ALLIANCEBERNSTEIN HOLDING L.P. - FORM 10-Q - EX-99.1 - EXHIBIT 99.1 ALLIANCEBERNSTEIN L.P.

ALLIANCEBERNSTEIN HOLDING L.P. - FORM 10-Q - EX-99.1 - EXHIBIT 99.1 ALLIANCEBERNSTEIN L.P. - April 28, 2020

Attached files

Attached files

file	filename
10-Q - 10-Q ALLIANCEBERNSTEIN HOLDING L.P. - ALLIANCEBERNSTEIN HOLDING L.P.	ab-20200331x10q.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CFO CERTIFICATION - ALLIANCEBERNSTEIN HOLDING L.P.	ab-20200331xex322.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CEO CERTIFICATION - ALLIANCEBERNSTEIN HOLDING L.P.	ab-20200331xex321.htm
EX-31.2 - EXHIBIT 31.2 SECTION 302 CFO CERTIFICATION - ALLIANCEBERNSTEIN HOLDING L.P.	ab-20200331xex312.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CEO CERTIFICATION - ALLIANCEBERNSTEIN HOLDING L.P.	ab-20200331xex311.htm

Index

Exhibit 99.1

Part I

FINANCIAL INFORMATION

Item 1. Financial Statements

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(in thousands, except unit amounts)

(unaudited)



	March 31, 2020		December 31, 2019
ASSETS
Cash and cash equivalents	$	975,263	$	679,738
Cash and securities segregated, at fair value (cost: $2,005,514 and $1,090,443)	2,012,562		1,094,866
Receivables, net:
Brokers and dealers	358,028		97,966
Brokerage clients	1,814,889		1,536,674
AB funds fees	214,672		261,588
Other fees	122,300		148,744
Investments:
Long-term incentive compensation-related	37,316		50,902
Other	225,192		215,892
Assets of consolidated company-sponsored investment funds:
Cash and cash equivalents	87,277		11,433
Investments	443,472		581,004
Other assets	39,538		19,810
Furniture, equipment and leasehold improvements, net	138,286		145,251
Goodwill	3,088,038		3,076,926
Intangible assets, net	49,004		55,366
Deferred sales commissions, net	49,280		36,296
Right-of-use assets	341,660		362,693
Other assets	446,460		330,943
Total assets	$	10,443,237	$	8,706,092

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
Liabilities:
Payables:
Brokers and dealers	$	382,632	$	201,778
Securities sold not yet purchased	27,629		30,157
Brokerage clients	3,653,789		2,531,946
AB mutual funds	118,618		71,142
Accounts payable and accrued expenses	281,094		192,110
Lease liabilities	442,590		468,451
Liabilities of consolidated company-sponsored investment funds	104,875		31,017
Accrued compensation and benefits	346,445		276,829
Debt:
EQH Facility	830,000		560,000
Other	104,814		—
Total liabilities	6,292,486		4,363,430

Index



	March 31, 2020			December 31, 2019

Commitments and contingencies (See Note 12)
Redeemable non-controlling interest	224,900			325,561
Capital:
General Partner	40,571			41,225
Limited partners: 269,981,431 and 270,380,314 units issued and outstanding	4,109,946			4,174,201
Receivables from affiliates	(9,279		)	(9,011		)
AB Holding Units held for long-term incentive compensation plans	(81,314		)	(76,310		)
Accumulated other comprehensive loss	(134,073		)	(113,004		)
Partners’ capital attributable to AB Unitholders	3,925,851			4,017,101
Total liabilities, redeemable non-controlling interest and capital	$	10,443,237		$	8,706,092

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per unit amounts)

(unaudited)



	Three Months Ended March 31,
	2020			2019
Revenues:
Investment advisory and services fees	$	621,725		$	556,594
Bernstein research services	129,223			90,235
Distribution revenues	130,857			100,509
Dividend and interest income	20,465			27,346
Investment (losses) gains	(44,306		)	15,735
Other revenues	25,511			22,206
Total revenues	883,475			812,625
Less: Interest expense	9,319			17,163
Net revenues	874,156			795,462

Expenses:
Employee compensation and benefits	362,272			339,309
Promotion and servicing:
Distribution-related payments	140,145			105,993
Amortization of deferred sales commissions	5,526			3,502
Trade execution, marketing, T&E and other	55,610			49,648
General and administrative	122,267			117,848
Contingent payment arrangements	793			54
Interest on borrowings	2,834			3,983
Amortization of intangible assets	6,486			6,974
Total expenses	695,933			627,311

Operating income	178,223			168,151

Income taxes	9,474			8,921

Net income	168,749			159,230

Net (loss) income of consolidated entities attributable to non-controlling interests	(25,571		)	10,116

