What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-02-11 compared with 2021-02-11 · 54 added, 50 removed, 318 unchanged (25% of the section changed)

8 unchanged sentences

• 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.

Our AUM remain sensitive to the volatility associated with global financial market conditions.

For example, 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 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.

Conditions affecting the general economy, including political, social or economic instability at the local, regional or global level, such as the U.S.

civil unrest centered around racial inequity experienced in 2020 or 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.

1 unchanged sentence

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.

These circumstances have caused, and may continue to cause, significant economic disruption and high levels of unemployment, as well as inflationary pressures, which could 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, significant market volatility and uncertainty, and reductions in the availability of margin financing, can significantly limit 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 of 2020 following the stimulus programs announced by the U.S.

Federal Reserve and U.S.

6 unchanged sentences

Loss of, or decreases in, AUM reduces our investment advisory and services fees and revenues.

AllianceBernstein

• 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

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.

9 unchanged sentences

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).

Active performance relative to benchmarks as of mid-2021 remained mixed, with 47% of active managers outperforming their passive benchmarks for the 12 months ended June 30, 2021 (latest data available).

stock active funds fared better with 59% outperforming benchmarks, while 40% 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.

large-cap stock active funds outperformed.

Actively-managed bond funds generally performed well in 2021, with intermediate core, corporate and high yield funds each generally outperforming benchmarks.

Flows into actively-managed funds improved industry-wide in 2021, with U.S.

industry-wide active mutual fund flows rebounding to inflows of $217 billion in 2021, contrasted with $196 billion of outflows in 2020.

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.

mutual fund inflows accelerated to $366 billion in 2021, compared to $246 billion in 2020.

Furthermore, active equity U.S.

mutual fund outflows decelerated to $198 billion in 2021, compared to outflows of $338 billion in 2020.

However, the improvement in active fund flows was surpassed by increased demand for passive strategies in the U.S., as industry-wide total passive mutual net inflows increased to $918 billion in 2021 from $361 billion in 2020.

In this environment, organic growth through 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.

Institutional global market trading volumes continue to be pressured (notwithstanding the heightened market volatility and trading volume predominantly relating to COVID-19 in the first half of 2020) 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.

2 unchanged sentences

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.

EQH 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 it could have a material adverse effect on our business, results of operations and/or financial condition.

EQH (our parent company) and its subsidiaries constitute our largest client.

Our EQH affiliates represented approximately 17% of our AUM as of December 31, 2021, and we earned approximately 3% of our net revenues from services we provided to them in 2021.

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.

Our related investment management agreements are terminable at any time or on short notice by either party, and EQH is not 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.

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.

2021 Annual Report 19

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.

21 unchanged sentences

Our performance-based fees were $245.1 million, $132.6 million and $99.6 million in 2021, 2020 and 2019, 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

and charged by other brokers for brokerage services have historically experienced price pressure, and we expect these trends to continue.

In addition, fee rates we charge and charged by other brokers for brokerage services have historically experienced price pressure, and we expect these trends to continue.

Also, while increases in transaction volume and market share often can offset decreases in rates, this may not continue.

3 unchanged sentences

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.

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

AllianceBernstein

Fluctuations in the exchange rates between the U.S.

36 unchanged sentences

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.

2021 Annual Report 21

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.

4 unchanged sentences

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.

The quantitative and systematic models we use in certain of our investment services may contain errors, resulting in imprecise risk assessments and unintended output.

We use quantitative and systematic 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.

12 unchanged sentences

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.

Certain of these professionals 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.

As a result, we remain vigilant about aligning our cost structure (including headcount) with our revenue base.

1 unchanged sentence

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 ).

We have established our corporate headquarters in and expect to relocate a total of approximately 1,250 jobs previously 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.

1 unchanged sentence

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.

If our assumptions turn out to be inaccurate, our expenses and operating income could be adversely affected.

AllianceBernstein

Operational, Technology and Cyber-related Risks

9 unchanged sentences

Also, we could be subject to losses if we fail to properly safeguard sensitive and confidential information.

As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to

our business operations.

As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to our business operations.

Although we take protective measures, our systems still could be vulnerable to cyber attack or other forms of unauthorized access (including computer viruses) that have a security impact, such as an authorized employee or vendor inadvertently or intentionally causing us to release confidential or proprietary information.

14 unchanged sentences

• requiring substantial capital expenditures and operating expenses to remediate damage and restore operations.

2021 Annual Report 23

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.

31 unchanged sentences

Furthermore, our access to credit on reasonable terms is partially dependent on our firm’s credit ratings.

AllianceBernstein

Both Moody’s Investors Service, Inc.

34 unchanged sentences

Our European clients may continue to reduce their research budgets, which could result in a significant decline in our sell-side revenues.

2021 Annual Report 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.

29 unchanged sentences

There is no public trading market for AB Units and we do not anticipate that a public trading market will develop.

Section 7704 of the Internal Revenue Code of 1986, as amended (the “ Code ”), shall be deemed void and shall not be recognized by AB.

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 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.

3 unchanged sentences

Also, we have filed the transfer program as Exhibit 10.07 to this Form 10-K.

AllianceBernstein

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, 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 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.

In order to preserve AB Holding’s status as a 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.

8 unchanged sentences

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 .

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 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 .

Additionally, past or future legislative proposals have been or may be introduced that, if enacted, could have a material adverse effect on us.

We cannot predict the outcome of such legislative proposals.

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.

12 unchanged sentences

federal income tax audits and judicial review of administrative adjustments by the IRS, will be binding on us and our Unitholders.

2021 Annual Report 27

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.

11 unchanged sentences

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.

However, 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 2021-51 for transfers that occur before January 1, 2023, and no withholding will apply until that date.

Under the 1446 Final Regulations, 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.

2 unchanged sentences

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.

Notice 2021-51 suspends these requirements for distributions made before January 1, 2023.

AllianceBernstein

Unresolved Staff Comments

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors