AllianceBernstein Holding, L.P. Q2 2026 Earnings Call

Hello, everyone. Thank you for joining us. Welcome to the AllianceBernstein Second Quarter 2026 Earnings Review. At this time, all participants are in a listen-only mode. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. If you would like to withdraw your question, press star one again. As a reminder, this conference is being recorded and will be available for replay on our website shortly after the conclusion of this call. I would now like to turn the conference over to the host for this call, Head of Investor Relations for AB, Mr. Ioannis Georgallides. Please go ahead. Good morning, everyone.

Welcome to our second 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 two of our presentation. You can also find our safe harbor language in the MD&A of our 10-Q, which we will file on Friday.

We base our distribution to unit holders 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 results 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. Thank you for joining us today. Despite an uncertain geopolitical and policy backdrop, markets recovered during the second quarter, supported by resilient economic growth and strong corporate earnings. Against this backdrop, AllianceBernstein generated its strongest sales quarter in five years, returned to positive organic growth, and reached its objective of $90 billion-$100 billion in private markets AUM more than a year ahead of our 2027 commitment. On slide three, I'll review the key business highlights of our second quarter. First, assets under management ended the quarter at a record level, exceeding $905 billion. This milestone reflects both market appreciation and, more importantly, the returns on years of investment in strategic initiatives that are now driving organic growth across insurance, private wealth, private markets, retirement, SMAs, and active ETFs. Within insurance, we now manage nearly $218 billion, including $128 billion in general account assets.

We continue to see strong momentum in third-party insurance, where we manage $61 billion across roughly 100 clients. This includes $34 billion of general account assets, which are up more than 30% year-over-year. In the first half of 2026, we initiated seven new relationships and deployed nearly $3 billion of third-party insurance capital on a gross basis while general account assets grew organically at a 6% annualized rate. As we discussed last quarter, the proposed combination of Equitable and Corebridge represents the next step function acceleration of our flywheel. Over time, we will add at least $100 billion of Corebridge assets, meaningfully enhancing AB scale and providing an organic glide path toward $1 trillion in firm-wide AUM. While it is too early to be specific, we see synergies from partnering with Corebridge and the new Equitable that go well beyond just managing $100 billion of incremental assets.

Bernstein Private Wealth continues to strengthen its position as a leading advice-led wealth platform, ending the quarter with $167 billion of assets and contributing nearly 40% of firm-wide revenue. By serving as our clients' trusted advisor, we build durable long-term relationships and deliver integrated solutions across traditional and alternative investments. Second, we continue to expand our investment and distribution footprint through strategic partnerships, tax-aware solutions, and vehicle innovation. A core element of our strategy is making our investment capabilities available in vehicles and formats that clients want. We continue to globalize our active ETF franchise. After initially launching three strategies in Taiwan, we have introduced five new strategies in Europe, where we pioneered a dual share class structure offering active UCITS ETF shares alongside mutual funds. Our platform now spans 31 strategies and over $20 billion of AUM, with assets growing 73% organically over the past year.

From a near-standing start nearly four years ago, this platform now generates an annualized run rate of approximately $100 million in management fees. This growth reflects both client demand for active exposures and more efficient wrappers and our ability to globalize successful investment capabilities across channels. Our SMA platform reached $69 billion of AUM and generated 17% annualized organic growth over the last year. While municipals are still the foundation of our SMA business, we are encouraged by the early momentum from extending our capabilities into taxable fixed income. We see SMAs as a meaningful long-term growth opportunity as personalization, technology, and advisor demand continue to converge. Our customized retirement platform has grown to $117 billion in assets. As plan sponsors increasingly seek customized retirement solutions, lifetime income and access to broader asset classes, AB is well-positioned to help improve participant outcomes.

