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AllianceBernstein Holding L.P (NYSE:AB)

2014 Citi Asset Management, Broker Dealer & Exchanges Conference Call

March 12, 2014 1:30 P.M.ET

Executives

John Weisenseel – Chief Financial Officer

Jim Gingrich – Chief Operating Officer

Unidentified Analyst

…everybody. Our next presentation is going to be from AllianceBernstein, which as of last night, managed about $458 billion of money across the institution retail private client. The company looks like to be the flow story this turning more favorably, you are seeing a lot of businesses stabilized, which is certainly very encouraging and under of leadership of Mr. Peter Kraus the CEO the firm has undergone a transformation in shifting towards its incremental alternatives as well as right sizing the equity business and also taking down headcount and consolidating real estate, which has resulted improving on margins and then Kraus has mentioned the flows are starting to turn and performance seems to be quite stout generally speaking based on some of the fourth quarter numbers which came out with earnings more recently.

So here from AllianceBernstein’s Mr. Jim Gingrich was a Chief Operating Officer and just on his right is Mr. John Weisenseel, who is a Chief Financial Officer and just on the other side, of John is Andrea Prochniak who heads up the Investor Relations. So everybody thank you so much for coming, I know everyone has busy schedules, so as the [indiscernible] again, trying to keep it again somewhat informal, so hopefully everyone has the chance of fire the question and rather you know [indiscernible] familiar with the story.

So with that let me just dive in. the management has done a really good job of stabilizing the business and performance appears to be strong as its been in quite a while. So when you look out over the next one or two years, maybe you could sort of articulate where you think some of the key flow drivers will be for the franchise?

James A. Gingrich

I like a question that starts with how can a job, we are doing though thank you. And I love this conference it is the most intimate thing I have ever been involved in its perfect. They are

So going forward where are we going get growth, you probably won’t like this answer, because it is – I think we’re are pretty bullish, if we look across the various parts of our business in terms of what we think the future hold. If I start with equities, which for those of you who have been following us has been, perhaps the most challenge part of our business.

I think we would acknowledge that a more traditional and long standing services, despite performing exceptionally well by and large in 2013 are going to continue to need strong performance for another year or two before we really see those pick up, but that said if we look around the rest of the equities business we’re very optimistic about the what the future holds.

As you may know while we’ve brought in new service such as Select, we recently acquired W.P. Stewart, we acquired a company out of Denmark of CPH Capital, all of these this services and have you talked about the more, we think are position extremely well for not just in terms of track record, but in terms of what those services are in the context of what our clients are looking for today and there are many aspects of what we do for example, on small and mid cap services where again client demand is very strong as is our performance and we’re seeing good take up in those areas.

So in terms of equities, there is a lot of places that we look that we’re very optimistic about what the feature is likely to hold. In fixed income, again for those of you who may not be familiar with our fixed income capability, it is global, it is credit oriented, if you think about our flagship product global high income or global high yield, it is very much a – I guess you could characterize that as a go anywhere strategy where on a global basis we move across the best opportunities be they in high yield, be they in emerging market or sovereign debt, be they in mortgage.

we think that it is a very interesting capability set in what the market is likely to hold coming forward. We are paring that with a build out of our capabilities on lets call it the less liquid or illiquid credit space, be that real estate debt, direct middle market lending, infrastructure debt, residential real estate which combined with that platform we’re very excited about. And then more broadly in alternatives when we look at private equity real estate, and the capabilities we built there, long-term equities, our fund-to-funds business those have all been on very solid growth trajectories and we are bullish about what those can hold going forward.

And lastly in terms of multi asset solutions, we have recently brought that together I think into a very powerful business unit that already has some very interesting capabilities and both in terms of volatility management and asset allocation, technical asset allocation, risk overlays and they are also in the process of enhancing point as well. so I know that -- it’s sounds a little bit like we love all our children equally, but we’re actually as we look across the various parts of our business, we think we are well positioned to see the types of trend when you talk about it from build accelerate going forward.

Unidentified Analyst

[indiscernible], one of the things I think coming up this morning has been so the question about rotation and it seems like it’s a bifurcated asset or retail gas institutional note, maybe you could talk a little bit about what you are seeing with your client base, your day would certainly suggest having some stability, but what you have seen and maybe if you could bifurcate that between sort of U.S. non-U.S. in your asset?

