What changed in this filing

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Item 1A. Risk Factors

2024-02-09 compared with 2023-02-10 · 43 added, 66 removed, 311 unchanged (26% of the section changed)

9 unchanged sentences

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 recovered to new highs in 2021 following unprecedented, coordinated monetary and fiscal policy support and the approval of vaccines to help remedy the global pandemic.

However, significant supply chain challenges, energy shortages and labor shortages, brought about by COVID-19 and significantly exacerbated by the conflict in Ukraine, contributed to heightened global inflationary pressures, which resulted in sizable interest rate increases and associated market volatility in 2022.

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.

For example, the heightened global inflationary pressures that resulted in sizable interest rate increases and associated market volatility in 2022 and 2023.

We recognize that, due to continued uncertainty associated with the global response to heightened global inflationary pressures, markets may remain volatile and, accordingly, there remains risk of a significant reduction in our revenues and net income in future periods.

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 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 (such as the ongoing conflict in Ukraine) 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.

War, such as the ongoing conflict in Ukraine and the middle east, or civil disturbance, acts of terrorism (whether foreign or domestic), health crises (such as the COVID-19 pandemic), as well as other incidents that interrupt the expected course of events, such as natural disasters, 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.

Also, 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.

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

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2023 Annual Report 17

• Our Investment Performance .

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Our competitive environment has become increasingly difficult, 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 as of mid-2022 deteriorated from prior-year levels, with 40% of active managers outperforming their passive benchmarks for the 12 months ended June 30, 2022 (latest data available), compared to 47% for the prior 12-month period.

stock active funds fared better than non-U.S.

with 45% of U.S.

active stock funds outperforming benchmarks, as compared with 23% for non-U.S.

Performance of actively managed bond funds decreased sharply in 2022, with just 29% outperforming benchmarks, representing a 44% decline compared to the prior-year period.

Flows into actively managed funds deteriorated industry-wide in 2022, with U.S.

industry-wide active mutual fund outflows of $974 billion in 2022, contrasted with inflows of $148 billion in 2021.

In the most recent period this trend reversed, as active performance relative to benchmarks improved, with 57% of active managers outperforming their passive benchmarks for the 12 months ended June 30, 2023 (latest data available), compared to 43% for the prior 12-month period.

57% of active US stock funds outperformed, up from 48% the prior year, while 63% of active non-U.S.

stock funds outperformed their benchmarks, up from just 33% the prior period.

Performance of actively managed bond funds also improved in 2023, with 55% outperforming benchmarks, up from just 30% in the prior-year period.

Flows into actively managed funds substantially improved industry-wide in 2023, with U.S.

industry-wide active mutual fund inflows of $549 billion in 2023, compared with outflows of $931 billion in 2022.

The improvement was led by $927 billion in inflows to Money Market funds, as investors responded to the higher interest rate environment.

Active fixed income U.S.

mutual funds experienced outflows of $482 billion in 2022, compared to inflows of $368 billion in 2021.

Furthermore, active equity U.S.

mutual fund outflows accelerated to $432 billion in 2022, compared to outflows of $191 billion in 2021.

By contrast, demand for passive strategies in the U.S.

mutual funds also experienced improvement, with inflows of $16 billion in 2023, compared with outflows of $465 billion in 2022.

Active equity U.S.

mutual fund outflows were $246 billion in 2023, compared to outflows of $235 billion in 2022.

Demand for passive strategies in the U.S.

continued to grow, though at a reduced rate from the prior year, as industry-wide total passive mutual fund net inflows of $489 billion in 2023 compared to $540 billion in 2022.

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The significant shift from active services to passive services adversely affects Bernstein Research Services revenues as well.

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.

Institutional global market trading volumes continue to be pressured 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.

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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.

2022 Annual Report 19

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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.

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Our performance-based fees were $144.9 million, $145.2 million and $245.1 million in 2023, 2022 and 2021, 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 Brexit.

Electronic, or “low-touch,” trading represents a significant percentage of buy-side trading activity and typically produces transaction fees that are significantly lower than traditional full-service fee rates.

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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.

Lastly, extensive changes proposed by the SEC to the equity market structure, including Regulation Best Execution, the proposed Order Competition Rule and proposed changes to Regulation NMA establishing, among other things, minimum pricing increments and required disclosures by larger broker-dealers and specified trading platforms, if adopted as proposed, could substantially increase the cost of conducting our buy-side and broker-dealer operations and, possibly, adversely impact trade execution quality.

We discuss the risks associated with Brexit below in "Legal and Regulatory-related Risks" in this Item 1A.

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Lastly, extensive changes proposed by the SEC to the equity market structure, including Regulation Best Execution, the proposed Order Competition Rule, the proposed volume-based exchange transaction pricing rule and proposed changes to Regulation NMS establishing, among other things, minimum pricing increments and required disclosures by larger broker-dealers and specified trading platforms, if adopted as proposed, could substantially increase the cost of conducting our buy-side and broker-dealer operations and, possibly, adversely impact trade execution quality.