A recent example is ABC [ONE], our partnership with Brookfield and Carlyle, which combines private credit, private equity, and private real assets in a single, diversified sleeve designed to sit alongside existing target date funds and managed accounts. We believe that this solution validates AB's role as a trusted asset allocator and thought leader in retirement solutions, broadening participant access to private markets through a scalable and efficient structure in partnership with market-leading alternative managers. Third, strong sales momentum translated into a return to organic growth. Firm-wide net flows were nearly $800 million in the second quarter, ending four consecutive quarters of outflows. This marked our strongest quarter of gross sales in five years, reflecting broad-based demand across most of our strategic growth areas. Fixed income was the key driver of inflows.

During the quarter, we funded a $9 billion passive fixed income mandate from Equitable, reflecting the continued expansion of our relationship beyond pre-announced commitments. In addition, strong demand for tax-efficient income and continued market share gains in our municipal franchise generated approximately $3 billion of inflows. Alternatives and multi-asset solutions generated more than $4 billion of net inflows, marking this as our sixth consecutive quarter of positive organic growth. Institutional deployments into private market strategies accelerated during the quarter, supported by demand across private credit, commercial real estate debt, and insurance-oriented solutions. These inflows more than offset continued pressure in active equities and taxable fixed income. Active equity outflows were nearly $11 billion, while taxable fixed income outflows exceeded $4 billion. Both were largely driven by retail redemptions concentrated in Asia-Pacific, where allocation preferences are increasingly favoring local equity markets given their strong recent performance.

Slide four provides an overview of our financial results, which Tom will discuss in greater detail shortly. Skipping to slide five, I'll review our investment performance, starting with fixed income. Credit markets delivered healthy returns during the second quarter despite higher volatility. Following a temporary widening in spreads during April, risk assets recovered as corporate fundamentals remained resilient and investors continued to find value in attractive all-in yields despite tight spreads. Rates moved modestly higher as markets recalibrated their expectations for a higher long-term equilibrium rate. Against this backdrop, the Bloomberg US Agg returned 0.7%, while the Global High Yield Index returned 3.7% during the quarter. Our one-year relative performance improved sequentially, with 68% of AUM outperforming. Longer-term performance remains competitive, with 81% and 61% of AUM outperforming over the three-year and five-year periods respectively.

Within our flagship income strategies, American Income outperformed its benchmark and performed in line with its peer category, while Global High Yield outperformed its category and modestly lagged its benchmark during the second quarter. Turning to equities, markets rebounded sharply in the second quarter with very strong returns across regions. Developed markets posted exceptional returns, with the S&P 500 gaining 15%, its strongest quarterly advance in six years. Emerging markets were the standout performer globally as the MSCI Emerging Markets Index surged 24%. The global recovery was supported by de-escalation in the Middle East, leading to lower energy prices and continued enthusiasm around AI. Technology and semiconductor stocks again led the advance, extending a period of unusually narrow market leadership. Against this backdrop, our performance struggled, with 23%, 28%, and 31% of equity AUM outperforming over the one, three, and five-year periods respectively.

Our relative performance continues to reflect a market increasingly driven by a narrow set of beneficiaries from the AI build-out. Our largest U.S. growth strategies, which emphasize quality, diversification, and valuation discipline, have been out of step with this environment, weighing on our AUM-weighted performance. Recent volatility among AI-linked equities and the unwind of leveraged positions have reinforced the importance of diversification and the risks associated with overreliance on a single market theme. More broadly, our equity platform remains diversified across styles, sectors, and geographies. We have over 25 services with more than $45 billion of assets under management that continue to outperform over both the three and five-year periods. This includes our $10 billion International Strategic Equity service, which ranks in the top percentile across one, three, and five-year periods.

We believe diversification across fixed income and quality-oriented equities can help clients generate income, stay invested, and broaden their sources of return beyond a handful of market leaders over-leveraged to the AI build-out. Turning to slide six. Retail net flows rebounded in the second quarter, driven by record sales momentum and continued demand for fixed income. Gross sales reached $31 billion, the highest level in five years, driving $900 million of net inflows in the channel's first quarter of positive organic growth since the first quarter of 2025. Excluding the fixed income mandate from Equitable, our gross sales were $22 billion, up 14% versus the same period in 2025. As noted, fixed income was the primary driver, led by continued demand for tax-efficient income, in addition to the $9 billion fixed income index mandate mentioned earlier.