Net income attributable to AB Unitholders	$	194,320		$	149,114

Net income per AB Unit:
Basic	$	0.71		$	0.55
Diluted	$	0.71		$	0.55

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2020			2019

Net income	$	168,749		$	159,230
Other comprehensive income (loss):
Foreign currency translation adjustments, before tax	(21,396		)	2,630
Income tax benefit (expense)	73			(77		)
Foreign currency translation adjustments, net of tax	(21,323		)	2,553
Changes in employee benefit related items:
Amortization of prior service cost	6			6
Recognized actuarial gain	325			267
Changes in employee benefit related items	331			273
Income tax (expense) benefit	(77		)	10
Employee benefit related items, net of tax	254			283
Other comprehensive (loss) income	(21,069		)	2,836
Less: Comprehensive (loss) income in consolidated entities attributable to non-controlling interests	(25,571		)	10,096
Comprehensive income attributable to AB Unitholders	$	173,251		$	151,970

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Partners' Capital

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2020			2019
General Partner’s Capital
Balance, beginning of period	$	41,225		$	40,240
Net income	1,943			1,491
Cash distributions to General Partner	(2,542		)	(1,917		)
Long-term incentive compensation plans activity	2			173
(Retirement) of AB Units, net	(57		)	(584		)
Balance, end of period	40,571			39,403
Limited Partners' Capital
Balance, beginning of period	4,174,201			4,075,306
Net income	192,377			147,623
Cash distributions to Unitholders	(251,261		)	(189,568		)
Long-term incentive compensation plans activity	335			16,985
(Retirement) of AB Units, net	(5,706		)	(57,756		)
Balance, end of period	4,109,946			3,992,590
Receivables from Affiliates
Balance, beginning of period	(9,011		)	(11,430		)
Long-term incentive compensation awards expense	184			465
Capital contributions from AB Holding	(452		)	(701		)
Balance, end of period	(9,279		)	(11,666		)
AB Holding Units held for Long-term Incentive Compensation Plans
Balance, beginning of period	(76,310		)	(77,990		)
Purchases of AB Holding Units to fund long-term compensation plans, net	(17,750		)	(58,452		)
Retirement of AB Units, net	5,763			58,340
Long-term incentive compensation awards expense	7,407			18,604
Re-valuation of AB Holding Units held in rabbi trust	(436		)	(10,005		)
Other	12			—
Balance, end of period	(81,314		)	(69,503		)
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period	(113,004		)	(110,866		)
Foreign currency translation adjustment, net of tax	(21,323		)	2,571
Changes in employee benefit related items, net of tax	254			283
Balance, end of period	(134,073		)	(108,012		)
Total Partners' Capital attributable to AB Unitholders	3,925,851			3,842,812
Non-redeemable Non-controlling Interests in Consolidated Entities
Balance, beginning of period	—			949
Net income	—			16
Foreign currency translation adjustment	—			(20		)
Balance, end of period	—			945
Total Capital	$	3,925,851		$	3,843,757

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2020			2019

Cash flows from operating activities:
Net income	$	168,749		$	159,230

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred sales commissions	5,526			3,502
Non-cash long-term incentive compensation expense	7,591			19,070
Depreciation and other amortization	36,156			41,892
Unrealized losses (gains) on investments	20,585			(10,543		)
Unrealized losses (gains) on investments of consolidated company-sponsored investment funds	52,115			(21,930		)
Other, net	(1,324		)	6,246
Changes in assets and liabilities:
(Increase) in securities, segregated	(917,696		)	(92,624		)
(Increase) decrease in receivables	(615,055		)	97,411
(Increase) decrease in investments	(17,557		)	449,556
Decrease (increase) in investments of consolidated company-sponsored investment funds	85,418			(11,683		)
(Increase) in deferred sales commissions	(18,510		)	(3,175		)
Decrease (increase) in right-of-use assets	134			(1,000		)
(Increase) decrease in other assets	(118,038		)	38,685
Increase in other assets and liabilities of consolidated company-sponsored investment funds, net	54,129			3,688
Increase (decrease) in payables	1,492,200			(222,472		)
(Decrease) in lease liabilities	(23,968		)	(34,914		)
Increase (decrease) in accounts payable and accrued expenses	5,456			(29,114		)
Increase in accrued compensation and benefits	70,792			40,644
Net cash provided by operating activities	286,703			432,469

Cash flows from investing activities:
Purchases of furniture, equipment and leasehold improvements	(3,321		)	(5,567		)
Acquisition of business, net of cash acquired	(11,473		)	—
Net cash used in investing activities	(14,794		)	(5,567		)