2023 Annual Report 19

We may be unable to develop new products and services, and the development of new products and services may expose us to reputational harm, additional costs or operational risk.

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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.

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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.

We have established a Valuation Committee and sub-committees, consisting of senior officers and employees, which oversee a consistent framework of pricing controls and valuation processes for the firm and each of its advisory affiliates.

If market quotations for a security are not readily available, the Valuation Committee determines a fair value for the security.

2022 Annual Report 21

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.

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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.

We use quantitative and systematic models in a variety of our investment services, usually in combination with fundamental research.

These models are developed by senior quantitative professionals and typically are implemented by IT professionals.

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

We have established our corporate headquarters in and have relocated 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 adversely affect AB’s ability to motivate and retain current employees.

Further, significant managerial and operational challenges could arise if the firm encounters more difficulty than expected in hiring qualified employees to help staff our Nashville headquarters.

We have established our corporate headquarters in and have relocated a large number of the positions jobs previously located in the New York metropolitan area to Nashville, Tennessee (for additional information, see “Relocation Strategy” in Item 7 ).

Although the ongoing impact on AB from this process is not yet known, the uncertainty created by these circumstances could adversely affect AB’s ability to motivate and retain current employees and hire qualified employees in our Nashville headquarters.

Additionally, our estimates for both the transition costs and the corresponding expense savings relating to our headquarters relocation 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 expenses and operating income could be adversely affected.

2023 Annual Report 21

Employee misconduct, which can be difficult to detect and deter, could harm us by impairing our ability to attract and retain clients and subjecting us to significant regulatory scrutiny, legal liability and reputational harm.

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Misconduct by employees could involve the improper use or disclosure of confidential information, which could result in legal action, regulatory sanctions, and reputational or financial harm.

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fraud, payment or solicitation of bribes and other deceptive practices or other misconduct by our employees could similarly subject us to regulatory scrutiny, legal liability and reputational damage.

Further, fraud, payment or solicitation of bribes and other deceptive practices or other misconduct by our employees could similarly subject us to regulatory scrutiny, legal liability and reputational damage.

Operational, Technology and Cyber-related Risks

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Furthermore, although we maintain a robust cyber security infrastructure and incident preparedness strategy, which we test frequently, 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.

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Any such failure could cause significant harm to our reputation and result in litigation, regulatory scrutiny and/or significant remediation costs, see "Cybersecurity" in Item 1C .

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Climate change and other unpredictable events, including 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:

War, terrorist attack, political unrest, power failure, climate change, natural disaster and rapid spread of infectious disease (such as the 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;

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And, climate change regulation may affect the prospects of companies and other entities whose securities in which we invest, or our willingness to continue to invest in such securities.

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 Nashville, Tennessee, New York City, London, England, and Hong Kong, may be adversely affected by a disruption in the infrastructure that supports our operations and the communities in which they are located.

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 Nashville, Tennessee, New York City, San Antonio, Texas, London, England, Hong Kong, and India, 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.

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If we are unable to effectively manage the risks associated with such third-party relationships, we may suffer fines, disciplinary action and reputational damage.

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2023 Annual Report 23

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

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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.

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In recent years, global regulators have substantially increased their oversight of financial services.

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For example, there has been increasing regulatory focus on ESG-related practices by investment managers.

The SEC is poised in 2023 to issue a rule enhancing and standardizing climate disclosures by U.S.

In 2023, the State of California passed two climate disclosure laws that will impose significant reporting obligations on companies doing business in California.

Additionally, the SEC is poised in 2024 to issue a rule enhancing and standardizing climate disclosures by U.S.

public companies, including investment managers.

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This could lead to significant declines in our investment advisory and services fees and revenues earned from these funds.

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.

For example, following the Brexit referendum in June 2016, the U.K.'s departure from 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.

We are 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.

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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

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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.

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To preserve AB Holding's status as a PTP that is taxed as a partnership for federal income tax purposes, AB Holding must 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” includes any business

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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% (by value) of its total assets in, the new line of business.

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We cannot predict the outcome of such legislative proposals.

AB management continues to monitor and assess how any new legislation could affect AB.

Each of AB's non-U.S.

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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.

2022 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.

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In furtherance of the foregoing, a transferee of a partnership unit is required to withhold a tax equal to 10% of the amount realized on any transfer of such a partnership unit unless an exception applies.

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Distributions by a PTP to a non-U.S.

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A broker may not rely on such a certification if it has actual knowledge that the certification is incorrect or unreliable.

As a PTP, beginning on January 1, 2023, AB Holding may be liable for any under-withholding by a broker that relies on a qualified notice for which we failed to make a reasonable estimate of the amounts required for determining the applicability of the 10% exception.

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Unresolved Staff Comments

Neither AB nor AB Holding has unresolved comments from the staff of the SEC to report.

As a PTP, AB Holding may be liable for any under-withholding by a broker that relies on a qualified notice for which we failed to make a reasonable estimate of the amounts required for determining the applicability of the 10% exception.

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