Active equity outflows are still elevated, driven primarily by U.S. large cap growth redemptions across U.S. and Japan. At the same time, we continued to build diversified sources of growth across the retail platform, including active ETFs and thematic strategies. For example, our Security of the Future surpassed $5 billion in assets under management and generated nearly $2 billion of inflows during the quarter. Moving to slide seven, I'll cover our institutional channel. Institutional flows also returned to positive territory in the second quarter, generating more than half a billion dollars of net inflows. Demand was driven by alternatives and multi-asset, with over $4 billion of net inflows, growing at an 11% annualized organic rate. This marked the sixth consecutive quarter of positive organic growth for the category.

Roughly $5 billion in deployments were broad-based across our private markets platform, including residential mortgages, commercial real estate debt, private placements, and NAV lending. Active equity outflows persisted but improved sequentially, declining to approximately $3 billion in the quarter. Earlier this month, we successfully onboarded $12 billion of commercial mortgage loans from Equitable ahead of schedule. Beyond the revenue contribution, the mandate roughly doubles our scale in this strategically important private asset class, expands our origination and servicing capabilities, and further strengthens the flywheel between long-duration insurance capital and AB's differentiated private markets platform. We expect to begin earning management fees on the established assets in the fourth quarter at a high single-digit fee rate. The blended fee rate will increase over time as newer originations and servicing revenues are layered in.

Our remaining pipeline totals approximately $14 billion and is well diversified, including roughly $5 billion in private alternatives, $3 billion in customized retirement, $3 billion in fixed income, and $2 billion in indexed equities. I'd note that this pipeline does not include any of the $100 billion in expected assets from Corebridge. As a result, we have good visibility into future growth. Turning to slide eight, I will cover Bernstein Private Wealth. Bernstein Private Wealth experienced this typical seasonal pressure on net flows during the second quarter, but underlying business momentum remains strong as we continue to deepen relationships with ultra-high-net-worth individuals and families. As expected, tax-related selling weighed on our quarterly net flows, which were a negative $700 million. However, net new assets have grown at a 6% annualized rate over the last 12 months. Client engagement remains strong, with demand concentrated in alternatives, tax-efficient solutions, and passive equities.

Our ability to deliver customized after-tax outcomes across both public and private markets continues to differentiate Bernstein with ultra-high-net-worth clients. Product innovation also supported organic growth, including strong capital raised for our newly launched high-yield muni strategies designed to address increasingly sophisticated tax management needs of high-net-worth investors. More broadly, Bernstein Private Wealth Management remains one of our most important strategic growth vectors. It provides direct access to ultra-high-net-worth clients, expands opportunities to deliver holistic investment solutions, and serves as a valuable distribution channel for alternatives, tax-efficient equities, fixed income, and customized portfolio strategies. I'll now turn to slide nine, which highlights the continued growth and diversification of our private alternatives platform. I'm particularly proud to report that we've already reached $91 billion of private market assets under management, achieving our $90 billion-$100 billion Investor Day target more than a year ahead of our original 2027 commitment.

This milestone reflects the successful execution of a long-term strategy and the hard work of colleagues across our investment, distribution, operations, and client service teams. I want to thank everyone across the firm who helped make this achievement possible. Over the past several years, we've built a diversified private markets platform spanning corporate direct lending, alternative credit, commercial real estate debt, and private placements. Together, these capabilities provide differentiated sources of return and allow us to serve a broad range of client needs across institutional, insurance, retail, and private wealth channels. Importantly, we continue to see a strong growth trajectory. As I mentioned earlier, we successfully onboarded nearly $12 billion of commercial mortgage loans in July that are not reflected on this slide. Including those assets, our private market AUM would already exceed the upper end of our original target range.

