored investment funds and AB's investment gains and losses on its investments in such consolidated company-sponsored investment funds that were eliminated in consolidation.

Also, adjusted net revenues exclude investment gains and losses and dividends and interest on employee long-term incentive compensation-related investments.
During the first quarter of 2020, we wrote-off an investment that had been received in exchange for the sale of software technology, bringing the balance to zero. Previously, we had been excluding the value of this investment from adjusted net revenues.
Lastly, adjusted net revenues include the impact of our adoption of revenue recognition standard ASC 606 during the first quarter of 2018, as discussed above.
Adjusted Operating Income
Adjusted operating income represents operating income on a US GAAP basis excluding (1) real estate charges (credits), (2) 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, (3) our CEO's EQH award compensation, as discussed below, (4) the write-down of an investment (discussed immediately above), (5) acquisition-related expenses, (6) adjustments to contingent payment arrangements, and (7) the impact of consolidated company-sponsored investment funds; provided, however, that adjusted operating income includes the revenues and expenses associated with our implementation of ASC 606 during the first quarter of 2018 discussed above.
Real estate charges (credits) have been excluded because they are not considered part of our core operating results when comparing financial results from period to period and to industry peers. However, beginning in the fourth quarter of 2019, real estate charges (credits), while excluded in the period in which the charges (credits) are recorded, are included ratably over the remaining applicable lease term.
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
47

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, which also impacts compensation expense, is recorded within investment gains and losses on the income statement. 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”), our President and Chief Executive Officer, 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 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.

The write-off of the investment discussed above in Adjusted Net Revenues has been excluded due to its non-recurring nature and because it is not part of our core operating results.

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. During 2020, these expenses included an intangible asset impairment charge of $1.5 million relating to our 2016 acquisition.

The recording of changes in estimates of contingent consideration payable with respect to contingent payment arrangements associated with our acquisitions are not considered part of our core operating results and, accordingly, have been excluded.
Adjusted net revenues include the impact of our adoption of revenue recognition standard ASC 606 during the first quarter of 2018, as discussed above.
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.
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.
48

Net Revenues
The components of net revenues are as follows:
 Years Ended December 31,% Change
 2020201920182020-192019-18
 (in thousands)  
Investment advisory and services fees:  
Institutions:  
Base fees$458,449 $451,125 $444,884 1.6 %1.4 %
Performance-based fees53,351 27,839 32,898 91.6 (15.4)
 511,800 478,964 477,782 6.9 0.2 
Retail: 
Base fees1,186,560 1,076,495 992,037 10.2 8.5 
Performance-based fees24,412 22,510 18,278 8.4 23.2 
 1,210,972 1,099,005 1,010,315 10.2 8.8 
Private Wealth Management: 
Base fees817,801 844,809 807,147 (3.2)4.7 
Performance-based fees54,863 49,266 66,967 11.4 (26.4)
 872,664 894,075 874,114 (2.4)2.3 
Total: 
Base fees2,462,810 2,372,429 2,244,068 3.8 5.7 
Performance-based fees132,626 99,615 118,143 33.1 (15.7)
 2,595,436 2,472,044 2,362,211 5.0 4.6 
Bernstein Research Services459,744 407,911 439,432 12.7 (7.2)
Distribution revenues529,781 455,043 418,562 16.4 8.7 
Dividend and interest income50,923 104,421 98,226 (51.2)6.3 
Investment (losses) gains(16,401)38,659 2,653 n/mn/m
Other revenues104,703 97,559 98,676 7.3 (1.1)
Total revenues3,724,186 3,575,637 3,419,760 4.2 4.6 
Less: Interest expense15,650 57,205 52,399 (72.6)9.2 
Net revenues$3,708,536 $3,518,432 $3,367,361 5.4 4.5 
Investment Advisory and Services Fees
Investment advisory and services fees are the largest component of our revenues. These fees generally are calculated as a percentage of the value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and vary with the type of investment service, the size of account and the total amount of assets we manage for a particular client. Accordingly, fee income generally increases or decreases as AUM increase or decrease and is affected by market appreciation or depreciation, the addition of new client accounts or client contributions of additional assets to existing accounts, withdrawals of assets from and termination of client accounts, purchases and redemptions of mutual fund shares, shifts of assets between accounts or products with different fee structures, and acquisitions. Our average basis points realized (investment advisory and services fees divided by average AUM) generally approximate 30 to 110 basis points for actively-managed equity services, 10 to 75 basis points for actively-managed fixed income services and 2 to 20 basis points for passively-managed services. Average basis points realized for other services could range from 4 basis points for certain Institutional 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 or any other
49

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 6.0%, 8.5% and 0.8% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, 4.4% of our AUM).
Our investment advisory and services fees increased by $123.4 million, or 5.0%, in 2020, due to a $90.4 million, or 3.8%, increase in base fees and a $33.0 million increase in performance-based fees. The increase in base fees is primarily due to an 7.9% increase in average AUM, partially offset by a lower portfolio fee rate. Our investment advisory and services fees increased by $109.8 million, or 4.6%, in 2019, due to a $128.4 million, or 5.7%, increase in base fees, which primarily resulted from a 5.5% increase in average AUM and the impact of a slight shift in product mix from fixed income to equities, which generally have higher fees. This increase was partially offset by an $18.5 million decrease in performance-based fees.

Institutional investment advisory and services fees increased $32.8 million, or 6.9%, in 2020, due to an increase in performance-based fees of $25.5 million and an increase in base fees of $7.3 million, or 1.6%. The increase in base fees is primarily due to an 7.7% increase in average AUM, partially offset by a lower portfolio fee rate. Institutional investment advisory and services fees increased $1.2 million, or 0.2%, in 2019, due to an increase in base fees of $6.2 million, or 1.4%, partially offset by a decrease in performance-based fees of $5.0 million. The increase in base fees was primarily due to a 2.8% increase in average AUM, partially offset by the impact of lower fee realization from active equities.
Retail investment advisory and services fees increased $112.0 million, or 10.2%, in 2020, due to an increase in base fees of $110.1 million, or 10.2%, and a $1.9 million increase in performance-based fees. The increase in base fees is primarily due to a 11.4% increase in average AUM, partially offset by a lower portfolio fee rate. Retail investment advisory and services fees increased $88.7 million, or 8.8%, in 2019, due to an increase in base fees of $84.5 million, or 8.5%, and a $4.2 million increase in base fees. The increase in base fees was primarily due to a 10.7% increase in average AUM, partially offset by the impact of lower fee realization from active equities.

Private Wealth Management investment advisory and services fees decreased by $21.4 million, or 2.4%, in 2020, due to a decrease in base fees of $27.0 million, or 3.2%, partially offset by a $5.6 million increase in performance-based fees. The decrease in base fees is primarily due to the impact of a lower portfolio fee rate, as well as a product mix shift with high fee value equity strategies now representing a lower percentage of our total AUM than in prior periods. Private Wealth Management investment advisory and services fees increased $20.0 million, or 2.3%, in 2019, due to an increase in base fees of $37.7 million, or 4.7%, partially offset by a decrease in performance-based fees of $17.7 million. The increase in base fees was primarily due to a 2.3% increase in average AUM and the impact of a shift in product mix to alternatives, which generally have higher fees.
Bernstein Research Services
We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to a lesser extent, but increasingly, by paying us directly for research through commission sharing agreements or cash payments.
Revenues from Bernstein Research Services increased $51.8 million, or 12.7%, in 2020. The increase was due to higher market volatility in 2020, particularly between March and June 2020, primarily as a result of the COVID-19 pandemic, which led to
50

higher customer activity and greater global trading volumes. We expect customer activity and trading volumes to gradually decrease in 2021 and to normalize in 2022, as the volatility surrounding COVID-19 begins to decline. Any decreases in customer activity and trading volumes will have a corresponding effect on Bernstein Research services revenue. Furthermore, all of 2020 reflects the inclusion of revenues from our acquisition of Autonomous (which closed on April 1, 2019).
Revenues from Bernstein Research Services decreased $31.5 million, or 7.2%, in 2019. The decrease was due to lower global customer activity and trading commissions, partially offset by the inclusion of revenues from our acquisition of Autonomous (which closed on April 1, 2019).
Distribution Revenues
Two of our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. Period-over-period fluctuations of distribution revenues typically are in line with fluctuations of the corresponding average AUM of these mutual funds.
Distribution revenues increased $74.7 million, or 16.4%, in 2020, primarily due to the corresponding average AUM of these mutual funds increasing 13.2%. Distribution revenues increased $36.5 million, or 8.7%, in 2019, primarily due to the corresponding average AUM of these mutual funds increasing 10.0%, offset by the impact of a shift in product mix from mutual funds that 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 decreased $53.5 million, or 51.2%, in 2020, primarily due to lower interest earned on customer margin balances and U.S. Treasury Bills, as well as lower dividend and interest income in our consolidated company-sponsored investment funds. Interest expense decreased $41.6 million, or 72.6%, in 2020, due to lower interest paid on cash balances in customers' brokerage accounts.
Dividend and interest income increased $6.2 million, or 6.3%, in 2019, primarily due to higher interest earned on customer margin balances and U.S. Treasury Bills, offset by lower dividend and interest income in our consolidated company-sponsored investment funds. Interest expense increased $4.8 million, or 9.2%, in 2019, due to higher interest paid on cash balances in customers' brokerage accounts.
Investment Gains (Losses)
Investment gains (losses) consist primarily of realized and unrealized investment gains or losses on: (i) employee long-term incentive compensation-related investments, (ii) U.S. Treasury Bills, (iii) market-making in exchange-traded options and equities, (iv) seed capital investments, (v) derivatives and (vi) investments in our consolidated company-sponsored investment funds. Investment gains (losses) also include equity in earnings of proprietary investments in limited partnership hedge funds that we sponsor and manage.