James A. Gingrich

Well, I think institutional what you suggested is the appropriate response, in retail hence with the green institutional, I think that we need to change our framework of how we think about the world in a sense of fixed income that are equity, but what people are looking for broadly is increasingly unconstrained, benchmark agnostic, risk managed high active share. Those types of words as appose to looking for a large cap growth manager or a core fixed income manager.

And so within the fix income world, I think it what we are seeing is a migration towards the types of strategies that I described earlier and the equities world you are right, I think that the flows would suggest and then pretty much across the board additional risk taking towards equities, but again I think it is towards the more active, benchmark agnostic, risk controlled, help me – give me equity life exposure but at lower volatility those types of solution that suppose to maybe the way we had traditionally thought about the world.

Unidentified Analyst

Early you mentioned in your commentary you can think of Stewart and towards the other things as well, so two part question wanted to maybe just give us a little update of how the integration of that going, or the acceptance of that is going and then secondly when you step back and think about M&A more generally how you’re thinking about the footprint here today?

James A. Gingrich

I just bring your tables at standard track. But I think in terms of integration because it’s one thing to find something that makes sense for both sides this is the business for culture is really important but people business so all of those things are forefront in our minds we don’t want to ever firm that it’s spoke and I we want to operate as the single firm, single culture and that is just is four months are taking as we look at any particular situation and you are exactly right I mean and the question is, is how does it work post acquisition I think the proof stay in some ways are in the things that we’ve already done.

As you may know we bought a fund of hedge fund it had several components some of which weren’t run off, but the fund of hedge funds business is just over $3 billion but today it’s somewhere between $7 million and $8 million okay and that’s in a world where a fund of funds had their struggle. We purchased the Select business a couple of years ago that had at the time a little over a $1 billion at the end of the year that was on the order of $10 billion and growing by rapidly and that gross is continued in both cases both the Fund of Funds business and the Select business into the first part of this year.

And we are very happy with how those investors that integrated into our company. In terms of W.P. Stewart work that you’ll have close I happen to be with Jim Kearney, I think it was last night in fact the I couldn’t be more thrilled with how that integration is going both in terms of how they fit in culturally and the commercial activity that’s already taken place and what is two and half months in that deal close.

The CPH Capital that should close sometime in the near future, and we are already well under way with the same type of activities that we had with W.P. Stewart and the other acquisitions and again we think they are just – they are great group of the people, they fit in extremely well, they additive, they are customary to what we v do and we think we can bring something to them and we are very confident they can bring something to that.

John C. Weisenseel

John just adding to Jim’s comment, with all free of these, whether we are talking about select equity, [indiscernible] CPH or the WPS; These were firms that had a couple of billion in the U.S., excellent track records as far as the best performance, but for one reason another were lacking distribution, whether they are relying on external bid parties or in-house and that’s really where we can add the value again in terms of plugging in it our distribution engine and as Jim mentioned, so far these things have gotten off to a nice start?

James A. Gingrich

And I guess what the other thing I would say we have also brought in teams. We’ve built our real estate private equity team, we’ve built real estate debt team and as I indicated earlier we are doing a number of things in other parts of the alternative credit space. And again, I’m very proud of our organization, I think we’ve been very successful both in terms of finding people who fit in really well culturally, who are very bought into the vale set the firm as a whole and we’ve been very pleased with how they have developed commercially.

So in terms of the broader question, again and those things are very hard to predict, as I said you got to find to right fit, where we think here to say commercial opportunity and there is a bit in all of the people dimensions I spoke about and those things are very hard to say when those things we’re going to make sense, but the fact is that that we’re pleased that really talented people want to be part of the AllianceBernstein, whether they are brought in fellow, brought in as a team or having come in through in these – case as relatively small acquisition.

Unidentified Analyst

So when step back here when you think about your footprint and we make it a number of years some of it [indiscernible] in terms of run off, but then also how you responded to [indiscernible] deal with that. Of course step back and look at the foot prints today are there any obvious holds in your opinion or is down like sort of executing the plans you have and generate you are going to grow.

James A. Gingrich

There are opportunities with the margins but overwhelmingly it is a question of us executing against what has largely now been heat up, we are a little bit paranoid, we always think that there is opportunities for improvement, we always look for opportunities to compliment our existing capabilities, but we think we have our cost structure basically where we wanted given our size today, we’ve made some – all these things I just talked about our investments on our part and its really question of us now acting and executing against that opportunities, so.