Index



	Three Months Ended March 31,
	2020			2019
Cash flows from financing activities:
Issuance of commercial paper, net	104,814			15,459
Proceeds of EQH Facility	270,000			—
(Repayment) of bank loans	—			(25,000		)
Increase (decrease) in overdrafts payable	85,395			(65,352		)
Distributions to General Partner and Unitholders	(253,803		)	(191,485		)
(Redemptions) of non-controlling interest in consolidated company-sponsored investment funds, net	(75,091		)	(36		)
Capital contributions (to) affiliates	(699		)	(932		)
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units	147			7,382
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net	(17,750		)	(58,452		)
Other	(504		)	(228		)
Net cash provided by (used in) financing activities	112,509			(318,644		)
Effect of exchange rate changes on cash and cash equivalents	(13,049		)	640
Net increase (decrease) in cash and cash equivalents	371,369			108,898
Cash and cash equivalents as of beginning of the period	691,171			653,324
Cash and cash equivalents as of end of the period	$	1,062,540		$	762,222

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(unaudited)

The words “we” and “our” refer collectively to AllianceBernstein L.P. and its subsidiaries (“AB”), or to their officers and employees. Similarly, the word “company” refers to AB. These statements should be read in conjunction with AB’s audited consolidated financial statements included in AB’s Form 10-K for the year ended December 31, 2019.

1. Business Description Organization and Basis of Presentation

Business Description

We provide research, diversified investment management and related services globally to a broad range of clients. Our principal services include:

•

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


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


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


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

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

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

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


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

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

•Passive management, including index and enhanced index strategies;


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

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

Our services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term (e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging markets, regional and local), in major markets around the world.

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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 March 31, 2020.

As of March 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.

As of March 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 subsidiaries	63.4	%
AB Holding	35.9
Unaffiliated holders	0.7
	100.0	%

Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate 64.9% economic interest in AB as of March 31, 2020.

Basis of Presentation

The interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the interim results, have been made. The preparation of the condensed consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the interim reporting periods. Actual results could differ from those estimates. The condensed consolidated statement of financial condition as of December 31, 2019 was derived from audited financial statements, but it does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The condensed consolidated financial statements include AB and its majority-owned and/or controlled subsidiaries, and the consolidated entities that are considered to be variable interest entities (“VIEs”) and voting interest entities (“VOEs”) in which AB has a controlling financial interest. Non-controlling interests on the condensed consolidated statements of financial condition include the portion of consolidated company-sponsored investment funds in which we do not have direct equity ownership. All significant inter-company transactions and balances among the consolidated entities have been eliminated.

Reclassifications

During 2020, prior period amounts for the changes in right-of-use assets and lease liabilities previously presented with amounts related to the adoption of ASC 842 in our Condensed Consolidated Statement of Cash Flows, are now presented net of the adoption impact of ASU 842 to conform to the current period's presentation.

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2.	Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This new guidance relates to the accounting for credit losses on financial instruments and introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. 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 removes 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 modifies 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 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements that currently exist in GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software. Implementation costs would either be capitalized or expensed as incurred depending on the project stage. All costs in the preliminary and post-implementation project stages are expensed as incurred, while certain costs within the application development stage are capitalized. 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.

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, with early adoption permitted. 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, with early adoption permitted. The revised guidance will not have a material impact on our financial condition or results of operations.

Goodwill

Goodwill is tested annually, as of September 30, for impairment. 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 be, but not limited to, sustained decrease in AB Holding Unit price or declines in market capitalization that would suggest that the fair value of the reporting unit is less than the carrying amount; significant and unanticipated declines in assets under management, revenues, or lower than expected earnings in the current quarter, next quarter or year. Any of these changes in circumstances could suggest the possibility that goodwill is impaired, however, none of these events or circumstances by itself would indicate that it is more likely than not that goodwill is impaired, 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.

Index

As of January 1, 2020, we adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes 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 how the severity and anticipated duration of the current market conditions is reflected in management's determination of fair value. We have determined that AB has only one reporting segment and reporting unit.

As of March 31, 2020, there was $3.1 billion of goodwill recorded on the consolidated statement of financial condition. During the first quarter of 2020, the unit price per AB Holding Unit declined significantly in response to the precipitous decline in the financial markets. As such, we performed an interim impairment evaluation of goodwill utilizing the Market Approach where the fair value of the reporting unit is based on its unadjusted market valuation (AB Holding Units outstanding multiplied by AB Holding’s Unit price). We have considered the results of the market approach analysis performed along with a number of other factors (including current market conditions) and determined that the fair value of the reporting unit exceeded its carrying value as of March 31, 2020. As such, no goodwill impairment existed. We will continue to monitor and evaluate any events that may trigger an impairment of goodwill.