51



Investment gains (losses) are as follows:
 Years Ended December 31,
 202020192018
 (in thousands)
Long-term incentive compensation-related investments:
Realized gains$2,655 $1,672 $2,512 
Unrealized gains (losses)2,914 5,859 (8,032)
Investments held by consolidated company-sponsored investment funds:
  Realized gains (losses)3,357 9,378 (1,134)
  Unrealized (losses) gains(854)36,150 14,217 
Seed capital investments: 
Realized gains (losses) 
Seed capital and other25,002 17,301 (943)
Derivatives(30,343)(30,320)7,001 
Unrealized (losses) gains 
Seed capital and other(12,387)7,510 (15,003)
Derivatives(5,220)(8,013)5,384 
Brokerage-related investments: 
Realized (losses)(1,188)(1,209)(1,410)
Unrealized (losses) gains(337)331 61 
 $(16,401)$38,659 $2,653 
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 EQH and its subsidiaries, and other miscellaneous revenues. Other revenues increased $7.1 million, or 7.3%, in 2020, primarily due to higher shareholder servicing fees, higher brokerage income and higher mutual fund reimbursements, partially offset by lower investment income related to our consolidated company-sponsored investment funds. Other revenues decreased $1.1 million, or 1.1%, in 2019, primarily due to lower brokerage income and lower investment income related to our consolidated company-sponsored investment funds, partially offset by higher shareholder servicing fees.
52

Expenses
The components of expenses are as follows:
 Years Ended December 31,% Change
 2020201920182020-192019-18
 (in thousands)  
Employee compensation and benefits$1,494,198 $1,442,783 $1,378,811 3.6 %4.6 %
Promotion and servicing:     
Distribution-related payments569,283 487,965 427,186 16.7 14.2 
Amortization of deferred sales commissions27,355 15,029 21,343 82.0 (29.6)
Trade execution, marketing, T&E and other189,787 219,860 222,630 (13.7)(1.2)
 786,425 722,854 671,159 8.8 7.7 
General and administrative:     
General and administrative485,544 484,750 448,996 0.2 8.0 
Real estate charges5,526 3,324 7,160 66.2 (53.6)
 491,070 488,074 456,156 0.6 7.0 
Contingent payment arrangements1,855 (510)(2,219)n/m(77.0)
Interest on borrowings6,180 13,035 10,359 (52.6)25.8 
Amortization of intangible assets21,372 28,759 27,781 (25.7)3.5 
Total$2,801,100 $2,694,995 $2,542,047 3.9 6.0 
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 40.3%, 41.0% and 40.9% for the years ended December 31, 2020, 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 Committee of the Board of Directors of AllianceBernstein Corporation (“Compensation Committee”), periodically confirms that the appropriate metric to consider in determining the amount of incentive compensation is the ratio of adjusted employee compensation and benefits expense to adjusted net revenues. Adjusted net revenues used in the adjusted compensation ratio are the same as the adjusted net revenues presented as a non-GAAP measure (discussed earlier in this Item 7). Adjusted employee compensation and benefits expense is total employee compensation and benefits expense minus other employment costs such as recruitment, training, temporary help and meals (which were 0.9%, 1.2% and 1.1% of adjusted net revenues for 2020, 2019 and 2018, respectively), and excludes the impact of mark-to-market vesting expense, as well as dividends and interest expense, associated with employee long-term incentive compensation-related investments and the amortization expense associated with the awards issued by EQH to our firm's CEO relating to his role as a member of the EQH Management Committee. Senior management, with the approval of the Compensation Committee, has established as an objective that adjusted employee compensation and benefits expense generally should not exceed 50% of our adjusted net revenues, except in unexpected or unusual circumstances. Our ratios of adjusted compensation expense as a percentage of adjusted net revenues were 47.9%, 47.9% and 47.5%, respectively, for the years ended December 31, 2020, 2019 and 2018.
In 2020, employee compensation and benefits expense increased $51.4 million, or 3.6%, primarily due to higher incentive compensation of $58.8 million and higher base compensation of $13.5 million (primarily higher base salaries), offset by lower fringes of $8.5 million, lower commissions of $6.2 million and lower other employment costs of $6.2 million. In 2019, employee compensation and benefits expense increased $64.0 million, or 4.6%, primarily due to higher base compensation of $34.1 million (primarily higher salaries), higher incentive compensation of $17.4 million and higher fringes of $15.6 million, partially offset by lower commissions of $3.2 million.
53

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 $63.6 million, or 8.8%, in 2020. The increase primarily was due to higher distribution-related payments of $81.3 million, higher amortization of deferred sales commissions of $12.3 million, higher trade execution and clearance expenses of $7.9 million and higher transfer fees of $4.8 million, offset by lower travel and entertainment expenses of $34.3 million and lower marketing expenses of $8.4 million. The decrease in travel and entertainment and marketing expense is primarily a result of cost savings associated with the COVID-19 pandemic and we expect these costs to increase in 2021 and further normalize in 2022, as the pandemic recedes. Promotion and servicing expenses increased $51.7 million, or 7.7%, in 2019. The increase primarily was due to higher distribution-related payments of $60.8 million and higher travel and entertainment expenses of $3.2 million, offset by lower amortization of deferred sales commissions of $6.3 million, lower trade execution and clearance expenses of $3.7 million and lower marketing expenses of $2.5 million.
General and Administrative
General and administrative expenses include portfolio services expenses, technology expenses, professional fees and office-related expenses (occupancy, communications and similar expenses). General and administrative expenses as a percentage of net revenues were 13.2% (13.1% excluding real estate charges), 13.9% (13.8% excluding real estate charges) and 13.5% (13.3% excluding real estate charges) for the years ended December 31, 2020, 2019 and 2018, respectively. General and administrative expenses increased $3.0 million, or 0.6%, during 2020, primarily due to higher technology fees of $4.7 million, higher charitable contributions of $3.9 million, higher portfolio service fees of $3.6 million, higher real estate charges of $2.2 million and higher other taxes of $1.6 million, partially offset by lower professional fees of $9.1 million and lower office-related expenses of $3.5 million. General and administrative expenses increased $31.9 million, or 7.0%, during 2019, primarily due to higher portfolio service fees of $11.2 million, higher technology fees of $11.0 million and higher professional fees of $7.0 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. The expense of $1.9 million for 2020 reflects accretion expense of $3.3 million, offset by the change in estimate of the contingent consideration payable relating to our 2016 acquisition of $1.4 million. The credit of $0.5 million for 2019 reflects the change in estimate of the contingent consideration payable relating to our 2016 acquisition of $3.1 million, offset by accretion expenses of $2.6 million. The credit of $2.2 million for 2018 reflects the change in estimate of the contingent consideration payable relating to our 2016 acquisition of $2.4 million, offset by accretion expenses of $0.2 million.
Interest on Borrowings
Interest expense decreased 52.6% in 2020, reflecting lower interest rates partially offset by higher weighted average borrowings. Average daily borrowings for both the EQH facility and commercial paper were $554.0 million at a weighted average interest rate of 0.5% during 2020 compared to $436.9 million and 2.5% during 2019. Interest expense increased 25.8% in 2019, reflecting both higher weighted average borrowings and interest rates. Average daily borrowings for both the EQH facility and commercial paper were $436.9 million at a weighted average interest rate of 2.5% during 2019 compared to $350.3 million and 2.0% for commercial paper during 2018.
Income Taxes
AB, a private limited partnership, is not subject to federal or state corporate income taxes. However, AB is subject to a 4.0% New York City unincorporated business tax (“UBT”). Our domestic corporate subsidiaries are subject to federal, state and local income taxes, and generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are filed. Foreign corporate subsidiaries generally are subject to taxes in the jurisdictions where they are located.
Income tax expense increased $3.9 million, or 9.3%, in 2020 compared to 2019. This increase is due to higher pre-tax book income, offset by a slightly lower effective tax rate in 2020 of 5.0% compared to 5.1% in 2019. The decrease in our effective tax rate was driven by a reduction of one-time discrete items.
54

Income tax expense decreased $4.1 million, or 8.9%, in 2019 compared to 2018. This decrease is due to a lower effective tax rate in 2019 of 5.1% compared to 5.6% in 2018. The decrease in our effective tax rate was driven by a more favorable mix of earnings across the AB tax filing groups and a reduction of one-time discrete items.
Net Income (Loss) of Consolidated Entities Attributable to Non-Controlling Interests
Net income (loss) of consolidated entities attributable to non-controlling interests primarily consists of limited partner interests owned by other investors in our consolidated company-sponsored investment funds. In 2020, we had $4.2 million of net losses of consolidated entities attributable to non-controlling interests, primarily due to losses on investments held by our consolidated company-sponsored investment funds. In 2019 and 2018, we had $29.6 million and $21.9 million, respectively, of net gains of consolidated entities attributable to non-controlling interests, primarily due to gains on investments held by our consolidated company-sponsored investment funds. Fluctuations period-to-period result primarily from the number of consolidated company-sponsored investment funds and their respective market performance.
Capital Resources and Liquidity
Cash flows from operating activities primarily include the receipt of investment advisory and services fees and other revenues offset by the payment of operating expenses incurred in the normal course of business. Our cash flows from operating activities have historically been positive and sufficient in supporting our operations. We do not anticipate this to change in the foreseeable future. Cash flows from investing activities generally consist of small capital expenditures and, when applicable, business acquisitions. Cash flows from financing activities primarily consist of issuance and repayment of debt and the repurchase of AB Holding units to fund our long-term deferred compensation plans. We are required to distribute all of our Available Cash Flow to our Unitholders and the General Partner.

During 2020, net cash provided by operating activities was $1.5 billion, compared to $827.5 million during 2019. The change primarily was due to net activity of our consolidated company-sponsored investment funds of $468.2 million, an increase in broker-dealer related payables (net of receivable and segregated U.S. Treasury Bills activity) of $368.0 million, a decrease in other assets of $92.3 million, an increase in accounts payable and accrued expenses of $67.2 million and an increase in accrued compensation of $54.4 million, partially offset by higher net purchases of broker-dealer investments of $454.1 million. During 2019, net cash provided by operating activities was $827.5 million, compared to $1.3 billion during 2018. The change primarily was due to a decrease in broker-dealer related payables (net of receivable and segregated U.S. Treasury Bills activity) of $754.8 million and net activity of our consolidated company-sponsored investment funds of $427.6 million, offset by lower net purchases of broker-dealer investments of $754.7 million.
During 2020, net cash used in investing activities was $59.1 million, compared to $23.0 million during 2019. The change is primarily due to $13.6 millions paid for acquisitions, net of cash acquired, $4.1 million paid for equity method investments and higher purchases of furniture, equipment and leasehold improvements of $13.2 million. During 2019, net cash used in investing activities was $23.0 million, compared to $32.8 million during 2018. The change is primarily due to the acquisition of Autonomous, net of cash acquired, of $5.3 million.

During 2020, net cash used in financing activities was $1.1 billion, compared to $775.0 million during 2019. The change reflects higher redemptions of non-controlling interests of consolidated company-sponsored investment funds of $369.1 million and higher distributions to the General Partner and Unitholders of $133.4 million, partially offset by higher net proceeds of debt of $112.9 million and an increase in overdrafts payable of $47.3 million. During 2019, net cash used in financing activities was $775.0 million, compared to $1.6 billion during 2018. The change reflects the net purchases of non-controlling interests of consolidated company-sponsored investment funds in 2019 as compared to net redemptions of non-controlling interests of consolidated company-sponsored investment funds in 2018 (impact of $622.2 million), lower distributions to the General Partner and Unitholders of $154.7 million and lower net purchases of AB Holding Units to fund long-term incentive compensation plan awards of $95.5 million.
As of December 31, 2020, AB had $1.0 billion of cash and cash equivalents (excluding cash and cash equivalents of consolidated company-sponsored investment funds), all of which is 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 $586.3 million.
55