Unidentified Analyst

When you in my mind that sounds like a lot of a high products coming into door, could you mention a little bit in terms of the incremental growth of the business what the implications are for the fee rates and then can you translate that question would how do you think about the margins – what the key drivers would be.

James A. Gingrich

You are correct that a lot of those services are higher fee rates, we though do try and run our business in a way that that each component of the business is if you will pulling us on weight and while there are, if you would expect differences in operating margin across business, I am not sure that I could tell you that that while we may see some upward movements in our average fee rate going forward given some of the dynamics that you pointed out, I don’t really think that that is necessarily key to us improving our margins going forward.

The biggest opportunity that we have is this is a very high operating leverage business that we are all part of and we have a footprint in place that we don’t – as I said early don’t think we need to grow, so as we grow revenue we would anticipate that we would see very high operating leverage on a go forward basis and that’s how we are going to improve margin and whether that plays out more on the equity side or alternative side, on the fixed income side, private client retail and institutional, I don’t think that we are particularly sensitive to in terms of what the economic outcomes, will be.

John C. Weisenseel

I think you we’ve done a great job – of taking cost out of the business that reduced the head count, down from 40% from the peak back in 2007, the real estate costs are down by more than 40% as well. And just since 2011 it was taken out $125 million in non-comp costs out of the business, more than half of that is real estate, but the rest of it is across-the-board, as well as, as far as lower technology expenses, professional fees, T&E, we’ve got a seven full points to the margin expense since 2011 as well.

So I think where we are right now is, we are very much priced properly for the best interest that we have. But also as Jim is mentioning to accommodate growth on the upside as well thereby you’ll see the operating leverage and high incremental margins going forward on the upside.

Unidentified Analyst

I have a question, could you talk a little about the private client group and what you’re looking to do in terms of adding head count there, their acquisition opportunities within that, [indiscernible]?

James A. Gingrich

Yes. As you may know, we’ve done a lot in the past several years in terms of evolving if you will kind of our standard products that in private client. I don’t know if we’re completely done in that regard which you never really stop, but we’ve done, I think a heck of a job in terms of on that score. The other interesting thing that we have, as we have developed capabilities in, say, a private equity real estate business or a real estate direct lending business and the like, those become additive to if you will kind of that standard offer and have created opportunities for us to grow the business.

I think we have in terms of growth two issues, one is that we have a lot of relatively new FAs in that business, so there is a maturing process, and there is a process of if you will effectively improving the productivity of that group. And then, then you are depended on, on being able to grow that FA base over time, and there is a pace that which you can grow at, and there is beyond that it starts to get difficult to bring people in, train them and the like.

In terms of acquisitions, I think that’s very unlikely in that business. We – our model is a very unique one. It – we run an integrated architecture, most other models out there are an open architecture system, which we think has real pitfalls and the idea of having role models out there that would still with ours, I’m not aware of many. So, in that business, we’re very much focused on organic growth. we’re very pleased with how the floors have the developing of sequentially over the past 18 months. And hopefully, that that momentum will continue with the thing that we’ve done both in terms of products that in advised model and what we’re doing in terms of, let’s say productivity and normal recruiting.

Unidentified Analyst

All right. I have a follow-up. so, I think it’s advantage in some markets, they have proprietary distribution. Given where you are seeing a lot of FAs to some of the barrel cast the way to that link. Could you talk about your ability to attract those FAs?

James A. Gingrich

Yeah, that’s…

Unidentified Analyst

To your system versus the overall architecture.

James A. Gingrich

I’m not really sure that we’ve had – we’ve had I think mixed results, whenever we’ve gone there out, because we have touched the seasonal document. we had better luck in some ways, finding people who have some degree of capital markets fluency, but haven’t been indoctrinated into that whole warehouse type of framework and growing people in that context. and I don’t see it’s moving in a significant way from that type of model.

Unidentified Analyst

So in content with 4Q, the commentary for the initial pipeline is pretty strong and [indiscernible] was pretty significantly right area. I can talk to what’s driving that, any win in any course?