Closing with slide 10, I'd like to bring together the themes we've discussed today. The proposed combination of Equitable and Corebridge strengthens what we believe to be a unique competitive advantage for AB. At its core, the flywheel is straightforward. It starts with an asset-light approach that leverages long-duration insurance capital to seed and scale capabilities that can be extended across a much broader client base. The addition of Corebridge meaningfully expands that opportunity. As the $100 billion is allocated over time, it will provide greater scale across the combined general account, enhancing our ability to originate differentiated assets, establish track records, develop new investment capabilities, and accelerate growth across the broader platform. Particularly, capabilities across private placements, residential and commercial mortgages, and asset-based finance are not one-off mandates.

They become scalable investment platforms that can be distributed across third-party insurance clients, institutional investors, retail wealth, and over time, defined contribution. We believe insurance, private wealth, retirement, and private markets represent some of the largest and fastest-growing pools of capital globally. Increasingly, AB is differentiated at the intersection of these opportunities, combining scale, customization, investment breadth, and direct client relationships in a way that are difficult to replicate. In conclusion, the second quarter reinforces the direction of travel for AB. We reached record AUM, returned to positive organic growth, generated our strongest sales quarter in five years, and continued to scale the strategic growth platforms we've spent years building. Taken together, these results demonstrate the increasing earnings power of the franchise and the benefits of investing in areas where we see sustained client demand and long-term growth opportunities. Now I'll pass it to Tom to review our financial results.

Tom? Thank you, Seth. Good morning, everyone, and thank you for joining our call.

Adjusted earnings for the second quarter of 2026 were $0.82 per unit, representing an 8% increase year-over-year. Distributions grew uniformly with EPU as we distribute 100% of our adjusted earnings to unit holders. The quarter was defined by three key themes: solid base fee growth, disciplined expense management, and continued operating leverage. At the same time, we remain focused on investing selectively in initiatives that strengthen the platform and expand its long-term earnings power. On slide 12, we present our adjusted results, which excludes certain items not considered part of our core operating business. For a detailed reconciliation of GAAP and adjusted financials, please refer to our presentation appendix or our 10-Q. In the second quarter, adjusted net revenues reached $888 million, a 5% increase year-over-year.

Base fees grew 7% year-over-year, reflecting higher average AUM across the platform, partially offset by the impact of changes in product and channel mix on our firm-wide fee rate. Performance fees totaled approximately $24 million, compared with $30 million in the prior year, as strong contributions from public market strategies were offset by lower private market realizations. Dividend and interest revenue, along with broker-dealer-related interest expense, declined year-over-year, reflecting lower cash and margin balances within private wealth. Investment gains totaled approximately $2 million, while other revenues were unchanged from the prior year period. Turning to expenses, second quarter total operating expenses were $595 million, up 4% year-over-year, reflecting disciplined investment in strategic growth initiatives while maintaining a stable compensation ratio.

Total compensation and benefits rose 5% year-over-year, with a compensation ratio of 48.5% of adjusted net revenues, consistent with both the prior period and our guidance. We expect to continue accruing at a 48.5% compensation to net revenue ratio in the third quarter while retaining flexibility to adjust as market conditions evolve. Promotion and servicing expenses declined 3% year-over-year, while G&A expenses increased 2%. Given our continued expense discipline and operating efficiency, we are lowering our full-year non-compensation expense outlook to $620 million-$640 million, compared with our prior range of $625 million-$650 million. Promotion and servicing expenses are still expected to represent approximately 20%-30% of non-compensation expenses, with G&A comprising the remaining 70%-80%. Interest expense on borrowings was essentially unchanged from the prior year period. ABLP's effective tax rate was 5.8% during the quarter.