Debt and Credit Facilities
See Note 12 to our consolidated financial statements in Item 8 for disclosures relating to our debt and credit facilities.
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 “Risk Factors” in Item 1A and “Cautions Regarding Forward-Looking Statements” in this Item 7 for a discussion of credit markets and our ability to renew our credit facilities at expiration.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Guarantees
Under various circumstances, AB guarantees the obligations of its consolidated subsidiaries.
AB maintains guarantees in connection with the Credit Facility (the "Credit Facility") and Revolver (the "Revolver"). If SCB LLC is unable to meet its obligations, AB will pay the obligations when due or on demand. In addition, AB maintains guarantees totaling $365.0 million for SCB LLC’s three uncommitted lines of credit.
AB maintains a guarantee with a commercial bank, under which we guarantee the obligations in the ordinary course of business of each of SCB LLC, our U.K.-based broker-dealer and our Cayman subsidiary. We also maintain three additional guarantees with other commercial banks under which we guarantee approximately $294.7 million of obligations for our U.K.-based broker-dealer and $99.0 million of obligations for our India-based broker-dealer. In the event that any of these three entities is unable to meet its obligations, AB will pay the obligations when due or on demand.
We also have two smaller guarantees with a commercial bank totaling approximately $2.1 million, under which we guarantee certain obligations in the ordinary course of business of one of our foreign subsidiaries.
We have not been required to perform under any of the above agreements and currently have no liability in connection with these agreements.
Aggregate Contractual Obligations
Our contractual obligations as of December 31, 2020 are as follows:
Payments Due by Period
TotalLess than 1 Year1-3 Years3-5 YearsMore than 5 Years
(in millions)
EQH credit facility$675.0 $675.0 $— $— $— 
Leases, net of sublease commitments851.4 79.9 137.2 107.7 526.6 
Funding commitments9.1 9.1 — — — 
Accrued compensation and benefits309.3 221.7 63.9 10.4 13.3 
FIN 48 reserve2.8 — — 2.8 — 
Federal transition tax14.9 1.6 4.6 8.7 — 
Total$1,862.5 $987.3 $205.7 $129.6 $539.9 

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 December 31, 2020, 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 $27.3 million, as amended in 2020, in the Real Estate Fund II. As of December 31, 2020, we had funded $20.8 million of this commitment.
Accrued compensation and benefits amounts in the table above exclude our accrued pension obligation. Offsetting our accrued compensation obligations are long-term incentive compensation-related investments and money market investments we funded totaling $67.0 million, which are included in our consolidated statement of financial condition. Any amounts reflected on the
56

consolidated statement of financial condition as payables (to broker-dealers, brokerage clients and company-sponsored mutual funds) and accounts payable and accrued expenses (excluding the tax obligations above) are excluded from the table above.
We expect to make contributions to our qualified profit sharing plan of approximately $15 million in each of the next four years. We do not currently anticipate that we will contribute to the Retirement Plan during 2021.

The 2017 Tax Act (enacted in the U.S. on December 22, 2017) imposed a federal transition tax on mandatory deemed repatriation of certain deferred foreign earnings. Management elected to pay the transition tax in installments over an eight-year period from 2018 to 2025. The federal transition tax obligation is recorded to income tax payable on our consolidated statement of financial condition. See Note 20 to our consolidated financial statements in Item 8 for further discussion of our taxes.

During October 2018, we signed a lease, which commenced in the fourth quarter of 2020, relating to 218,976 square feet of space at our newly constructed Nashville headquarters. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 15-year initial lease term is $134.0 million. During April 2019, we signed a lease, which commences in 2024, relating to approximately 190,000 square feet of newly constructed 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 $448.0 million. During the fourth quarter of 2020, we exercised an option to return a half floor of this space, which reduced our square footage from approximately 190,000 to 166,000 square feet and our base rent obligation from $448.0 million to $393.0 million. See Note 13 to our consolidated financial statements in Item 8 for discussion of our leases.

See Note 12 to our consolidated financial statements in Item 8 for a discussion of our debt.

Contingencies
See Note 14 to our consolidated financial statements in Item 8 for a discussion of our commitments and contingencies.
Critical Accounting Estimates
The preparation of the consolidated financial statements and notes to consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
Management believes that the critical accounting policies and estimates discussed below involve significant management judgment due to the sensitivity of the methods and assumptions used.
Goodwill
As of December 31, 2020, we had goodwill of $3.1 billion on the consolidated statement of financial condition. We have determined that AB has only one reporting segment and reporting unit. We test our goodwill annually, as of September 30, for impairment. As of September 30, 2020, the impairment test indicated that goodwill was not impaired. The carrying value of goodwill is also reviewed if facts and circumstances occur that suggest possible impairment, such as significant declines in AUM, revenues, earnings or the price of an AB Holding Unit.
On an annual basis, or when circumstances warrant, goodwill is tested for impairment utilizing the market approach where the fair value of the reporting unit is based on its unadjusted market valuation (AB Units outstanding multiplied by AB Holding's Unit price) and earnings multiples. The price of a publicly-traded AB Holding Unit serves as a reasonable starting point for valuing an AB Unit because each represents the same fractional interest in our underlying business. Our market approach analysis also includes comparable industry earnings multiples applied to our earnings forecast and assumes a control premium (when applicable).
Throughout the year, the carrying value of goodwill is also reviewed for impairment if certain events or changes in circumstances occur, and trigger whether an interim impairment test may be required. Such changes in circumstances may include, but are not limited to, a sustained decrease in the price of an AB Unit or declines in AB’s market capitalization that would suggest that the fair value of the reporting unit is less than the carrying amount; significant and unanticipated declines in AB’s assets under management or revenues; and/or lower than expected earnings per unit. Any of these changes in circumstances could suggest the possibility that goodwill is impaired, but none of these events or circumstances by itself would indicate that it is more likely than not that goodwill is impaired. Instead, they are merely recognized as triggering events for the consideration of impairment and must be viewed in combination with any mitigating or positive factors. A holistic evaluation of all events since the most recent quantitative impairment test must be done to determine whether it is more likely than not that the reporting unit is impaired.
57

As of January 1, 2020, we adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removed Step 2 of the goodwill impairment test, which had required 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. Under this guidance, the goodwill impairment test no longer includes a determination by management of whether a decline in fair value is temporary; however, it is important to consider the impact of changing market conditions, including the severity and anticipated duration, is reflected in management's determination of fair value.
Loss Contingencies
Management continuously reviews with legal counsel the status of regulatory matters and pending or threatened litigation. We evaluate the likelihood that a loss contingency exists and record a loss contingency if it is both probable and reasonably estimable as of the date of the financial statements. See Note 14 to our consolidated financial statements in Item 8.
Accounting Pronouncements
See Note 2 to our consolidated financial statements in Item 8.
Cautions Regarding Forward-Looking Statements
Certain statements provided by management in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment 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 Item 1A. Any or all of the forward-looking statements that we make in this Form 10-K, other documents we file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in “Risk Factors” and those listed below could also adversely impact our revenues, financial 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.

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.
58


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
the timing for execution of each phase of our relocation implementation plan.
The Adverse Impact of COVID-19: The severity of the expected adverse impact on our AUM and revenues of the economic downturn caused by the COVID-19 pandemic will depend on the depth and length of the downturn and its impact on the companies in which we invest. Our conclusions about the possible continuing significant adverse impact on us is based on our assumptions that the recovery will be gradual and that there will be lasting high unemployment and economic damage. We believe that these assumptions are reasonable, but they may not be correct and economic conditions likely will differ from our assumptions.



59

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk, Risk Management and Derivative Financial Instruments
Our investments consist of trading and other investments. Trading investments include U.S. Treasury Bills, mutual funds, exchange-traded options and various separately-managed portfolios consisting of equity securities. Trading investments are purchased for short-term investment, principally to fund liabilities related to long-term incentive compensation plans and to seed new investment services. Other investments include investments in hedge funds we sponsor and other investment vehicles.
We enter into various futures, forwards, swaps and options primarily to economically hedge our seed capital investments. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging. See Note 7 to our consolidated financial statements in Item 8.
Trading and Non-Trading Market Risk Sensitive Instruments
Investments with Interest Rate Risk—Fair Value
The table below provides our potential exposure with respect to our fixed income investments, measured in terms of fair value, to an immediate 100 basis point increase in interest rates at all maturities from the levels prevailing as of December 31, 2020 and 2019. Such a fluctuation in interest rates is a hypothetical rate scenario used to calibrate potential risk and does not represent our view of future market movements. While these fair value measurements provide a representation of interest rate sensitivity of our investments in fixed income mutual funds and fixed income hedge funds, they are based on our exposures at a particular point in time and may not be representative of future market results. These exposures will change as a result of ongoing changes in investments in response to our assessment of changing market conditions and available investment opportunities:
 As of December 31,
 20202019
 Fair ValueEffect of
+100
Basis Point
Change
Fair ValueEffect of
+100
Basis Point
Change
 (in thousands)
Fixed Income Investments:
Trading$35,555 $(2,457)$36,122 $(2,445)
Investments with Equity Price Risk—Fair Value
Our investments also include investments in equity securities, mutual funds and hedge funds. The following table provides our potential exposure with respect to our equity investments, measured in terms of fair value, to an immediate 10% drop in equity prices from those prevailing as of December 31, 2020 and 2019. A 10% decrease in equity prices is a hypothetical scenario used to calibrate potential risk and does not represent our view of future market movements. While these fair value measurements provide a representation of equity price sensitivity of our investments in equity securities, mutual funds and hedge funds, they are based on our exposures at a particular point in time and may not be representative of future market results. These exposures will change as a result of ongoing portfolio activities in response to our assessment of changing market conditions and available investment opportunities:
 As of December 31,
 20202019
 Fair ValueEffect of -10%
Equity Price
Change
Fair ValueEffect of -10%
Equity Price
Change
 (in thousands)
Equity Investments:
Trading$137,529 $(13,753)$151,140 $(15,114)
Other investments80,291 (8,029)79,532 (7,953)
60

Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the General Partner and Unitholders of AllianceBernstein L.P.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial condition of AllianceBernstein L.P. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, of comprehensive income, of changes in partners’ capital and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

61

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Performance-Based Fees

As described in Notes 2 and 3 to the consolidated financial statements, performance-based fees earned were $132.6 million for the year ended December 31, 2020. The transaction price for the asset management performance obligation for certain hedge fund and alternative investment advisory contracts, provide for a performance-based fee, in addition to the base advisory fee, which is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. The performance-based fees are forms of variable consideration and are therefore excluded from the transaction price until it becomes probable that there will not be significant reversal of the cumulative revenue recognized. Constraining factors impacting the amount of variable consideration included in the transaction price include the contractual claw-back provisions to which the variable consideration is subject, the length of time to which the uncertainty of the consideration is subject, the number and range of possible consideration amounts, the probability of significant fluctuations in the fund’s market value and the level at which the fund’s value exceeds the contractual threshold required to earn such a fee. With respect to the constraining factors related to the fund’s market value, management measures assets under management (AUM) using established market-based valuation methods and fair valuation (non-observable market) methods. Fair valuation methods, including discounted cash flow models and other 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 principal considerations for our determination that performing procedures relating to performance-based fees is a critical audit matter are the significant audit effort in performing procedures and evaluating evidence related to these fees, including evaluating evidence related to the constraining factors impacting the amount of variable consideration, and the audit effort also included the involvement of professionals with specialized skill and knowledge to assist in evaluating management's estimate of the funds' market value where fair valuation methods are used.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s revenue recognition process for performance-based fees, including controls over the assessment of constraining factors and the valuation of AUM. These procedures also included, among others, testing management’s process for determining performance-based fees, including evaluating the appropriateness of the methods used, testing the contractual claw-back provisions to which the variable consideration is subject and, on a sample basis, evaluating the reasonableness of management’s assumptions related to the length of time to which the uncertainty of the consideration is subject, the number and range of possible consideration amounts and the probability of significant fluctuations in the funds’ market value and, as applicable, the level at which a fund’s value exceeded the contractual threshold required to earn such fees. In evaluating management’s estimates of the funds’ market value, procedures included the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of securities used in determining the underlying funds’ market value where fair valuation methods are used, and comparison of management’s estimate of the securities’ fair value to the independently developed ranges. Developing the independent estimate of securities’ fair value involved testing the completeness and accuracy of data provided by management and independently developing the significant assumptions for the sampled securities.