James A. Gingrich

Well, you’re right. I mean the pipeline is reasonable, never tied we were like. I want to be reasonable, the most interesting development over the course of the last year has been not to much an asset, maybe, it still is way toward fixed income, but there is more alternative products, probably in that pipeline. But in general, there has been upward flat in fees. and to the extent that we were relevant as actually the dollars as opposed to the AUM. it’s been a very nice story there.

In terms of what’s been happening, recently I would say our – again, we’re early in the year, but RFC activity last year was up on 2012. The RFC activity so for this year when we’re to annualize, so it is up very, very, very strong double-digit versus where it was last year. So kind of again, a continued progression in terms of our engagements, one of the things that we hear all the time is, how are you doing with consultancy phase, given what had transpired I was just – it was interesting when I was looking at it the other day. Through February in terms of consultancy initiated RFDs in the U.S. I think till February we had as many RFDs that were consultant initiated we had in all 2012 approximately. And that you might get them, well, well, well ahead of the pace that we had in 2013.

So and if you look at where that activity is, it is across Board in terms of again back to why we love all our children just as much as each other. Probably the biggest increase though has been in equity.

Unidentified Analyst

I’ve got a quick question. Where do you guys put your sense on scale of your selected products? That you have $10 billion that are announced for assets you need to bring in an additional EM, with [indiscernible], on what you guys think about beyond that.

James A. Gingrich

I think the team is probably, the theme finds appropriate, the team is not going to increase. If anything for the debate on [indiscernible] products is where capacity lies, because it’s a very active product. So there is a capacity limit there, but the team size in a way and similarly I think on WPS or W.P. Stewart or CPH while there is a margin down the road, may be some increase I think those teams are all very happy with kind of their current instruction.

Unidentified Analyst

Okay. Talk about unconstrained as the growth opportunity as of many of the earlier presenters here. Can you talk about how the consultant community compares contrasts your offerings with those given metrics?

James A. Gingrich

I think that to a degree the community is wrestling with some of the same communities based on in some ways a framework that is not being challenged, because it doesn’t necessarily dug here completely with where clients are looking – the problem we’re looking to solve. So I’m not sure that I can give you a great answer, because I think the industry is still in search of what the right framework ism, because when you can’t put somebody into a box neatly, it’s the harder thing.

So, I would say that in general, we are still building our reputation and rebuilding our reputation among the consult community as I just indicated. It is they are gaining and increasing appreciation and sort of capabilities that we bring in fixed income arena. You see that in pace and scale of our wins, but also in the types of things that we’re being invited into which in turn is reflected in some of the fee rate evolution that we’ve seen in our pipeline.

And some of the other area alternative credit real estate, what’s were in the earlier date and I think that is very much still a work in progress.

Unidentified Analyst

Transact to private client that business is trending favorably something [indiscernible], since they are enabling some of the drivers remain what looks maybe questions of architecture? In performance drive and part of your business, what you’ve seen in terms of retail engagement and hear from the client base if you look?

James A. Gingrich

Some of it is the market and some of it is, in terms of the market there is certainly more money in motion today, than there has been in a while, which is quite helpful. Our market often times is the entrepreneur work who has had a liquidity event, and those things just weren’t happening with the same frequency, three years ago that they are happening today.

What we’ve done is really and it’s hard to put your figure on just being one thing, but it is a whole host of thing. It is the evolution that we had in the advice model or product set that we offer. It is improve performance, some of it is certainly the market themselves by they are always happier when they have more money end of the year at that beginning.

And we’ve also done something to stabilize our advisor base. So I think we’ve mentioned that last year we didn’t lose a single senior FA and we took it about that that has certainly help as well. So I also think that as I mentioned earlier is that we had increasing success selling or getting involved in situation that are not simply are traditional solution, but

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not simply our traditional dilution, but also for some set of clients where that dilution doesn’t necessarily fit, finding ways to get them engaged on, we call, a targeted solution, but think about it as a single fleet, whether or not that is a European opportunities fund, whether or not that is a real estate product, whether or not that is a securitized asset type of situation or the like. So that has been helpful as well as all the other things what we’ve done.

Unidentified Analyst

[Question Inaudible]

James A. Gingrich

Okay. So the question, if you didn’t hear, was about Japan. Japan is potentially a really interesting call option, if you will. We’ve been in Japan for a long time, have a reasonably large business there. If you are suggesting economics could really be a game changer in terms of how that market evolves and we are blessed with some very strong and client relationships that could be really interesting both in the retail marketplace as well as the institutional marketplace. So we’ll have to see how the market plays about. We think we’ve done the right thing to position ourselves. The team there is very optimistic and we’ll see how it plays out.