Given the favorable earnings mix and updated outlook, we are lowering our expected full-year ABLP tax rate to 5%-6%, from our prior range of 6%-7%. Operating income totaled $293 million, an increase of 7% versus the prior year period. Our adjusted operating margin expanded 70 basis points year-over-year to 33% as revenue growth outpaced expense growth despite continued investment across strategic growth initiatives. Importantly, margins remain above the midpoint of our 30%-35% target, which we originally expected to achieve by 2027. As our strategic growth initiatives continue to scale, we believe the firm is increasingly well-positioned to generate operating leverage while continuing to reinvest for future growth. As demonstrated by this quarter's results, several of our newer growth initiatives have attractive economics despite carrying lower headline fee rates. In the second quarter, our firm-wide fee rate was 37.7 basis points.

As we have noted previously, the fee rate is highly dependent on where clients are allocating capital and how those assets are funded over time. As Seth discussed, we see growth in strategic areas such as insurance asset management, SMAs, retirement, institutional solutions, and private markets. While several of these categories carry lower headline fee rates than our firm-wide average, they represent scalable, long-duration sources of capital with attractive margin characteristics and strong earnings potential once fully funded and operating at scale. I would also note that this quarter's fee rate was negatively affected by the timing of onboarding the $9 billion passive fixed income mandate from Equitable, which funded on June 30th. While this mandate contributed to period end AUM, it generated little management fee revenue during the quarter, creating a temporary disconnect between asset growth and revenue realization.

As Seth mentioned, approximately $11.8 billion of Equitable commercial mortgage loans were successfully onboarded in July, ahead of our original plan. These assets will begin generating management fees during the fourth quarter at a high single-digit fee rate. The fee rate will increase over time as we originate new loans. Importantly, we view both mandates as highly attractive opportunities that enhance the scale, durability, and earnings power of the platform. While they create modest near-term pressure on the reported fee rate, they will contribute positively to revenue growth, operating leverage, and long-term profitability. We reached $91 billion of private markets AUM during the quarter, surpassing the low end of our $90 billion-$100 billion target more than a year ahead of schedule and before the onboarding of the commercial mortgage lending mandate.

With the addition of approximately $12 billion of CML assets in July, private markets AUM now exceeds the high end of that target range. This milestone validates our multi-year investment strategy across private markets. These capabilities required upfront investments as we built the necessary scale, infrastructure, and distribution. With fundraising momentum accelerating, deployment activity increasing, and asset growth continuing to compound, we believe private markets will continue to be a key driver of growth. Finally, turning to slide 13 and our outlook, we now expect total performance fees for fiscal year 2026 of $115 million-$135 million, compared with our prior outlook of $95 million-$115 million. This increase is primarily driven by our public market strategies. We now expect public market performance fees of $60 million-$70 million, compared with our prior outlook of $25 million-$35 million.

The increase reflects second quarter realizations from our alpha-generating US Select strategy, in addition to improved visibility into potential fourth quarter realizations from our consistently outperforming Financial Services Opportunities Fund. For our private markets, we now expect performance fees of $55 million-$65 million, compared with our prior range of $70 million-$80 million, which still represents a healthy level of performance fee contribution, even as we take a proactive and conservative approach to marking our exposures and re-underwriting portfolio loss assumptions. As mentioned earlier, we are also reducing our full-year non-compensation expense outlook to $620 million-$640 million and our expected ABLP tax rate to 5%-6%. Let me conclude by summarizing some of the key themes from this call.

We were able to improve our financial outlook while continuing to build momentum across several strategic growth areas, including insurance, wealth, private markets, SMAs, and active ETFs. Our success in private markets provides a good example. We achieved our target of $90 billion-$100 billion of AUM more than one year ahead of schedule and continue to see a strong pipeline for sustained growth. Looking forward, the addition of $100 billion of Corebridge general account and separate account assets will further expand our insurance platform, increase our scale, and provide a meaningful new source of long-duration capital for years to come. The Corebridge assets can be onboarded onto our existing infrastructure with relatively limited incremental expense. As a result, while they may have a lower average fee rate, they have high incremental margins and will be accretive to earnings.

We will continue to be disciplined in investing to build new sources of growth, recognizing that it may take time for platforms to scale and reach their full earnings potential. With that, operator, please open the line for questions.