/s/PricewaterhouseCooper LLP
New York, New York
February 11, 2021

We have served as the Company’s auditor since 2006.

62


AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Financial Condition
December 31,
20202019
(in thousands,
except unit amounts)
ASSETS
Cash and cash equivalents$1,037,400 $679,738 
Cash and securities segregated, at fair value (cost $1,752,483 and $1,090,443)1,753,478 1,094,866 
Receivables, net:  
Brokers and dealers92,638 97,966 
Brokerage clients1,713,377 1,536,674 
AB funds fees325,407 261,588 
Other fees148,746 148,744 
Investments:  
Long-term incentive compensation-related60,114 50,902 
Other193,261 215,892 
Assets of consolidated company-sponsored investment funds:
   Cash and cash equivalents36,506 11,433 
   Investments302,582 581,004 
   Other assets12,244 19,810 
Furniture, equipment and leasehold improvements, net147,874 145,251 
Goodwill3,082,778 3,076,926 
Intangible assets, net44,496 55,366 
Deferred sales commissions, net64,066 36,296 
Right-of-use assets418,455 362,693 
Other assets264,418 330,943 
Total assets$9,697,840 $8,706,092 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
Liabilities:  
Payables:  
Brokers and dealers$216,403 $201,778 
Securities sold not yet purchased17,791 30,157 
Brokerage clients3,440,266 2,531,946 
AB mutual funds65,550 71,142 
Accounts payable and accrued expenses197,657 192,110 
Lease liabilities505,549 468,451 
Liabilities of consolidated company-sponsored investment funds30,620 31,017 
Accrued compensation and benefits335,122 276,829 
Debt675,000 560,000 
Total liabilities5,483,958 4,363,430 
63


AllianceBernstein L.P. and Subsidiaries
December 31,
20202019
Commitments and contingencies (See Note 14)
00
Redeemable non-controlling interest102,359 325,561 
Capital:  
General Partner41,776 41,225 
Limited partners: 270,509,658 and 270,380,314 units issued and outstanding4,229,485 4,174,201 
Receivables from affiliates(8,316)(9,011)
AB Holding Units held for long-term incentive compensation plans(57,219)(76,310)
Accumulated other comprehensive loss(94,203)(113,004)
Partners’ capital attributable to AB Unitholders4,111,523 4,017,101 
Total liabilities, redeemable non-controlling interest and capital$9,697,840 $8,706,092 
See Accompanying Notes to Consolidated Financial Statements.
64


AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31,
202020192018
(in thousands, except per unit amounts)
Revenues:
Investment advisory and services fees$2,595,436 $2,472,044 $2,362,211 
Bernstein research services459,744 407,911 439,432 
Distribution revenues529,781 455,043 418,562 
Dividend and interest income50,923 104,421 98,226 
Investment (losses) gains(16,401)38,659 2,653 
Other revenues104,703 97,559 98,676 
Total revenues3,724,186 3,575,637 3,419,760 
Less: Interest expense15,650 57,205 52,399 
Net revenues3,708,536 3,518,432 3,367,361 
Expenses:   
Employee compensation and benefits1,494,198 1,442,783 1,378,811 
Promotion and servicing:   
Distribution-related payments569,283 487,965 427,186 
Amortization of deferred sales commissions27,355 15,029 21,343 
Trade execution, marketing, T&E and other189,787 219,860 222,630 
General and administrative:   
General and administrative485,544 484,750 448,996 
Real estate charges5,526 3,324 7,160 
Contingent payment arrangements1,855 (510)(2,219)
Interest on borrowings6,180 13,035 10,359 
Amortization of intangible assets21,372 28,759 27,781 
Total expenses2,801,100 2,694,995 2,542,047 
Operating income907,436 823,437 825,314 
Income tax45,653 41,754 45,816 
Net income861,783 781,683 779,498 
Net (loss) income of consolidated entities attributable to non-controlling interests(4,169)29,641 21,910 
Net income attributable to AB Unitholders$865,952 $752,042 $757,588 
Net income per AB Unit:   
Basic$3.19 $2.78 $2.79 
Diluted$3.19 $2.78 $2.78 
See Accompanying Notes to Consolidated Financial Statements.
65


AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31,
202020192018
(in thousands)
Net income$861,783 $781,683 $779,498 
Other comprehensive income:
Foreign currency translation adjustments, before reclassification and tax:23,882 5,986 (19,337)
Less: reclassification adjustment for losses included in net income upon liquidation(216)(100)
Foreign currency translation adjustments, before tax24,098 5,986 (19,237)
Income tax (expense) benefit(854)(383)620 
Foreign currency translation adjustments, net of tax23,244 5,603 (18,617)
Changes in employee benefit related items:   
Amortization of prior service cost24 24 24 
Recognized actuarial (loss) gain(4,280)(7,891)1,586 
Changes in employee benefit related items(4,256)(7,867)1,610 
Income tax benefit (expense)(187)274 (139)
Employee benefit related items, net of tax(4,443)(7,593)1,471 
Other374 
Other comprehensive gain (loss)18,801 (1,990)(16,772)
Less: Comprehensive (loss) income in consolidated entities attributable to non-controlling interests(4,169)29,788 21,864 
Comprehensive income attributable to AB Unitholders$884,753 $749,905 $740,862 
See Accompanying Notes to Consolidated Financial Statements.
66


AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Changes in Partners’ Capital
Years Ended December 31,
202020192018
(in thousands)
General Partner’s Capital
Balance, beginning of year$41,225 $40,240 $41,221 
Net income8,660 7,521 7,576 
Cash distributions to General Partner(8,376)(7,042)(8,608)
Long-term incentive compensation plans activity(23)149 (39)
Issuance (retirement) of AB Units, net290 357 (256)
Impact of adoption of revenue recognition standard ASC 606349 
Other(3)
Balance, end of year41,776 41,225 40,240 
Limited Partners' Capital
Balance, beginning of year4,174,201 4,075,306 4,168,841 
Net income857,292 744,521 750,012 
Cash distributions to Unitholders(828,503)(696,470)(849,585)
Long-term incentive compensation plans activity(2,147)14,741 (3,880)
Issuance (retirement) of AB Units, net28,642 35,259 (25,486)
Impact of adoption of revenue recognition standard ASC 60634,601 
Other844 803 
Balance, end of year4,229,485 4,174,201 4,075,306 
Receivables from Affiliates
Balance, beginning of year(9,011)(11,430)(11,494)
Capital contributions from General Partner19 
Compensation plan accrual352 
Long-term incentive compensation awards expense802 1,125 
Capital contributions from AB Holding(107)1,294 (307)
Balance, end of year(8,316)(9,011)(11,430)
AB Holding Units held for Long-term Incentive Compensation Plans
Balance, beginning of year(76,310)(77,990)(42,688)
Purchases of AB Holding Units to fund long-term compensation plans, net(148,624)(171,930)(267,427)
(Issuance) retirement of AB Units, net(28,696)(35,736)25,589 
Long-term incentive compensation awards expense194,840 207,057 187,514 
Re-valuation of AB Holding Units held in rabbi trust1,556 (4,403)19,022 
Other15 6,692 
Balance, end of year(57,219)(76,310)(77,990)
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of year(113,004)(110,866)(94,140)
Foreign currency translation adjustment, net of tax23,244 5,455 (18,571)
Changes in employee benefit related items, net of tax(4,443)(7,593)1,471 
Unrealized gain on investments, net of tax
Other374 
Balance, end of year(94,203)(113,004)(110,866)
Total Partners' Capital attributable to AB Unitholders4,111,523 4,017,101 3,915,260 
Non-redeemable Non-controlling Interests in Consolidated Entities   
Balance, beginning of year0 949 1,564 
Net income91 69 
Foreign currency translation adjustment147 (46)
Purchase of non-controlling interest(1,187)
Distributions (to) non-controlling interests of our consolidated venture capital fund activities(638)
Balance, end of year0 0 949 
Total Capital$4,111,523 $4,017,101 $3,916,209 
See Accompanying Notes to Consolidated Financial Statements.
67


AllianceBernstein L.P. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31,
202020192018
(in thousands)
Cash flows from operating activities:
Net income$861,783 $781,683 $779,498 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred sales commissions27,355 15,029 21,343 
Non-cash long-term incentive compensation expense195,642 208,182 187,514 
Depreciation and other amortization138,240 166,542 70,000 
Unrealized losses (gains) on investments10,405 (13,431)23,164 
Unrealized (gains) on investments of consolidated company-sponsored investment funds(854)(36,150)(14,217)
Other, net(2,914)10,281 (6,446)
Changes in assets and liabilities:
(Increase) decrease in securities, segregated(658,612)74,688 (353,204)
(Increase) decrease in receivables(182,684)223,137 (207,000)
Decrease (increase) in investments7,597 460,347 (294,383)
Decrease (increase) in investments of consolidated company-sponsored investment funds279,276 (193,158)908,804 
(Increase) in deferred sales commissions(55,125)(34,177)(8,365)
(Increase) in right-of-use assets(131,765)(11,141)— 
Decrease (increase) in other assets69,160 (23,140)(152,726)
Increase (decrease) in other assets and liabilities of consolidated company-sponsored investment funds, net7,169 11,437 (662,934)
Increase (decrease) in payables861,502 (641,369)1,024,317 
Increase (decrease) in lease liabilities37,695 (107,276)— 
Increase (decrease) in accounts payable and accrued expenses10,666 (56,518)(11,225)
Increase (decrease) in accrued compensation and benefits46,885 (7,486)4,341 
Net cash provided by operating activities1,521,421 827,480 1,308,481 
Cash flows from investing activities:
Purchases of equity method investments(4,079)
Purchases of furniture, equipment and leasehold improvements(41,504)(28,303)(32,789)
Acquisition of businesses, net of cash acquired(13,552)5,255 
Net cash used in investing activities(59,135)(23,048)(32,789)
Cash flows from financing activities:
Proceeds (repayment) of debt115,000 2,105 (25,454)
(Decrease) increase in overdrafts payable(12,633)(59,924)3,273 
Distributions to General Partner and Unitholders(836,879)(703,512)(858,193)
Capital contributions (to) non-controlling interests in consolidated entities(638)
(Redemptions) subscriptions of non-controlling interests of consolidated company-sponsored investment funds, net(219,033)150,091 (472,143)
Capital contributions (to) from affiliates(867)269 (1,421)
Interest accretion, net of (payments) on contingent payment arrangements1,921 (1,991)(1,093)
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units147 11,511 16,589 
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net(148,624)(171,930)(267,427)
Other(1,615)(1,580)(2,151)
Net cash used in financing activities(1,102,583)(774,961)(1,608,658)
Effect of exchange rate changes on cash and cash equivalents23,032 8,376 (12,158)
Net increase (decrease) in cash and cash equivalents382,735 37,847 (345,124)
Cash and cash equivalents as of beginning of the period691,171 653,324 998,448 
Cash and cash equivalents as of end of the period$1,073,906 $691,171 $653,324 
Cash paid:
Interest paid$18,858 $66,002 $60,286 
Income taxes paid59,791 52,444 41,946 
Non-cash investing activities:
Fair value of assets acquired (excluding cash acquired of $0.6 million and $11.8 million)18,389 28,966 
Fair value of liabilities assumed437 16,837 
Non-cash financing activities:
Payables recorded under contingent payment arrangements4,400 17,384 
See Accompanying Notes to Consolidated Financial Statements.
68

AllianceBernstein L.P. and Subsidiaries
Notes to Consolidated Financial Statements
The words “we” and “our” refer collectively to AllianceBernstein L.P. and its subsidiaries (“AB”), or to their officers and employees. Similarly, the word “company” refers to AB. Cross-references are in italics.
1. Business Description and Organization
We provide diversified investment management, research 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 Equitable Holdings, Inc. ("EQH") and its 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 expertise in multi-asset strategies, wealth management, environmental, social and corporate governance ("ESG") 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;

Alternative investments, including hedge funds, fund of funds, direct lending, real estate and private equity;

Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds; and

Some passive management, including index and enhanced index strategies.