3. Revenue Recognition

Revenues for the three months ended March 31, 2020 and 2019 consisted of the following:



	Three Months Ended March 31,
	2020			2019
	(in thousands)
Subject to contracts with customers:
Investment advisory and services fees
Base fees	$	613,587		$	552,230
Performance-based fees	8,138			4,364
Bernstein research services	129,223			90,235
Distribution revenues
All-in-management fees	86,357			61,773
12b-1 fees	19,453			19,586
Other	25,047			19,150
Other revenues
Shareholder servicing fees	20,843			17,830
Other	4,672			4,018
	907,320			769,186
Not subject to contracts with customers:
Dividend and interest income, net of interest expense	11,146			10,183
Investment (losses) gains	(44,306		)	15,735
Other revenues	(4		)	358
	(33,164		)	26,276

Total net revenues	$	874,156		$	795,462


4.	Long-term Incentive Compensation Plans

We maintain several unfunded, non-qualified long-term incentive compensation plans, under which we grant annual awards to employees, generally in the fourth quarter, and to members of the Board of Directors of the General Partner, who are not employed by our company or by any of our affiliates (“Eligible Directors”).

Index

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.

Repurchases of AB Holding Units for the three months ended March 31, 2020 and 2019 consisted of the following:



	Three Months Ended March 31,
	2020		2019
	(in millions)
Total amount of AB Holding Units Purchased ⁽¹⁾	0.9		2.0
Total Cash Paid for AB Holding Units Purchased ⁽¹⁾	$	19.8	$	58.6
Open Market Purchases of AB Holding Units Purchased ⁽²⁾	0.8		1.9
Total Cash Paid for Open Market Purchases of AB Holding Units ⁽²⁾	$	17.3	$	55.2

^{(1) Purchased on a trade date basis.}

^{(2) The remainder related to purchases of AB Holding Units from employees to all them to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation award}

Purchases of AB Holding Units reflected on the condensed consolidated statements of cash flows are net of AB Holding Unit purchases by employees as part of a distribution reinvestment election.

Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the 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 under the terms and limitations specified in the plan to repurchase AB Holding Units on our behalf in accordance with the terms of the plan. Repurchases are subject to regulations promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the first quarter of 2020 expired at the close of business on April 27, 2020. We may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes.

During the first three months of both 2020 and 2019, we granted to employees and Eligible Directors 0.1 million restricted AB Holding Unit awards. We used AB Holding Units repurchased during the applicable period and newly-issued AB Holding Units to fund these awards.

During the first three months of 2020 and 2019, AB Holding issued 5,182 and 0.3 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $0.1 million and $7.4 million, respectively, received from award recipients as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.

Index


5.	Net Income per Unit

Basic net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the basic weighted average number of limited partnership units outstanding for each period. Diluted net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the total of the diluted weighted average number of limited partnership units outstanding for each period.



	Three Months Ended March 31,
	2020		2019
	(in thousands, except per unit amounts)
Net income attributable to AB Unitholders	$	194,320	$	149,114

Weighted average limited partnership units outstanding – basic	270,498		267,336
Dilutive effect of compensatory options to buy AB Holding Units	32		72
Weighted average limited partnership units outstanding – diluted	270,530		267,408
Basic net income per AB Unit	$	0.71	$	0.55
Diluted net income per AB Unit	$	0.71	$	0.55

6. Cash Distributions

AB is required to distribute all of its Available Cash Flow, as defined in the AB Partnership Agreement, to its Unitholders and to the General Partner. Available Cash Flow can be summarized as the cash flow received by AB from operations minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB for use in its business, or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow.

Typically, Available Cash Flow has been the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available 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 April 28, 2020, the General Partner declared a distribution of $0.71 per AB Unit, representing a distribution of Available Cash Flow for the three months ended March 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 May 28, 2020 to holders of record on May 11, 2020.


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

As of March 31, 2020 and December 31, 2019, $2.0 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.

Index


8.	Investments

Investments consist of:



	March 31, 2020		December 31, 2019
	(in thousands)
Equity securities:
Long-term incentive compensation-related	$	25,655	$	36,665
Seed capital	70,361		70,464
Other	58,423		73,202
Exchange-traded options	36,783		6,931
Investments in limited partnership hedge funds:
Long-term incentive compensation-related	11,661		14,237
Seed capital	30,732		33,124
Time deposits	17,303		18,281
Other	11,590		13,890
Total investments	$	262,508	$	266,794

Total investments related to long-term incentive compensation obligations of $37.3 million and $50.9 million as of March 31, 2020 and December 31, 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 hedge funds that were notionally elected by plan participants and maintained them (and continue to maintain them) in a consolidated rabbi trust or separate custodial account. The rabbi trust and custodial account enable us to hold such investments separate from our other assets for the purpose of settling our obligations to participants. The investments held in the rabbi trust and custodial account remain available to the general creditors of AB.