We will now begin the question and answer session. Please limit your initial questions to two in order to provide all callers with an opportunity to ask questions. You are welcome to return to the queue to ask follow-up questions. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Now please stand by while we compile the Q&A roster. Your first question comes from the line of Craig Siegenthaler with Bank of America. Your line is open. Please go ahead.

Good morning, Seth. Hope everyone's doing well. Our question is on the merger of EQH and Corebridge. Corebridge's general accounts are managed by a number of third-party managers, which have various contracts. I heard your low fee rate, high margin comment, but can you update us on your ability to manage more of Corebridge's general accounts? Specifically, could AB one day manage the whole $200 billion? Actually, it will probably be bigger than $200 billion when we think about that day in the future.

Hi, Craig. Good morning. It's Onur. Let me take that question. As you pointed out, the Equitable CoreBridge merger represents a big AUM opportunity for AllianceBernstein. As it was announced at the time of the merger announcement, we expected this $100 billion of AUM post the close of the transaction over a couple of year time periods. That comes from both general account assets and separate account assets. To put things into perspective, the combined general account assets will be around $350 billion. Separate account assets will be around $200 billion. The AUM base of the combined entity is very significant. On top of that, the origination on the liability side is around $7 billion-$8 billion per year.

It will have a lot of money in motion. Given that large AUM base and the liability origination, we believe even in the existence of other asset managers managing GA assets, we will have significant amount of upside in terms of growing our share in that total AUM. Obviously, the merger has not closed yet. It's expected roughly by year-end, and hence, we will not be able to provide much more granularity in terms of the bottom-up. We remain very confident and optimistic about its impact both on our AUM revenue and profitability. In terms of the profitability by category, again, it's going to be very asset class dependent. There's going to be higher fee private alternatives kind of opportunities, as well as high-fee equity type of opportunities depending on the channel and underlying vehicle.

The core fixed income part of the portfolio, which might be easier, faster to move, that tends to be lower fee. That said, very scalable as well.

Thanks, Onur. I have a follow-up on Asia. I think we all know AB has a strong retail and institutional business across Asia. You have many U.S. and global funds, like American Income, American Growth, Global High Yield, which you saw across the region. Now, in the last two years, we had a trade war escalation, and then this year with the Iran conflict. Through these events, I'm curious on how overall appetite and allocations for U.S. assets have trended across Asia.

Yeah, sure. Great question. I'll dig into it and a little bit separate between asset class and channel. Starting with American Income and GHY, which are our taxable fixed income franchises in the region. The demand there has been less strong. To your point with the Middle East crisis, with the lingering inflation fears and the uncertainty in the rate outlook, some of the retail clients basically rotated into high-performing local equity markets and stayed away from some of the income-generating fixed income strategies. Some of them diversified into multi-assets to have that equity exposure in addition to some income generation. Within that, we had outflows from American Income portfolio and GHY, as you are aware.

However, we benefited from that in several other categories like our All Market Income, multi-asset product, which gathered significant assets, as well as some of the more international type strategies like international equities, emerging markets, et cetera. On the broader picture, we have definitely seen some broadening of appetite away from U.S.-only equity strategies to regional and global. Definitely, we have seen a bit of that client demand for diversification across retail institutional. Finally, on the institutional side, the demand for fixed income actually remains strong. If I think about the pipeline and the pre-pipeline, I think the demand I'm seeing from Asia, ex-Japan and Japan institutional clients, including fixed income, is quite robust. It's robust across both fundamental investment grade fixed income, as well as our systematic franchise. Actually, we added fixed income mandates from institutional clients to our pipeline in the quarter.

Finally, on alts, the retail alts, part of the retail private credits, demand is, again, very muted. There's been a lot of news around this. A lot of the retail clients rotated out of private credit in the short term, while institutional clients remain invested. We have seen some uptick on the hedge fund strategies in the region from retail clients. Again, it tends to be pretty fast-moving money there. That's a bit of the broad picture for you.