Organization

During the second quarter of 2018, AXA S.A. ("AXA") completed the sale of a minority stake in EQH through an initial public offering ("IPO"). Since then, AXA has completed additional offerings and taken other steps, most recently during the fourth quarter of 2019. As a result, AXA owned less than 10% of the outstanding common stock of EQH as of December 31, 2020.
As of December 31, 2020, EQH owned approximately 4.1% 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.
69

As of December 31, 2020, 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 subsidiaries63.3 %
AB Holding36.0 
Unaffiliated holders0.7 
100.0 %
Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate 64.8% economic interest in AB as of December 31, 2020.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The preparation of the consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include AB and its majority-owned and/or controlled subsidiaries, and the consolidated 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 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.
Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This new guidance related to the accounting for credit losses on financial instruments and introduced 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. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removed Step 2 of the goodwill impairment test, which had required 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. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not 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 modified the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not 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 aligned 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 are either 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. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations.

70

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendment was intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance was effective beginning on March 12, 2020, and can be applied to amendments prospectively through December 31, 2022. An entity may elect to apply the amendments in this update, as well as amendments include in ASU 2021-01 issued in January 2021, as of the beginning of the interim period that includes March 12, 2020. We adopted these standards prospectively on January 1, 2020. The adoption of these standards did not have a material impact on our financial condition or results of operations.

Accounting Pronouncements Not Yet Adopted in 2020

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 beginning after December 15, 2020. The revised guidance will not have a material impact on our financial condition or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The revised guidance is effective for financial statements issued for fiscal years beginning after December 15, 2020. The revised guidance will not have a material impact on our financial condition or results of operations.

Revenue Recognition

Investment advisory and services fees
AB provides asset management services by managing customer assets and seeking to deliver investment returns to investors. Each investment management contract between AB and a customer creates a distinct, separately identifiable performance obligation for each day the customer’s assets are managed as the customer can benefit from each day of service. In accordance with ASC 606, a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer are treated as a single performance obligation. Accordingly, we have determined that our investment and advisory services are performed over time and entitle us to variable consideration earned based on the value of the investors’ assets under management (“AUM”).

We calculate AUM using established market-based valuation methods and fair valuation (non-observable market) methods. Market-based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures; evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; mid prices from recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing vendors and brokers for other derivative products. Fair valuation methods include: discounted cash flow models or any other methodology that is validated and approved by our Valuation Committee (see paragraph immediately below for additional information about our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-based valuation methods, such as in the case of private equity or illiquid securities.

The Valuation Committee, which consists of senior officers and employees, is responsible for overseeing the pricing and valuation of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which reports to the Valuation Committee and is responsible for overseeing the pricing process for all investments.

We record as revenue investment advisory and services base fees, which we generally calculate as a percentage of AUM. At month-end, all the components of the transaction price (i.e., the base fee calculation) are no longer variable and the value of the consideration is determined. These fees are not subject to claw back and there is minimal probability that a significant reversal of the revenue recorded will occur. 

The transaction price for the asset management performance obligation for certain investment advisory contracts, including those associated with hedge funds or other alternative investments, provide for a performance-based fee (including carried interest), in addition to a base advisory fee, which is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. The performance-based fees
71

are forms of variable consideration and are therefore excluded from the transaction price until it becomes probable that there will not be significant reversal of the cumulative revenue recognized. At each reporting date, we evaluate the constraining factors, discussed below, surrounding the variable consideration to determine the extent to which, if any, revenues associated with the performance-based fee can be recognized.

Constraining factors impacting the amount of variable consideration included in the transaction price include: the contractual claw-back provisions to which the variable consideration is subject, the length of time to which the uncertainty of the consideration is subject, the number and range of possible consideration amounts, the probability of significant fluctuations in the fund’s market value, the level at which the fund’s value exceeds the contractual threshold required to earn such a fee, and the materiality of the amount being evaluated.

Bernstein Research Services
Bernstein Research Services revenue consists principally of commissions received, and to a lesser but increasing extent, direct payments for trade execution services and providing equity research services to institutional clients. Brokerage commissions for trade execution services and related expenses are recorded on a trade-date basis when the performance obligations are satisfied. Generally, the transaction price is agreed upon at the point of each trade and based upon the number of shares traded or the value of the consideration traded. Research revenues are recognized when the transaction price is quantified, collectability is assured and significant reversal of such revenue is not probable.

Distribution Revenues
Two of our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. The variable consideration can be determined in different ways, as discussed below, as we satisfy the performance obligation depending on the contractual arrangements with the customer and the specific product sold.

Most open-end U.S. funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out of assets of the fund, distribution and service fees for the distribution and sale of its shares (“Rule 12b-1 Fees”). The open-end U.S. funds have such agreements with us, and we have selling and distribution agreements pursuant to which we pay sales commissions to the financial intermediaries that distribute our open-end U.S. funds. These agreements are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares.

We record 12b-1 fees monthly based upon a percentage of the net asset value (“NAV”) of the funds. At month-end, the variable consideration of the transaction price is no longer constrained as the NAV can be calculated and the value of consideration is determined. These services are separate and distinct from other asset management services as the customer can benefit from these services independently of other services. We accrue the corresponding 12b-1 fees paid to sub-distributors monthly as the expenses are incurred. We are acting in a principal capacity in these transactions; as such, these revenues and expenses are recorded on a gross basis.

We offer back-end load shares in limited instances and charge the investor a contingent deferred sales charge (“CDSC”) if the investment is redeemed within a certain period. The variable consideration for these contracts is contingent on the timing of the redemption by the investor and the value of the sale proceeds. Due to these constraining factors, we exclude the CDSC fee from the transaction price until the investor redeems the investment. Upon redemption, the cash consideration received for these contractual arrangements are recorded as reductions of unamortized deferred sales commissions.

Our Luxembourg subsidiary, the management company for most of our non-U.S. funds, earns a management fee that is accrued daily and paid monthly, at an annual rate, based on the average daily net assets of the fund. With respect to certain share classes, the management fee may also contain a component that is paid to distributors and other financial intermediaries and service providers to cover shareholder servicing and other administrative expenses (also referred to as an All-in-Fee). As we have concluded that asset management is distinct from distribution, we allocate a portion of the investment and advisory fee to distribution revenues for the servicing component based on standalone selling prices.

Other Revenues
Revenues from contracts with customers include a portion of other revenues, which consists primarily of shareholder servicing fees, as well as mutual fund reimbursements and other brokerage income.

We provide shareholder services, which include transfer agency, administrative and recordkeeping services provided to company-sponsored mutual funds. The consideration for these services is based on a percentage of the NAV of the fund or a fixed-fee based on the number of shareholder accounts being serviced. The revenues are recorded at month-end when the constraining factors involved with determining NAV or the number of shareholders’ accounts are resolved.
72


Non-Contractual Revenues
Dividend and interest income is accrued as earned. Investment gains and losses on the consolidated statements of income include unrealized gains and losses of trading and private equity investments stated at fair value, equity in earnings of our limited partnership hedge fund investments, and realized gains and losses on investments sold.
Contract Assets and Liabilities
We use the practical expedient for contracts that have an original duration of one year or less. Accordingly, we do not consider the time value of money and, instead, accrue the incremental costs of obtaining the contract when incurred. As of December 31, 2020, the balances of contract assets and contract liabilities are not considered material and, accordingly, no further disclosures are necessary.
Consolidation of company-sponsored investment funds
For legal entities (company-sponsored investment funds) evaluated for consolidation, we first determine whether the fees we receive and the interests we hold qualify as a variable interest in the entity, including an evaluation of fees paid to us as a decision maker or service provider to the entity being evaluated. Fees received by us are not variable interests if (i) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, conditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length, and (iii) our other economic interests in the entity held directly and indirectly through our related parties, as well as economic interests held by related parties under common control, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignificant amount of the entity’s benefits.
For those entities in which we have a variable interest, we perform an analysis to determine whether the entity is a VIE by considering whether the entity’s equity investment at risk is insufficient, whether the investors lack decision making rights proportional to their ownership percentage of the entity, and whether the investors lack the obligation to absorb an entity’s expected losses or the right to receive an entity’s expected income.
A VIE must be consolidated by its primary beneficiary, which generally is defined as the party that has a controlling financial interest in the VIE. We are deemed to have a controlling financial interest in a VIE if we have (i) the power to direct the activities of the VIE that most significantly affect the VIE's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive income from the VIE that could potentially be significant to the VIE. For purposes of evaluating (ii) above, fees paid to us as a decision maker or service provider are excluded if the amount of fees is commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length. The primary beneficiary evaluation generally is performed qualitatively based on all facts and circumstances, as well as quantitatively, as appropriate.
If we have a variable interest in an entity that is determined not to be a VIE, the entity is then evaluated for consolidation under the VOE model. For limited partnerships and similar entities, we are deemed to have a controlling financial interest in a VOE, and would be required to consolidate the entity, if we own a majority of the entity’s kick-out rights through voting limited partnership interests and limited partners do not hold substantive participating rights (or other rights that would indicate that we do not control the entity). For entities other than limited partnerships, we are deemed to have a controlling financial interest in a VOE if we own a majority voting interest in the entity.
The analysis performed regarding the determination of variable interests held, whether entities are VIEs or VOEs, and whether we have a controlling financial interest in such entities, requires the exercise of judgment. The analysis is updated continuously as circumstances change or new entities are formed.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, money market accounts, overnight commercial paper and highly liquid investments with original maturities of three months or less. Due to the short-term nature of these instruments, the recorded value has been determined to approximate fair value (and considered Level 1 securities in the fair value hierarchy).
Fees Receivable, Net
Fees receivable are shown net of allowances. An allowance for doubtful accounts related to investment advisory and services fees is determined through an analysis of the aging of receivables, assessments of collectability based on historical trends and other qualitative and quantitative factors, including our relationship with the client, the financial health (or ability to pay) of the client, current economic conditions and whether the account is active or closed. The allowance for doubtful accounts is not material to fees receivable.
73