The underlying investments of the hedge funds in which we invest include long and short positions in equity securities, fixed income securities (including various agency and non-agency asset-based securities), currencies, commodities and derivatives (including various swaps and forward contracts). These investments are valued at quoted market prices or, where quoted market prices are not available, are fair valued based on the pricing policies and procedures of the underlying funds.

We allocate seed capital to our investment teams to help develop new products and services for our clients. A portion of our seed capital investments are equity and fixed income products, primarily in the form of separately-managed account portfolios, U.S. mutual funds, Luxembourg funds, Japanese investment trust management funds or Delaware business trusts. We also may allocate seed capital to investments in private equity funds. In regard to our seed capital investments, the amounts above reflect those funds in which we are not the primary beneficiary of a VIE or hold a controlling financial interest in a VOE. See Note 14, Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidate. As of March 31, 2020 and December 31, 2019, our total seed capital investments were $340.8 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.

Index

The portion of unrealized gains (losses) related to equity securities, as defined by ASC 321-10, held as of March 31, 2020 and 2019 were as follows:



	Three Months Ended March 31,
	2020			2019
	(in thousands)
Net (losses) gains recognized during the period	$	(21,986	)	$	13,994
Less: net (losses) gains recognized during the period on equity securities sold during the period	(1,395		)	3,132
Unrealized (losses) gains recognized during the period on equity securities held	$	(20,591	)	$	10,862


9.	Derivative Instruments

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of derivative instruments held by our consolidated company-sponsored investment funds.

We enter into various futures, forwards, options and swaps to economically hedge certain seed capital investments. Also, we have currency forwards that help us to economically hedge certain balance sheet exposures. In addition, our options desk trades long and short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging.

The notional value and fair value as of March 31, 2020 and December 31, 2019 for derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below) not designated as hedging instruments were as follows:



			Fair Value
	Notional Value		Derivative Assets		Derivative Liabilities
	(in thousands)
March 31, 2020:
Exchange-traded futures	$	175,080	$	1,505	$	4,895
Currency forwards	85,003		8,414		7,943
Interest rate swaps	82,780		2,886		3,641
Credit default swaps	275,733		16,238		15,294
Total return swaps	90,608		2,351		8,283
Option swaps	354		1,172		—
Total derivatives	$	709,558	$	32,566	$	40,056

December 31, 2019:
Exchange-traded futures	$	171,112	$	939	$	871
Currency forwards	60,809		8,545		8,633
Interest rate swaps	92,756		1,746		2,254
Credit default swaps	168,303		2,151		5,611
Total return swaps	91,201		110		1,764
Option swaps	354		—		126
Total derivatives	$	584,535	$	13,491	$	19,259

As of March 31, 2020 and December 31, 2019, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our condensed consolidated statements of financial condition.

Index

The gains and losses for derivative instruments (excluding our options desk trading activities discussed below) for the three months ended March 31, 2020 and 2019 recognized in investment gains (losses) in the condensed consolidated statements of income were as follows:



	Three Months Ended March 31,
	2020			2019

Exchange-traded futures	$	1,006		$	(5,115	)
Currency forwards	658			(40		)
Interest rate swaps	(612		)	(314		)
Credit default swaps	12,101			(2,340		)
Total return swaps	15,115			(11,956		)
Option swaps	1,298			—
Net gains (losses) on derivative instruments	$	29,566		$	(19,765	)

We may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We minimize our counterparty exposure through a credit review and approval process. In addition, we have executed various collateral arrangements with counterparties to the over-the-counter derivative transactions that require both pledging and accepting collateral in the form of cash. As of March 31, 2020 and December 31, 2019, we held $8.5 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 condensed consolidated statements of financial condition.

Although notional amount is the most commonly used measure of volume in the derivative market, it is not used as a measure of credit risk. Generally, the current credit exposure of our derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received. A derivative with positive value (a derivative asset) indicates existence of credit risk because the counterparty would owe us if the contract were closed. Alternatively, a derivative contract with negative value (a derivative liability) indicates we would owe money to the counterparty if the contract were closed. Generally, if there is more than one derivative transaction with a single counterparty, a master netting arrangement exists with respect to derivative transactions with that counterparty to provide for aggregate net settlement.

Certain of our standardized contracts for over-the-counter derivative transactions (“ISDA Master Agreements”) contain credit risk related contingent provisions pertaining to each counterparty’s credit rating. In some ISDA Master Agreements, if the counterparty’s credit rating, or in some agreements, our assets under management (“AUM”), falls below a specified threshold, a termination event permitting us or 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 March 31, 2020 and December 31, 2019, we delivered $9.6 million and $4.3 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our condensed consolidated statements of financial condition.