I guess, Craig and Seth, I just would add that we have seen what I would call cyclical rotations in and out in prior periods. Despite the trade stuff, which is disruptive for sure, and the war or the activities in the Gulf, I'd say that, at least in our view, the lack of interest in the fixed income strategies has more to do with pretty compelling local markets alternatives, as Onur alluded to, than anything particular to U.S. dollar fixed income. Most of the markets we really are successful in in Asia are tethered either explicitly or implicitly to the dollar. That is the alternative, and we don't see any buyer strike. I just think it's a cyclical phenomenon.

Seth, thank you very much. Onur, very comprehensive. Thank you.

Thank you. Your next question comes from the line of Bill Katz with TD Securities.

Your line is open. Please go ahead.

Okay. Thank you very much. Good morning, everybody. Just a couple questions, maybe start off with Onur, perhaps. I want to zero in on the private client side. I was wondering if you could maybe comment on what you're seeing in terms of the competition for sort of third-party financial advisors. A number of your peers are sort of speaking to very elevated competition. I'm sort of curious what you're seeing at the higher end. Then maybe a conceptual question for you as well. Could you sort of highlight how much alts are as a percentage of the private client AUM, and where you think that ratio can go to over time? Thank you. Sure. Thanks, Bill.

Yeah, our private wealth business remains very resilient and robust. We have not been broadly impacted by the competitive pressures, both on the advisor recruiting side or on the client retention side of things. To me, the proof points are the advisor productivity continues to go up. We are on track on our advisor recruiting. Our advisor headcount is up 4% relative to end of year 2025, definitely seeing strong results there. In terms of the alternatives side of things, we had a very strong alts fundraise in the second quarter. It was around $900 million for private wealth, significantly higher than the same period prior year as well as the first quarter, despite all the headlines. Our private credit strategies continue to hold up really well with low redemption.

Overall, feeling very robust about the business performance across clients, advisors, as well as the asset mix. In terms of alternatives, there's definitely some upside in terms of greater allocation. We have been using alternatives in our client portfolios for a long time. I think it is already approaching roughly 10%, I can definitely see that based on our target asset allocation going up to mid-teens over time. Ultimately, we are a fiduciary. We are client need and demand driven. We are not going to shoot for a precise number. Given the client demands and the robust product set we have, we will see that go up.

To give an example, in the second quarter alone, we launched multiple new products ranging from long short hedge fund strategies to a muni private credit fund, new vintages of some of the private equity and venture capital funds. As a result, our platform continues to broaden and it attracts more assets from existing clients and also brings new clients.

Great. Thank you. Maybe just a follow-up for Tom. Can you unpack maybe the decline in the private market performance fee opportunity set? I would have thought it would have more been on base rates, but it's sounding more like some kind of write-down. Just wondering if you could maybe click in a couple sentences and give a little more detail what's driving the decline versus the prior guide. Thank you. Yeah. There's primarily two things going on there, Bill.

It's unrealized mark in the portfolio, and then there were some tax events inside the fund at the investor level that flows through to our performance fee collection there.

Thank you. You're welcome. Your next question comes from the line of Alex Blostein with Goldman Sachs.

Your line is open. Please go ahead.

Hey. Good morning, everybody. I wanted to get your thoughts on the interplay between the fee rate dynamics versus profitability over time, especially as corporate assets come on. I think initially at a pretty low basis points, kind of 10-ish range or so, I believe, but obviously you highlighted pretty high incremental margins. As you think about the profitability in the business as a whole relative to the margins where they are today, where do you guys see them going over time?

Hi, Alex. Onur. Let me take that. As I referred earlier in the Q&A, we don't have a bottom-up view of the exact AUM split by asset class. Obviously, the fee rate will be a blended average. Starting from the other side of your question, from a profitability perspective, we expect the profitability of that incremental AUM to be robust. Definitely in line with our current margin or even better, depending on the asset class. As a result, we remain quite optimistic and bullish about the impact of that AUM on our business economics. An effective fee rate, although, is an important metric that we track. As you kind of imply, it's not necessarily a predictor of margin by itself, and we have a lot of persistent lower fee asset classes that are highly profitable, like our industry-leading muni platform.