Brokerage Transactions
Customers’ securities transactions are recorded on a settlement date basis, with related commission income and expenses reported on a trade date basis. Receivables from and payables to clients include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables; such collateral is not reflected in the consolidated financial statements. We have the ability by contract or custom to sell or re-pledge this collateral, and have done so at various times. As of December 31, 2020, there were 0 re-pledged securities. Principal securities transactions and related expenses are recorded on a trade date basis.
Securities borrowed and securities loaned by our broker-dealer subsidiaries are recorded at the amount of cash collateral advanced or received in connection with the transaction and are included in receivables from and payables to brokers and dealers in the consolidated statements of financial condition. Securities borrowed transactions require us to deposit cash collateral with the lender. With respect to securities loaned, we receive cash collateral from the borrower. See Note 8 for securities borrowed and loaned amounts recorded in our consolidated statements of financial condition as of December 31, 2020 and 2019. The initial collateral advanced or received approximates or is greater than the fair value of securities borrowed or loaned. We monitor the fair value of the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate. As of December 31, 2020 and 2019, there is 0 allowance provision required for the collateral advanced. Income or expense is recognized over the life of the transaction.
As of December 31, 2020 and 2019, we had $130.0 million and $204.0 million, respectively, of cash on deposit with clearing organizations for trade facilitation purposes, which are reported in other assets in our consolidated statements of financial condition. As of December 31, 2020 and 2019, we held 0 U.S. Treasury bills pledged as collateral. These clearing organizations have the ability by contract or custom to sell or re-pledge the collateral, if any.
Current Expected Credit Losses- Receivables from Brokerage clients
Receivables from clients is primarily composed of margin loan balances. The value of the securities owned by clients and held as collateral for these receivables is not reflected in the Consolidated Financial Statements and the collateral was not repledged or sold as of December 31, 2020 and 2019. We consider these financing receivables to be of good credit quality due to the fact that these receivables are primarily collateralized by the related client investments.
To estimate expected credit losses on margin loans, we applied the collateral maintenance practical expedient by comparing the amortized cost basis of the margin loans with the fair value of the collateral at the reporting date. Margin loans are limited to a percentage of the total value of the securities held in the client's account against those loans. AB requires, in the event of a decline in the market value of the securities in a margin account, the client to deposit additional securities or cash so that, at all times, the value of the securities in the account, at a minimum, cover the loan to the client. As such, AB reasonably expects that the borrower will be able to continually replenish collateral securing the financial asset and does not expect the fair value of collateral to fall below the amortized cost bases of the margin loans and, as a result, we consider the credit risk associated with these receivables to be minimal. In circumstances when a loan becomes undercollateralized and the client fails to deposit additional securities or cash, AB reserves the right to liquidate the account.

Current Expected Credit Losses - Receivables from Revenue Contracts with Customers
The majority of our revenue receivables are from investment advisory and service fees, and distribution revenues, that are typically paid out of the client accounts or third-party products consisting of cash and securities. Due to the size of the fees in relation to the value of the cash and securities in account or funds, the account value always exceeds the amortized cost basis of the receivables, resulting in a remote risk of loss. These receivables have a short duration, generally due within 30-90 days and there is minimal historical evidence of non-payment or market declines that would cause the fair value of the underlying securities to decline below the amortized cost of the receivables. AB maintains an allowance for credit losses based upon an estimate of the amount of potential credit losses in existing accounts receivable, as determined from a review of aging schedules, past due balances, historical collection experience and other specific account data. Once determined uncollectible, aged balances are written off as credit loss expense. This determination is based on careful analysis of individual receivables and aging schedules, and generally occurs when the receivable becomes over 360 days past due. Our aged receivables and amounts written off related to credit losses in any year are not material.
Furniture, Equipment and Leasehold Improvements, Net
Furniture, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is recognized on a straight-line basis over the estimated useful lives of eight years for furniture and three to six years for equipment and software. Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the terms of the related leases.
74

Goodwill
In 2000, AB acquired SCB Inc., an investment research and management company formerly known as Sanford C. Bernstein Inc. (“Bernstein”). The Bernstein acquisition was accounted for under the purchase method, and the cost of the acquisition was allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, resulted in the recognition of goodwill of approximately $3.0 billion.
As of December 31, 2020, goodwill of $3.1 billion on the consolidated statement of financial condition included $2.8 billion as a result of the Bernstein acquisition and $282 million in regard to various smaller acquisitions. We have determined that AB has only 1 reporting segment and reporting unit.
Goodwill is tested annually, as of September 30, for impairment utilizing the market approach where the fair value of the reporting unit is based on its unadjusted market valuation (AB Units outstanding multiplied by AB Holding's Unit price) and adjusted market valuations assuming a control premium (when applicable). The price of a publicly-traded AB Holding Unit serves as a reasonable starting point for valuing an AB Unit because each represents the same fractional interest in our underlying business. Throughout the year, the carrying value of goodwill is also reviewed for impairment if certain events or changes in circumstances occur, and trigger whether an interim impairment test may be required. Such changes in circumstances may include, but are not limited to, a sustained decrease in the price of an AB Holding Unit or declines in AB’s market capitalization that would suggest that the fair value of the reporting unit is less than the carrying amount; significant and unanticipated declines in AB’s assets under management or revenues; and/or lower than expected earnings per unit. Any of these changes in circumstances could suggest the possibility that goodwill is impaired, but none of these events or circumstances by itself would indicate that it is more likely than not that goodwill is impaired. Instead, they are merely recognized as triggering events for the consideration of impairment and must be viewed in combination with any mitigating or positive factors. A holistic evaluation of all events since the most recent quantitative impairment test must be done to determine whether it is more likely than not that the reporting unit is impaired. As of September 30, 2020, the impairment test indicated that goodwill was not impaired. There were no facts or circumstances occurring in the fourth quarter of 2020 suggesting possible impairment.
As of January 1, 2020, we adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removed Step 2 of the goodwill impairment test, which had required 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. Under this guidance, the goodwill impairment test no longer includes a determination by management of whether a decline in fair value is temporary; however, it is important to consider the impact of changing market conditions, including the severity and anticipated duration, is reflected in management's determination of fair value.

Intangible Assets, Net
Intangible assets consist primarily of costs assigned to acquired investment management contracts based on their estimated fair value at the time of acquisition, less accumulated amortization. Intangible assets are recognized at fair value and generally are amortized on a straight-line basis over their estimated useful life ranging from six years to 20 years.
As of December 31, 2020, intangible assets, net of accumulated amortization, of $44.5 million on the consolidated statement of financial condition consists of $29.2 million of finite-lived intangible assets subject to amortization and $15.3 million of indefinite-lived intangible assets not subject to amortization. As of December 31, 2019, intangible assets, net of accumulated amortization, of $55.4 million on the consolidated statement of financial condition consisted of $41.9 million of finite-lived intangible assets subject to amortization, of which $15.5 million related to the Bernstein acquisition (which was fully amortized as of December 31, 2020), and $13.5 million of indefinite-lived intangible assets not subject to amortization in regard to other acquisitions. The gross carrying amount of finite-lived intangible assets totaled $65.1 million as of December 31, 2020 and $468.9 million as of December 31, 2019, and accumulated amortization was $35.9 million as of December 31, 2020 and $427.0 million as of December 31, 2019. Amortization expense was $21.4 million for 2020, $28.8 million for 2019 and $27.8 million for 2018. Estimated annual amortization expense for 2021 is approximately $6 million, $5 million in years two through four, then approximately $4 million in year five.
We periodically review indefinite-lived intangible assets for impairment as events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value exceeds fair value, we perform additional impairment tests to measure the amount of the impairment loss, if any. During the fourth quarter of 2020, we recorded an impairment of $1.5 million relating to our 2016 acquisition of Ramius Alternative Solutions LLC. Due to the loss of acquired investment management contracts during 2020, the carrying value of the finite-lived intangible assets exceeded the fair value of the
75

contracts. We determined the fair value of the contracts using a discounted cashflow model. The impairment charge was recorded in general and administrative expenses in the consolidated statements of income.
Deferred Sales Commissions, Net
We pay commissions to financial intermediaries in connection with the sale of shares of open-end company-sponsored mutual funds sold without a front-end sales charge (“back-end load shares”). These commissions are capitalized as deferred sales commissions and amortized over periods not exceeding one year for U.S. fund shares and four years for Non-U.S. Fund shares, the periods of time during which deferred sales commissions generally are recovered. We recover these commissions from distribution services fees received from those funds and from CDSC received from shareholders of those funds upon the redemption of their shares. CDSC cash recoveries are recorded as reductions of unamortized deferred sales commissions when received. Since January 31, 2009, our U.S. mutual funds have not offered back-end load shares to new investors.
We periodically review the deferred sales commission asset for impairment as events or changes in circumstances indicate that the carrying value may not be recoverable. If these factors indicate impairment in value, we compare the carrying value to the undiscounted cash flows expected to be generated by the asset over its remaining life. If we determine the deferred sales commission asset is not fully recoverable, the asset will be deemed impaired and a loss will be recorded in the amount by which the recorded amount of the asset exceeds its estimated fair value. There were 0 impairment charges recorded during 2020 or 2019.
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 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 lease commencement date 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.
Loss Contingencies
With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages. Such is also the case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose that we are unable to predict the outcome or estimate a possible loss or range of loss.
Contingent Payment Arrangements
We periodically enter into contingent payment arrangements in connection with our business combinations. In these arrangements, we agree to pay additional consideration to the sellers to the extent that certain performance targets are achieved. We estimate the fair value of these potential future obligations at the time a business combination is consummated and record a liability on our consolidated statements of financial condition. We then accrete the obligation to its expected payment amount over the measurement period. If our expected payment amount subsequently changes, the obligation is modified in the current period resulting in a gain or loss. Both gains and losses resulting from changes to expected payments and the accretion of these obligations to their expected payment amounts are reflected within contingent payment arrangements in our consolidated
76