As of March 31, 2020 and December 31, 2019, we held $36.8 million and $6.9 million, respectively, of long exchange-traded equity options, which are included in other investments on our condensed consolidated statements of financial condition. In addition, as of March 31, 2020 and December 31, 2019, we held $15.9 million and $12.3 million, respectively, of short exchange-traded equity options, which are included in securities sold not yet purchased on our condensed consolidated statements of financial condition. Our options desk provides our clients with equity derivative strategies and execution for exchange-traded options on single stocks, exchange-traded funds and indices. While predominately agency-based, the options desk may commit capital to facilitate a client’s transaction. Our options desk hedges the risks associated with this activity by taking offsetting positions in equities. For the three months ended March 31, 2020 and 2019, we recognized a gain of $18.4 million and a loss of $7.6 million, respectively, on equity option activity. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income.


10.	Offsetting Assets and Liabilities

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of offsetting assets and liabilities of our consolidated company-sponsored investment funds.

Index

Offsetting of assets as of March 31, 2020 and December 31, 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			Cash Collateral Received			Net Amount
	(in thousands)
March 31, 2020:
Securities borrowed	$	45,470	$	—	$	45,470	$	(37,959	)	$	—		$	7,511
Derivatives	$	32,566	$	—	$	32,566	$	—		$	(8,479	)	$	24,087
Long exchange-traded options	$	36,783	$	—	$	36,783	$	—		$	—		$	36,783
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 March 31, 2020 and December 31, 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		Cash Collateral Pledged			Net Amount
	(in thousands)
March 31, 2020:
Derivatives	$	40,056	$	—	$	40,056	$	—	$	(9,644	)	$	30,412
Short exchange-traded options	$	15,884	$	—	$	15,884	$	—	$	—		$	15,884
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.

Index


11.	Fair Value

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of fair value of our consolidated company-sponsored investment funds.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows:

• Level 1 – Quoted prices in active markets are available for identical assets or liabilities as of the reported date.


•	Level 2 – Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as of the reported date.


•	Level 3 – Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Valuation of our financial instruments by pricing observability levels as of March 31, 2020 and December 31, 2019 was as follows (in thousands):



	Level 1		Level 2		Level 3		NAV Expedient⁽¹⁾		Other		Total
March 31, 2020:
Money markets	$	123,767	$	—	$	—	$	—	$	—	$	123,767
Securities segregated (U.S. Treasury Bills)	—		2,012,198		—		—		—		2,012,198
Derivatives	1,505		31,061		—		—		—		32,566
Investments
Equity securities	136,573		17,589		118		159		—		154,439
Long exchange-traded options	36,783		—		—		—		—		36,783
Limited partnership hedge funds⁽²⁾	—		—		—		—		42,393		42,393
Time deposits⁽³⁾	—		—		—		—		17,303		17,303
Other investments	4,637		—		—		—		6,953		11,590
Total investments	177,993		17,589		118		159		66,649		262,508
Total assets measured at fair value	$	303,265	$	2,060,848	$	118	$	159	$	66,649	$	2,431,039

Securities sold not yet purchased
Short equities – corporate	$	11,745	$	—	$	—	$	—	$	—	$	11,745
Short exchange-traded options	15,884		—		—		—		—		15,884
Derivatives	4,895		35,161		—		—		—		40,056
Contingent payment arrangements	—		—		23,704		—		—		23,704
Total liabilities measured at fair value	$	32,524	$	35,161	$	23,704	$	—	$	—	$	91,389

Index



	Level 1		Level 2		Level 3		NAV Expedient⁽¹⁾		Other		Total
December 31, 2019:
Money markets	$	126,401	$	—	$	—	$	—	$	—	$	126,401
Securities segregated (U.S. Treasury Bills)	—		1,094,866		—		—		—		1,094,866
Derivatives	939		12,552		—		—		—		13,491
Investments
Equity securities	170,946		8,952		119		314		—		180,331
Long exchange-traded options	6,931		—		—		—		—		6,931
Limited partnership hedge funds⁽²⁾	—		—		—		—		47,361		47,361
Time deposits⁽³⁾	—		—		—		—		18,281		18,281
Other investments	5,883		—		—		—		8,007		13,890
Total investments	183,760		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 options	12,348		—		—		—		—		12,348
Derivatives	871		18,388		—		—		—		19,259
Contingent payment arrangements	—		—		22,911		—		—		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 ($1.0 million as of both March 31, 2020 and December 31, 2019), (ii) an investment in a start-up company that does not have a readily available fair value (this investment was written down to zero as of March 31, 2020 and was $0.9 million as of December 31, 2019), (iii) an investment in an equity method investee that is not measured at fair value in accordance with GAAP ($2.7 million as of March 31, 2020 and $2.9 million as of December 31, 2019), and (iv) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($3.2 million as of both March 31, 2020 and December 31, 2019).

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 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.

Index

• Options: We hold long exchange-traded options that are included in Level 1 of the valuation hierarchy.


