AllianceBernstein Holding, L.P. 2026 Q3 Earnings Call

Please go ahead. Good morning, everyone, and welcome to our Third Quarter 2026 Earnings Review.

Today's conference call is being webcast and is accompanied by a slide presentation available in the investor relations section of our website at www.alliancebernstein.com. Joining us today to discuss the company's quarterly results are Seth Bernstein, our Chief Executive Officer, and Tom Simeone, our Chief Financial Officer. Onur Erzan, our President, will join us for the question and answer session following our prepared remarks. Some of the information we'll present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. I would like to point out the safe harbor language on slide 2 of our presentation. You can also find our safe harbor language in the MD&A of our 10-Q, which we'll file later this week.

We base our distribution to unitholders on our adjusted results, which we provide in addition to, and not as a substitute for, our GAAP results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted are in our presentation appendix, press release, and our 10-Q. Under Regulation FD, management may only address questions of material nature from the investment community in a public forum. Please ask all such questions during this call. Now, I'll turn it over to Seth.

Good morning, and thank you for joining us today. Before reviewing our results, I want to briefly address our leadership transition that was announced in September. For nearly a decade, I've been privileged to lead AllianceBernstein, working alongside an exceptional group of colleagues whose dedication to our clients, our culture, and one another empowered the firm to grow through a period of profound industry evolution. Together, we transformed our private markets platform from a niche capability into a scaled global franchise. We built leading positions in insurance asset management, municipals, retirement solutions, thematic investing, and private wealth. We relocated our corporate headquarters to Nashville and continued investing in talent and capabilities that will position AB for long-term success. While I'm proud of what we've accomplished, these achievements are not an endpoint. They are a foundation upon which AB's next chapter of growth will be built.

Few people have contributed more to that foundation than Onur Erzan, who, in addition to being President, will become AB's Chief Executive Officer on April 1, 2027. Onur has been a driving force behind many of AB's most important strategic initiatives, and I believe he is uniquely positioned to lead the firm forward. His vision, leadership, and track record of execution give me tremendous confidence in AB's future, a future I look forward to supporting as a board member after my retirement. Now, moving on to slide 3, I will review the key business highlights of our third quarter. First, we ended the quarter with approximately $900 billion in assets under management. As we onboard $100 billion of Corebridge assets over time, we see a clear path to reaching $1 trillion in AUM.

I am pleased with the progress we are making, not only on the operational groundwork to onboard these assets, but more importantly, in deepening our strategic partnership with Corebridge. The opportunity extends well beyond managing the company's existing assets, as the combined Corebridge and Equitable are expected to generate sizable ongoing net flows. We are also focused on identifying paths to further commercialize Corebridge's existing private asset capabilities in private placements, mortgage loans, and real estate equity. As the insurance marketplace continues to evolve, traditional asset liability management is giving way to more strategic balance sheet construction. Public and private markets are increasingly converging, and insurers are seeking integrated solutions that optimize risk, capital, and return. These trends align directly with AB's differentiated capabilities and position us for further growth in asset management and in derivatives transaction execution.

We manage $226 billion in net insurance assets, including $58 billion of third-party insurance AUM across more than 100 clients. General accounts total $139 billion, up 18% year over year. Bernstein Private Wealth ended the quarter with $165 billion in client assets, representing 18% of firm-wide AUM while contributing more than one-third of firm-wide revenues. We are expanding relationships with ultra net worth clients, family offices, entrepreneurs, and business owners, client segments whose complex needs require a high degree of customization and service that is difficult to replicate. Our platform enables advisors to focus on advice and relationship development while leveraging specialized expertise across financial and tax planning, trust and estate services, and family governance. We believe Bernstein is a compelling platform for recruiting and retaining top advisor talent with a differentiated value proposition that empowers industry-leading productivity while strengthening client outcomes.