Unidentified Analyst

Just stepping back a little bit, thinking about the early adopter of a global footprint and we’ll have to cope against age, complex at large for the very [indiscernible] over the place, so it’ll slowdown a little. Its growth delivered about a very good picture, maybe the cost distribution channels, but how you see the non-U.S. growth profile of – maybe the U.S. growth profile of that premier?

James A. Gingrich

The Asian markets in which we participate and we’re talking about Asia, ex-Japan had very attractive secular growth to date. We don’t really see that changing whether or not the growth will be fast going forward as it’s been in the past. We’ll see, but relative to other parts of the world we’re quite bullish in terms of how that could play out. Again in terms of similar to what we are just talking about Japan, the wild card there is what happens in terms of mutual recognition and the ability to have offshore funds or Hong Kong registered funds available in China.

Those markets we have been fortunate, we’ve been in the markets for long time we could build a stellar presence in bringing our market share in fixed income. We do not have to develop those share in equities or multi-assets type solution. That is the market and the market there is very dynamic as the market this year has moved more towards multi-asset and equity given our overweight to fixed income that has sort of, I also think on a go-forward basis we fully anticipate and we have been anticipating, and we are seeing that, that secular growth and they achieve longer-term opportunity is not unnoticed by others and there has been and will be more competition in those markets.

But in terms of where we sit today, we are generally in a very good place. And fixed income, we have work to do in terms of developing, broadening our fixed income but more importantly better positioning ourselves in equities and multi-assets are both dilution.

Unidentified Analyst

To bring it back to the U.S. please talk a little bit about that. What is the recurring themes we hear as the classification active and passive in Alliance, for instance present in both areas, so how you are you using that to your advantage and your competitions, but …

James A. Gingrich

Well at our heart, we’ve really see ourselves as an active investor. We do have passive assets but buying myself passive asset tend to be in the context of other solutions that we are constructing for Alliance, in our heart we’ve really are an active asset.

Unidentified Analyst

I just have four questions, but a quick ones, whether do you foresee great encouragement from the ETS is at this point of time really or we had a point of exaggeration, so what’s your sense?

James A. Gingrich

Well if you see that’s an interesting, we buy ETS because ETS is a – but ETS if you mean passive versus active, again with the encroachment differs dramatically depending on what part of for the market you are talking about all right.

So again I think we all know that it is a much more significant issue on U.S. large cap and than it is in – U.S. large cap equities than it is in other parts of the market. It would be interesting as correlations have come off as active managers who begin to perform well whether or not that changes. there is also in the U.S. a real cost advantage associated with an EPS wrapper versus [indiscernible] wrapper and they are interesting development, again as I’m sure you have been following in terms of being – to potentially a non-transparent EPS and that could be interesting and if we’re thinking long-term about whether or not that also helps mitigate some of the trends that we’ve seen.

Unidentified Analyst

Thanks, to last one and thanks for your [indiscernible]. U.S. retail, where are you in terms of that it is a strategy why that is anything – if you are looking for there in terms of shift in focus or opportunity there?

James A. Gingrich

Well, U.S. retail, we’re pleased with how that business has developed over the several years, we’re by no means satisfied with where we are at. So we’ve moved from negative flows to positive flows, our market shares are up, our growth sales are up, we have built out a very strong and competitive and we’ve gain significant share in many with the whole suite of new products. Fund collect – our high income fund continue to do very well, we’ve been very successful with something like the long, short, but and some other thing like real asset in the liquid alternative space, but Bill you know better than I do in terms of what is happening in the liquid alternative space. People are very active from a product development standpoint, as are we; in the equity space we’ve been very successful for example in small and mid cap. We haven’t had the offerings perhaps that we might want in the large cap space something like the W.P. Stewart certainly is helpful in that regard. So I guess in summary we are happy with how things had developed, but we’re by no means satisfied with where we are at.

Unidentified Analyst

Well that concludes our time so Jim and John again thank you so much for coming today, very appreciative insights and taking time here for us. Thank you so much.

James A. Gingrich

Thank you.

John C. Weisenseel

Thank you.

Question-and-Answer Session

[No Q&A session for this event]

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