•	Securities sold not yet purchased: Securities sold not yet purchased, primarily reflecting short positions in equities and exchange-traded options, are included in Level 1 of the valuation hierarchy.

•

Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.

During the three months ended March 31, 2020 there were no transfers between Level 2 and Level 3 securities.

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



	Three Months Ended March 31,
	2020			2019
	(in thousands)
Balance as of beginning of period	$	119		$	142
Purchases	—			—
Sales	—			—
Realized gains (losses), net	—			—
Unrealized gains (losses), net	(1		)	(27		)
Balance as of end of period	$	118		$	115

Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the condensed consolidated statements of income.

We acquired Autonomous Research LLP ("Autonomous") in 2019 and Ramius Alternative Solutions LLC in 2016, both of which included contingent consideration arrangements as part of the purchase price. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows:



	Three Months Ended March 31,
	2020		2019
	(in thousands)
Balance as of beginning of period	$	22,911	$	7,336
Addition	—		—
Accretion	793		54
Payments	—		—
Balance as of end of period	$	23,704	$	7,390

During 2019, we recorded a $17.4 million contingent consideration payable for our 2019 acquisition based on projected fee revenues over a five-year measurement period. The liability was valued using expected revenue growth rates ranging from 0.7% to 2.5% and a discount rate of 10.4%, reflecting a 3.5% risk-free rate, based on our cost of debt, and a 6.9% market price of risk adjustment rate. Additionally, we recorded a $3.1 million change in estimate for the contingent consideration payable related to our 2016 acquisition. The liability relating to our 2016 acquisition was valued using a revised revenue growth rate of 50% over the remaining measurement periods and a 3.0% discount rate.

As of March 31, 2020 and December 31, 2019, acquisition-related contingent liabilities with a fair value of $23.7 million and $22.9 million, respectively, remain relating to our 2019 and 2016 acquisitions.

Index

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 three months ended March 31, 2020 or during the year ended December 31, 2019.


12.	Commitments and Contingencies

Legal Proceedings

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

AB may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which may allege significant damages. It is reasonably possible that we could incur losses pertaining to these matters, but we cannot currently estimate any such losses.

Management, after consultation with legal counsel, currently believes that the outcome of any individual matter that is pending or threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or liquidity. However, any inquiry, proceeding or litigation has an element of uncertainty; management cannot determine whether further developments relating to any individual matter that is pending or threatened, or all of them combined, will have a material adverse effect on our results of operation, financial condition or liquidity in any future reporting period.


13.	Leases

We lease office space, furniture and office equipment under various operating and financing leases. Our current leases have remaining lease terms of one year to 11 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.

Since 2010, we have sub-leased over one million square feet of office space. On January 1, 2019, the previously recorded liability relating to our global space consolidation initiatives of $85.8 million was offset as a reduction to our operating right-of-use assets.

Leases included in the condensed consolidated statement of financial condition as of March 31, 2020 and December 31, 2019 were as follows:



	Classification	March 31, 2020			December 31, 2019
		(in thousands)
Operating Leases
Operating lease right-of-use assets	Right-of-use assets	$	337,933		$	360,185
Operating lease liabilities	Lease liabilities	438,854			465,907

Finance Leases
Property and equipment, gross	Right-of-use assets	5,167			3,825
Amortization of right-of-use assets	Right-of-use assets	(1,440		)	(1,317		)
Property and equipment, net		3,727			2,508
Finance lease liabilities	Lease liabilities	3,736			2,544

The components of lease expense included in the condensed consolidated statement of income as of March 31, 2020 and March 31, 2019 were as follows:

Index



		Three Months Ended March 31,
	Classification	2020			2019
		(in thousands)
Operating lease cost	General and administrative	$	23,004		$	27,141

Financing lease cost:
Amortization of right-of-use assets	General and administrative	477			286
Interest on lease liabilities	Interest expense	26			17
Total finance lease cost		503			303
Variable lease cost ⁽¹⁾	General and administrative	9,477			9,873
Sublease income	General and administrative	(9,615		)	(14,463		)
Net lease cost		$	23,369		$	22,854

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

The sub-lease income represents all revenues received from sub-tenants. It is primarily fixed base rental payments combined with variable reimbursements such as operating expenses, real estate taxes and employee parking. The vast majority of sub-tenant income is derived from our New York metro sub-tenant agreements. Sub-tenant income related to base rent is recorded on a straight-line basis.

Maturities of lease liabilities were as follows:



	Operating Leases			Financing Leases			Total
Year ending December 31,	(in thousands)
2020 (excluding the three months ended March 31, 2020)	$	81,317		$	1,420		$	82,737
2021	103,630			1,142			104,772
2022	89,572			757			90,329
2023	82,505			526			83,031
2024	79,600			23			79,623
Thereafter	42,974			—			42,974
Total lease payments	479,598			3,868			483,466
Less interest	(40,744		)	(132		)
Present value of lease liabilities	$	438,854		$	3,736

During October 2018, we signed a lease, which commences in mid-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. During April 2019, we signed a lease, which commences in 2024, relating to approximately 190,000 square feet of space in New York City. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 20-year lease term is approximately $448 million.