Our customized retirement platform accounts for nearly $117 billion in assets. As plan sponsors increasingly seek personalized retirement solutions, lifetime income capabilities, and broader access to public and private markets, we believe AB could be ideally positioned to help improve participant outcomes. Taken together, our insurance, wealth, and retirement businesses provide direct access to large and growing pools of long-duration capital. These channels now represent approximately half of firm-wide AUM and enhance the resiliency, visibility, and long-term growth profile of our business across market environments. Second, we continue to expand our investment and distribution footprint through strategic partnerships, greater customization, and vehicle innovation. Customization is reaching an inflection point across retail asset management. Increasingly, clients are seeking investment capabilities in vehicles and formats that best fit their unique financial objectives.

A core element of our strategy is ensuring that AB's investment expertise can be delivered through the wrappers, channels, and solutions our clients prefer. One example is our active ETF franchise, which we continue to globalize. Today, the platform spans 34 products and $21 billion of AUM, with assets growing 31% organically during the third quarter and 68% over the last 12 months. From a near standing start less than four years ago, the business has scaled to generate annualized management fees of roughly $100 million. This growth reflects both increasing demand for active investment strategies and more efficient wrappers, and our ability to extend successful investment capabilities across geographies, channels, and client segments. We are seeing a similar trend in separately managed accounts. Our retail SMA platform stands at $68 billion of AUM and generated 15% annualized organic growth during the quarter and 17% over the last 12 months.

While municipals are still the foundation of the platform, we are encouraged by the early momentum we are seeing as we extend these capabilities into taxable fixed income. Over time, we believe SMAs will be a significant growth opportunity as personalization, technology, and advisor demand continue to converge, creating a larger addressable market for customized investment solutions. Third, firm-wide net inflows approached $7 billion in the third quarter, growing organically for the second straight quarter at a 3% annualized rate. Alternatives in multi-asset solutions led the way, generating $15 billion of net inflows, reflecting the onboarding of approximately $12 billion of commercial mortgage loans from Equitable. Importantly, the segment generated positive net inflows, even excluding the CML mandate, marking seven consecutive quarters of positive organic growth. In municipals, AB delivered positive net inflows for the 15th consecutive quarter, despite one of the most challenging markets for fixed income in decades.

While rising rates created significant volatility, our investment performance, distribution strength, and market leadership allowed us to continue gaining share in tax-exempt with nearly $2 billion net inflows. Within taxable fixed income, demand varied by client channel. Institutional clients contributed nearly $4 billion of net inflows, primarily to our investment-grade strategies. These gains were largely offset by more than $3 billion of retail net outflows, as heightened rate volatility continued to weigh on demand for our income franchise. In equities, passive strategies generated over $2 billion of net inflows, driven largely by institutional demand. Active equities remain under pressure, with more than $12 billion of net outflows concentrated across our largest mutual funds, partially offset by continued growth in active ETFs and thematic portfolios. Slide 4 provides an overview of our financial results, which Tom will discuss in greater detail shortly.

Skipping to slide 5, I will review our investment performance, starting with fixed income. Bond markets faced particularly challenging third quarter as inflation concerns intensified on the back of higher energy prices and structurally growing debt issuance, pushing rate expectations higher. Against the backdrop of resilient growth and healthy labor markets, global central banks turned hawkish, with the Fed raising rates for the first time since 2023. Higher rates pushed total returns into negative territory across fixed income, with high yield outperforming investment grade, given its higher income and lower duration. Municipals posted the weakest quarterly performance for the asset class in more than 30 years. During the quarter, the Bloomberg U.S. Aggregate Index returned negative 3.5%, the Global High Yield Index returned negative 2%, and the Bloomberg Municipal Index returned negative 6.3%.

49% of our fixed income AUM outperformed over the one-year period, with 72% and 60% outperforming over 3 and 5 years. The decline over the one-year performance was primarily driven by our duration exposure as yields moved higher. Our short and intermediate duration portfolios and securitized strategies largely outperformed their respective benchmarks over the shorter-term periods, with mortgage income maintaining a top-decile performance over one, 5, and 10 years. While the elevated rates volatility may dampen sentiment and appetite for duration, we believe the long-term value proposition for fixed income is now compelling, and AB has the right strategies to compete for the next wave of the reallocation. Credit is still an area of opportunity, with falling yields presenting an appealing risk-adjusted return profile compared to long-term equity forecasts. Turning to equities, markets posted modest gains, but dispersion between geographies, styles, and industries rose.