statements of income. During the fourth quarter of 2020, we recorded an impairment of the contingent consideration payable of $1.4 million relating to our 2016 acquisition of Ramius Alternative Solutions LLC.
Mutual Fund Underwriting Activities
Purchases and sales of shares of company-sponsored mutual funds in connection with the underwriting activities of our subsidiaries, including related commission income, are recorded on the trade date. Receivables from brokers and dealers for sale of shares of company-sponsored mutual funds generally are realized within three business days from the trade date, in conjunction with the settlement of the related payables to company-sponsored mutual funds for share purchases. Distribution plan and other promotion and servicing payments are recognized as expense when incurred.
Long-term Incentive Compensation Plans
We maintain several unfunded, non-qualified long-term incentive compensation plans, under which we grant annual awards to employees, generally in the fourth quarter, and to members of the Board of Directors of the General Partner, who are not employed by our company or by any of our affiliates ("Eligible Directors").
Awards granted in December 2020, 2019 and 2018 allowed employee participants to allocate their awards between restricted AB Holding Units and deferred cash. Participants (except certain members of senior management) generally could allocate up to 50% of their awards to deferred cash, not to exceed a total of $250,000 per award. Each of our employees based outside of the United States (other than expatriates), who received an award of $100,000 or less, could have allocated up to 100% of his or her award to deferred cash. Participants allocated their awards prior to the date on which the Compensation Committee granted awards in December 2020, 2019 and 2018. For these awards, the number of AB Holding Units awarded was based on the closing price of an AB Holding Unit on the grant date. For awards granted in 2020, 2019 and 2018:
We engage in open-market purchases of AB Holding Units or purchase newly-issued AB Holding Units from AB Holding that are awarded to participants and keep them in a consolidated rabbi trust.
Quarterly distributions on vested and unvested AB Holding Units are paid currently to participants, regardless of whether or not a long-term deferral election has been made.
Interest on deferred cash is accrued monthly based on our monthly weighted average cost of funds.
We recognize compensation expense related to equity compensation grants in the financial statements using the fair value method. Fair value of restricted AB Holding Unit awards is the closing price of an AB Holding Unit on the grant date; fair value of options is determined using the Black-Scholes option valuation model. Under the fair value method, compensatory expense is measured at the grant date based on the estimated fair value of the award and is recognized over the required service period. For year-end long-term incentive compensation awards, employees who resign or are terminated without cause may retain their awards, subject to compliance with certain agreements and restrictive covenants set forth in the applicable award agreement, including restrictions on competition and employee and client solicitation, and a claw-back for failing to follow existing risk management policies. Because there is no service requirement, we fully expense these awards on the grant date. Most equity replacement, sign-on or similar deferred compensation awards included in separate employment agreements or arrangements include a required service period. Regardless of whether or not the award agreement includes employee service requirements, AB Holding Units typically are delivered to employees ratably over four years, unless the employee has made a long-term deferral election.
Grants of restricted AB Holding Units can be awarded to Eligible Directors. Generally, these restricted AB Holding Units vest ratably over four years. These restricted AB Holding Units are not forfeitable (except if the Eligible Director is terminated for “Cause,” as that term is defined in the applicable award agreement). We fully expense these awards on grant date, as there is no service requirement.
We fund our restricted AB Holding Unit awards either by purchasing AB Holding Units on the open market or purchasing newly-issued AB Holding Units from AB Holding, and then keeping 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.

77

Repurchases of AB Holding Units for the years ended December 31, 2020 and 2019 consisted of the following:
Years Ended December 31,
20202019
(in millions)
Total amount of AB Holding Units Purchased (1)
5.4 6.0 
Total Cash Paid for AB Holding Units Purchased(1)
$149.0 $172.6 
Open Market Purchases of AB Holding Units Purchased (2)
3.1 2.9 
Total Cash Paid for Open Market Purchases of AB Holding Units (2)
$74.0 $82.7 
(1) Purchased on a trade date basis.
(2) The remainder related to purchases of AB Holding Units from employees to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards.
Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). A plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker we select has the authority to repurchase AB Holding Units on our behalf in accordance with the terms and limitations specified in the plan. Repurchases are subject to regulations promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the fourth quarter of 2020 expired at the close of business on February 10, 2021. 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 2020, we granted to employees and Eligible Directors 5.7 million restricted AB Holding Units (including 5.0 million granted in December for 2020 year-end awards to employees). During 2019, we granted to employees and Eligible Directors 7.7 million restricted AB Holding Units (including 5.4 million granted in December for 2019 year-end awards to employees). We used AB Holding Units repurchased during the periods and newly-issued AB Holding Units to fund these awards.
During 2020 and 2019, AB Holding issued 5,182 and 0.5 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $0.1 million and $11.5 million, respectively, received from award recipients as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.
Foreign Currency Translation and Transactions
Assets and liabilities of foreign subsidiaries are translated from functional currencies into United States dollars (“US$”) at exchange rates in effect at the balance sheet dates, and related revenues and expenses are translated into US$ at average exchange rates in effect during each period. Net foreign currency gains and losses resulting from the translation of assets and liabilities of foreign operations into US$ are reported as a separate component of other comprehensive income in the consolidated statements of comprehensive income. Net foreign currency transaction losses were $3.3 million, $2.0 million and $0.1 million for 2020, 2019 and 2018, respectively, and are reported in general and administrative expenses on the consolidated statements of income.
Cash Distributions
AB is required to distribute all of its Available Cash Flow, as defined in the AB Partnership Agreement, to its Unitholders and to the General Partner. Available Cash Flow can be summarized as the cash flow received by AB from operations minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB for use in its business, or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow.
Typically, Available Cash Flow has been the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow will be based on adjusted diluted net income per unit, unless management determines, with the concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation.
On February 11, 2021, the General Partner declared a distribution of $1.05 per AB Unit, representing a distribution of Available Cash Flow for the three months ended December 31, 2020. The General Partner, as a result of its 1% general partnership interest, is entitled to receive 1% of each distribution. The distribution is payable on March 4, 2021 to holders of record on February 22, 2021.
78

Total cash distributions per Unit paid to the General Partner and Unitholders during 2020, 2019 and 2018 were $3.08, $2.60 and $3.16, respectively.
Comprehensive Income
We report all changes in comprehensive income in the consolidated statements of comprehensive income. Comprehensive income includes net income, as well as foreign currency translation adjustments, actuarial gains (losses) and prior service cost. Deferred taxes were not recognized on foreign currency translation adjustments for foreign subsidiaries which had earnings that were considered permanently invested outside the United States.
3. Revenue Recognition

Revenues for the years ended December 31, 2020, 2019 and 2018 consisted of the following:
Year Ended December 31,
202020192018
(in thousands)
Subject to contracts with customers:
    Investment advisory and services fees
        Base fees$2,462,810 $2,372,429 $2,244,068 
        Performance-based fees132,626 99,615 118,143 
    Bernstein research services459,744 407,911 439,432 
    Distribution revenues
        All-in-management fees331,268 291,999 254,477 
        12b-1 fees75,973 80,268 87,166 
        Other122,540 82,776 76,919 
    Other revenues
        Shareholder servicing fees82,317 77,394 75,974 
        Other21,240 17,924 19,211 
3,688,518 3,430,316 3,315,390 
Not subject to contracts with customers:
    Dividend and interest income, net of interest expense35,273 47,216 45,827 
    Investment (losses) gains(16,401)38,659 2,653 
    Other revenues1,146 2,241 3,491 
20,018 88,116 51,971 
Total net revenues$3,708,536 $3,518,432 $3,367,361 
79


4. 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 year. Diluted net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the total of the diluted weighted average number of limited partnership units outstanding for each year.
Year Ended December 31,
202020192018
(in thousands, except per unit amounts)
Net income attributable to AB Unitholders$865,952 $752,042 $757,588 
Weighted average units outstanding—basic269,058 268,075 269,236 
Dilutive effect of compensatory options to buy AB Holding Units27 44 251 
Weighted average units outstanding—diluted269,085 268,119 269,487 
Basic net income per AB Unit$3.19 $2.78 $2.79 
Diluted net income per AB Unit$3.19 $2.78 $2.78 
Years Ended December 31,
202020192018
Anti-dilutive options excluded from diluted net income29,056 29,056 49,784 

5. Cash and Securities Segregated Under Federal Regulations and Other Requirements
As of December 31, 2020 and 2019, $1.8 billion and $1.1 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.
6. Investments
Investments consist of:
December 31,
20202019
(in thousands)
Equity securities:
Long-term incentive compensation-related$34,351 $36,665 
Seed capital75,766 70,464 
Other55,439 73,202 
Exchange-traded options7,527 6,931 
Investments in limited partnership hedge funds:
Long-term incentive compensation-related25,762 14,237 
Seed capital16,646 33,124 
Time deposits18,602 18,281 
Other19,282 13,890 
Total investments$253,375 $266,794 
Total investments related to long-term incentive compensation obligations of $60.1 million and $50.9 million as of December 31, 2020 and 2019, 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
80

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 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 trading investments are equity and fixed income products, primarily in the form of separately-managed account portfolios, U.S. mutual funds, Luxembourg funds, Japanese investment trust management funds or Delaware business trusts. We also may 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 15, Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidated. As of December 31, 2020 and 2019, our total seed capital investments were $310.3 million and $358.1 million, respectively. Seed capital investments in unconsolidated company-sponsored investment funds are valued using published net asset values or non-published net asset values if they are not listed on an active exchange but have net asset values that are comparable to funds with published net asset values and have no redemption restrictions.
In addition, we also have long positions in corporate equities and long exchange-traded options traded through our options desk.
The portion of unrealized gains (losses) related to equity securities, as defined by ASC 321-10, held as of December 31, 2020 and 2019 were as follows:
December 31,
20202019
(in thousands)
Net gain (losses) recognized during the period$17,927 $31,890 
Less: net gains recognized during the period on equity securities sold during the period27,357 18,138 
Unrealized gains (losses) recognized during the period on equity securities held$(9,430)$13,752 
7. Derivative Instruments
See Note 15, Consolidated Company-Sponsored Investment Funds, for disclosure of derivative instruments held by our consolidated company-sponsored investment funds.
We enter into various futures, forwards, options and swaps to economically hedge certain seed capital investments. Also, we have currency forwards that help us to economically hedge certain balance sheet exposures. In addition, our options desk trades long and short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging.
81

The notional value, fair value and gains and losses recognized in investment gains (losses) as of December 31, 2020 and 2019 for derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below) not designated as hedging instruments were as follows:
Notional
Value
Derivative
Assets
Derivative
Liabilities
Gains
(Losses)
(in thousands)
December 31, 2020
Exchange-traded futures$142,886 $118 $1,834 $(15,743)
Currency forwards63,906 8,576 8,451 (1,779)
Interest rate swaps60,997 2,043 2,955 (347)
Credit default swaps167,649 10,910 13,304 (104)
Total return swaps52,061 94 1,847 (15,242)
Option swaps2,486 2,146 (2,374)
Total derivatives$489,985 $21,741 $30,537 $(35,589)
December 31, 2019
Exchange-traded futures$171,112 $939 $871 $(10,840)
Currency forwards60,809 8,545 8,633 738 
Interest rate swaps92,756 1,746 2,254 (616)
Credit default swaps168,303 2,151 5,611 (6,413)
Total return swaps91,201 110 1,764 (21,164)
Option swaps354 126 (126)
Total derivatives$584,535 $13,491 $19,259 $(38,421)
As of December 31, 2020 and 2019, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our consolidated statements of financial condition. Gains and losses on derivative instruments are reported in investment gains (losses) on the consolidated statements of income.
We may be exposed to credit-related losses in the event of non-performance 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 December 31, 2020 and 2019, we held $0.4 million and $0.3 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our consolidated statements of financial condition.
Although notional amount is the most commonly used measure of volume in the derivatives market, it is not used as a measure of credit risk. Generally, the current credit exposure of our derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received. A derivative with positive value (a derivative asset) indicates existence of credit risk because the counterparty would owe us if the contract were closed. Alternatively, a derivative contract with negative value (a derivative liability) indicates we would owe money to the counterparty if the contract were closed. Generally, if there is more than one derivative transaction with a single counterparty, a master netting arrangement exists with respect to derivative transactions with that counterparty to provide for aggregate net settlement.
Certain of our standardized contracts for over-the-counter derivative transactions (“ISDA Master Agreements”) contain credit risk related contingent provisions pertaining to each counterparty's credit rating. In some ISDA Master Agreements, if the counterparty’s credit rating, or in some agreements, our AUM, falls below a specified threshold, either a default or a termination event permitting the counterparty to terminate the ISDA Master Agreement would be triggered. In all agreements that provide for collateralization, various levels of collateralization of net liability positions are applicable, depending on the credit rating of the counterparty. As of December 31, 2020 and 2019, we delivered $6.4 million and $4.3 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our consolidated statements of financial condition.
As of December 31, 2020 and 2019, we held $7.5 million and $6.9 million, respectively, of long exchange-traded equity options, which are included in other investments on our consolidated statements of financial condition. In addition, as of December 31, 2020 and 2019, we held $12.5 million and $12.3 million, respectively, of short exchange-traded equity options,
82