Lease term and discount rate:
Weighted average remaining lease term (years)
Operating leases	5.04
Finance leases	2.87
Weighted average discount rate
Operating leases	3.52	%
Finance leases	2.71	%

Index

Supplemental cash flow information related to leases was as follows:



	Three Months Ended March 31,
	2020		2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	29,698	$	35,728
Operating cash flows from financing leases	26		17
Financing cash flows from finance leases	504		282
Right-of-use assets obtained in exchange for lease obligations⁽¹⁾:
Operating leases	—		2,289
Finance leases	1,695		—

⁽¹⁾Represents non-cash activity and, accordingly, is not reflected in the condensed consolidated statements of cash flows.

14. Consolidated Company-Sponsored Investment Funds

We regularly provide seed capital to new company-sponsored investment funds. As such, we may consolidate or de-consolidate a variety of company-sponsored investment funds each quarter. Due to the similarity of risks related to our involvement with each company-sponsored investment fund, disclosures required under the VIE model are aggregated, such as disclosures regarding the carrying amount and classification of assets.

We are not required to provide financial support to company-sponsored investment funds and only the assets of such funds are available to settle each fund's own liabilities. Our exposure to loss in regard to consolidated company-sponsored investment funds is limited to our investment in, and our management fee earned from, such funds. Equity and debt holders of such funds have no recourse to AB’s assets or to the general credit of AB.

The balances of consolidated VIEs and VOEs included in our condensed consolidated statements of financial condition were as follows:



	March 31, 2020						December 31, 2019
	(in thousands)
	VIEs		VOEs		Total		VIEs		VOEs		Total
Cash and cash equivalents	$	83,067	$	4,210	$	87,277	$	9,623	$	1,810	$	11,433
Investments	273,445		170,027		443,472		404,624		176,380		581,004
Other assets	20,444		19,094		39,538		9,618		10,192		19,810
Total assets	$	376,956	$	193,331	$	570,287	$	423,865	$	188,382	$	612,247

Liabilities	$	73,325	$	31,550	$	104,875	$	12,147	$	18,870	$	31,017
Redeemable non-controlling interest	179,090		45,810		224,900		273,219		52,342		325,561
Partners' capital attributable to AB Unitholders	124,541		115,971		240,512		138,499		117,170		255,669
Total liabilities, redeemable non-controlling interest and partners' capital	$	376,956	$	193,331	$	570,287	$	423,865	$	188,382	$	612,247

Fair Value

Cash and cash equivalents include cash on hand, demand deposits, overnight commercial paper and highly liquid investments with original maturities of three months or less. Due to the short-term nature of these instruments, the recorded value has been determined to approximate fair value.

Index

Valuation of consolidated company-sponsored investment funds' financial instruments by pricing observability levels as of March 31, 2020 and December 31, 2019 was as follows (in thousands):



	Level 1		Level 2		Level 3		Total
March 31, 2020:
Investments - VIEs	$	19,040	$	254,011	$	394	$	273,445
Investments - VOEs	77,460		92,427		140		170,027
Derivatives - VIEs	2,421		5,471		—		7,892
Derivatives - VOEs	187		13,154		—		13,341
Total assets measured at fair value	$	99,108	$	365,063	$	534	$	464,705

Derivatives - VIEs	469		6,134		—		6,603
Derivatives - VOEs	252		12,461		—		12,713
Total liabilities measured at fair value	$	721	$	18,595	$	—	$	19,316

December 31, 2019:
Investments - VIEs	$	28,270	$	375,559	$	795	$	404,624
Investments - VOEs	104,069		72,252		59		176,380
Derivatives - VIEs	139		4,694		—		4,833
Derivatives - VOEs	76		4,263		—		4,339
Total assets measured at fair value	$	132,554	$	456,768	$	854	$	590,176

Derivatives - VIEs	$	835	$	3,724	$	—	$	4,559
Derivatives - VOEs	101		4,982		—		5,083
Total liabilities measured at fair value	$	936	$	8,706	$	—	$	9,642

See Note 11 for a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

The change in carrying value associated with Level 3 financial instruments carried at fair value within consolidated company-sponsored investment funds was as follows:



	Three Months Ended March 31,
	2020		2019
	(in thousands)
Balance as of beginning of period	$	854	$	8,373
Transfers (out) in	231		(97		)
Purchases	33

Three Months Ended March 31,

(amounts as shown)

Anti-dilutive options excluded from diluted net income