which are included in securities sold not yet purchased on our consolidated statements of financial condition. Our options desk provides our clients with equity derivative strategies and execution for exchange-traded options on single stocks, exchange-traded funds and indices. While predominately agency-based, the options desk may commit capital to facilitate a client's transaction. Our options desk hedges the risk associated with this activity by taking offsetting positions in equities. For the years ended December 31, 2020 and 2019 we recognized $11.9 million and $22.2 million, respectively, of losses on equity options activity. These losses are recognized in investment gains (losses) in the consolidated statements of income.
8. Offsetting Assets and Liabilities
See Note 15, Consolidated Company-Sponsored Investment Funds, for disclosure of offsetting assets and liabilities of our consolidated company-sponsored investment funds.
Offsetting of assets as of December 31, 2020 and 2019 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 Collateral
Cash Collateral
Received
Net
Amount
(in thousands)
December 31, 2020
Securities borrowed$7,808 $$7,808 $(7,344)$$464 
Derivatives$21,741 $$21,741 $$(380)$21,361 
Long exchange-traded options$7,527 $$7,527 $$$7,527 
December 31, 2019
Securities borrowed$38,993 $$38,993 $(38,993)$$
Derivatives$13,491 $$13,491 $$(251)$13,240 
Long exchange-traded options$6,931 $$6,931 $$$6,931 
Offsetting of liabilities as of December 31, 2020 and 2019 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 Collateral
Cash Collateral
Pledged
Net
Amount
(in thousands)
December 31, 2020
Derivatives$30,537 $$30,537 $$(6,374)$24,163 
Short exchange-traded options$12,486 $$12,486 $$$12,486 
December 31, 2019
Derivatives$19,259 $$19,259 $$(4,276)$14,983 
Short exchange-traded options$12,348 $$12,348 $$$12,348 
Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty.
83

9. Fair Value
See Note 15, Consolidated Company-Sponsored Investment Funds, for disclosure of fair value of our consolidated company-sponsored investment funds.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows:
Level 1—Quoted prices in active markets are available for identical assets or liabilities as of the reported date.
Level 2—Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as of the reported date.
Level 3—Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Valuation of our financial instruments by pricing observability levels as of December 31, 2020 and 2019 was as follows (in thousands):
 Level 1Level 2Level 3
NAV Expedient(1)
OtherTotal
December 31, 2020:
Money markets$130,675 $$$— $— $130,675 
Securities segregated (U.S. Treasury Bills)1,752,906 — — 1,752,906 
Derivatives118 21,623 — — 21,741 
Investments:
      Equity securities147,705 17,565 125 161 — 165,556 
      Long exchange-traded options7,527 — — 7,527 
      Limited partnership hedge
      funds(2)
— — — — 42,408 42,408 
        Time deposits(3)
— — — — 18,602 18,602 
        Other investments7,011 — — — 12,271 19,282 
Total investments162,243 17,565 125 161 73,281 253,375 
Total assets measured at fair value$293,036 $1,792,094 $125 $161 $73,281 $2,158,697 
Securities sold not yet purchased:    
Short equities – corporate$5,305 $$$— $— $5,305 
Short exchange-traded options12,486 — — 12,486 
Derivatives1,834 28,703 — — 30,537 
Contingent payment arrangements27,750 — — 27,750 
Total liabilities measured at fair value$19,625 $28,703 $27,750 $ $ $76,078 
84

 Level 1Level 2Level 3
NAV Expedient(1)
OtherTotal
December 31, 2019:
Money markets$126,401 $$$— $— $126,401 
Securities segregated (U.S. Treasury Bills)1,094,866 — — 1,094,866 
Derivatives939 12,552 — — 13,491 
Investments:
      Equity securities170,946 8,952 119 314 — 180,331 
      Long exchange-traded options6,931 — — 6,931 
      Limited partnership hedge
      funds(2)
— — — 47,361 47,361 
        Time deposits(3)
— — — — 18,281 18,281 
        Other investments5,883 — — — 8,007 13,890 
Total investments183,760 8,952 119 314 73,649 266,794 
Total assets measured at fair value$311,100 $1,116,370 $119 $314 $73,649 $1,501,552 
Securities sold not yet purchased:    
Short equities – corporate$17,809 $$$— $— $17,809 
Short exchange-traded options12,348 — — 12,348 
Derivatives871 18,388 — — 19,259 
Contingent payment arrangements22,911 — — 22,911 
Total liabilities measured at fair value$31,028 $18,388 $22,911 $ $ $72,327 
(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 ($2.1 million and $1.0 million as of December 31, 2020 and 2019, respectively), (ii) investments in start-up companies that do not have a readily available fair value (these investments were $0.3 million and $0.9 million as of December 31, 2020 and 2019, respectively), (iii) investments in equity method investees that are not measured at fair value in accordance with GAAP ($6.5 million and $2.9 million as of December 31, 2020 and 2019, respectively), and (iv) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($3.3 million and $3.2 million as of December 31, 2020 and 2019, respectively).
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.
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
85

and total return swaps with counterparties that are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.
Options: We hold 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.
Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.
During the years ended December 31, 2020 and 2019, there were 0 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 equity securities, is as follows:
December 31, 2020December 31, 2019
(in thousands)
Balance as of beginning of period$119 $142 
Purchases
Sales
Realized gains (losses), net
Unrealized (losses) gains, net(23)
Balance as of end of period$125 $119 
Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the consolidated statements of income.
As part of acquisitions made by the Company, we may enter into 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:
December 31, 2020December 31, 2019
(in thousands)
Balance as of beginning of period$22,911 $7,336 
Addition4,400 17,384 
Accretion3,105 2,542 
Changes in estimates(1,366)(3,051)
Payments(1,300)(1,300)
Balance as of end of period$27,750 $22,911 
The liabilities were valued using expected revenue growth rates and discount rates. The expected revenue growth rates range from 0.7% to 50.0%, with a weighted average of 4.9%, calculated using cumulative revenues and range of revenue growth rates (excluding revenue growth from additional AUM contributed from existing clients). The discount rates ranged from 1.9% to 10.4%, with a weighted average of 8.0%, calculated using total contingent liabilities and range of discount rates.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We did not have any material assets or liabilities that were measured at fair value for impairment on a nonrecurring basis during the years ended December 31, 2020 or 2019.
86

10. Furniture, Equipment and Leasehold Improvements, Net
Furniture, equipment and leasehold improvements, net consist of:
December 31,
20202019
(in thousands)
Furniture and equipment$556,966 $575,378 
Leasehold improvements284,080 266,365 
841,046 841,743 
Less: Accumulated depreciation and amortization(693,172)(696,492)
Furniture, equipment and leasehold improvements, net$147,874 $145,251 
Depreciation and amortization expense on furniture, equipment and leasehold improvements were $39.2 million, $38.1 million and $34.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.
11. Deferred Sales Commissions, Net

The components of deferred sales commissions, net for the years ended December 31, 2020 and 2019 were as follows (excluding amounts related to fully amortized deferred sales commissions):
December 31,
20202019
(in thousands)
Carrying amount of deferred sales commissions$116,484 $68,371 
Less: Accumulated amortization(30,001)(19,348)
Cumulative CDSC received(22,417)(12,727)
Deferred sales commissions, net$64,066 $36,296 

Amortization expense was $27.4 million, $15.0 million and $21.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Estimated future amortization expense related to the December 31, 2020 net asset balance, assuming no additional CDSC is received in future periods, is as follows (in thousands):
2021$28,980 
202223,631 
202310,787 
2024668 
$64,066 

87

12. Debt
AB has an $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 December 31, 2020, we were in compliance with these covenants. The Credit Facility also includes customary events of default (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the Credit Facility would automatically become immediately due and payable, and the lender’s commitments automatically would terminate.
Amounts under the Credit Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. Voluntary prepayments and commitment reductions requested by us are permitted at any time without a fee (other than customary breakage costs relating to the prepayment of any drawn loans) upon proper notice and subject to a minimum dollar requirement. Borrowings under the Credit Facility bear interest at a rate per annum, which will be, at our option, a rate equal to an applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indices: London Interbank Offered Rate; a floating base rate; or the Federal Funds rate.
As of December 31, 2020 and 2019, we had 0 amounts outstanding under the Credit Facility. During 2020 and 2019, we did 0t draw upon the Credit Facility.
AB also has a $900.0 million committed, unsecured senior credit facility (“EQH Facility”) with EQH. The EQH Facility matures on November 4, 2024 and is available for AB's general business purposes. Borrowings under the EQH Facility generally bear interest at a rate per annum based on prevailing overnight commercial paper rates.
The EQH Facility contains affirmative, negative and financial covenants which are substantially similar to those in AB’s committed bank facilities. The EQH Facility also includes customary events of default substantially similar to those in AB’s committed bank facilities, including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or the lender’s commitment may be terminated.
Amounts under the EQH Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. AB or EQH may reduce or terminate the commitment at any time without penalty upon proper notice. EQH also may terminate the facility immediately upon a change of control of our general partner.
As of December 31, 2020 and 2019, AB had $675.0 million and $560.0 million outstanding under the EQH Facility with interest rates of approximately 0.2% and 1.6%, respectively. Average daily borrowings on the EQH Facility during 2020 and for the 57 days it was available in 2019 were $470.8 million and $358.6 million, respectively, with weighted average interest rates of approximately 0.5% and 1.6%, respectively.
In addition to the EQH Facility, on September 1, 2020, AB established a new $300.0 million uncommitted, unsecured senior credit facility (“EQH Uncommitted Facility”) with EQH. The EQH Uncommitted Facility matures on September 1, 2024 and is available for AB's general business purposes. Borrowings under the EQH Unsecured Facility generally bear interest at a rate per annum based on prevailing overnight commercial paper rates. The EQH Uncommitted Facility contains affirmative, negative and financial covenants which are substantially similar to those in the EQH Facility. As of December 31, 2020, we had 0 amounts outstanding on the EQH Uncommitted Facility and have 0t drawn on it since its inception.
As of both December 31, 2020 and 2019, we had 0 commercial paper outstanding. The commercial paper is short term in nature, and as such, recorded value is estimated