As a result, we should think about fee rates and margin as two separate things and not necessarily see a one-to-one link between the two. On the GA assets, given in the short term, as I mentioned earlier, there's going to be a significant amount of potential core fixed income assets we can onboard. That would tend to have a negative impact on the effective fee rate, not necessarily on the margin.

No, totally. I would have thought it would actually be a much better impact on the margin, and the profitability would be quite a bit higher than the existing margin. I was just kind of thinking through once it's all onboarded, where the profitability of the business could kind of shake out over time.

Definitely there's more upside from an incremental margin perspective.

Makes sense. All right. For my follow-up, I was hoping to get your thoughts on some of the recent focus from the Treasury Department on tax-advantaged investments. I think that's been a focus area of growth for you guys as well. Maybe just give us a broader view of sort of exposures across the platform to tax-advantaged strategies, obviously, maybe outside of munis, but the more kind of explicitly focused tax-advantaged products, and how do you think about growth in this part of the market?

Absolutely. Unlike some of the other publicly listed asset managers, our exposure to some of the higher risk categories is very small. Obviously, Treasury and IRS made some comments that led to some concern in the marketplace, but the focus areas of those comments, those transaction or product types for us is very, very small as a percentage of total. I don't see it as a material risk for our business. I think they were very clear. They're not targeting the broader tax-aware investing or tax-loss harvesting strategies if done properly. Great majority of our assets fall in those categories. As you mentioned, munis is the most significant part, and that was not referenced. Direct indexing platform, which we have over $10 billion is the long-only. As a result, our exposure to those other categories is very, very small.

Great. All right. Thank you very much.

Your next question comes from the line of Dan Fannon with Jefferies. Your line is open. Please go ahead.

Thanks. Good morning. Wanted to follow up on that last set of questions just around the profitability versus fee rate. I think one of the comments in the prepared remarks was once fully funded and operating at scale, that's where I think the profitability starts to increase. Curious as to how you guys define scale in some of these newer strategies, and what is it a reasonable time period for which you think you can hit that?

Ultimately, scale is very product specific. It's hard to generalize to AUM number. Ultimately, historically, what we have seen is in periods where we had material AUM growth, we tended to see higher margin relative to our existing margin. That was typically even as high as 45%-50%. At the end, history is supportive of the fact that typically our AUM growth translates into profitability. That being said, it's very asset class dependent. We also want to take a long-term growth view, and there will be areas that we will continue to invest in terms of new asset classes, like private alternatives. Some of those asset classes as we build the business will have lower margin. Overall, we are focused on our overall margin and our targets, as Tom would remind us, is in the 30%-35% range.

We are right in the middle of that, so we feel comfortable with it. We again see upside potential from existing large categories like munis, like institutional fixed income, systematic fixed income. There are several categories that benefits from scale or active equities. We don't have a very explicit margin target by asset class or a specific scale number by product.

Yeah, if I could just add to that, Onur. We don't necessarily have to invest in new infrastructure or teams. We already have them here, so we're going to be able to take on those assets with very little incremental cost, and that's why there's 45%-50% dropping down to the bottom line in incremental margin, as Onur noted. As far as timing of when we can begin to take on these assets, we're really focused on just getting the deal closed between Corebridge Financial and Equitable Holdings at this point. We do think around 20%-30% of those assets would come online in 2027, then accelerate from there into 2028 to complete the first $100 billion that we expect.

Great. That's helpful. Just, I guess, following up on areas of investment and some of the expense guidance. Guidance coming down a bit. Curious about where some of the savings are coming from, in terms of seems like you're spending or still investing in several growth areas. Maybe highlight the areas where the spend is growing and maybe where you're seeing some of those savings come from.

Sure. I'll start with where we're spending some of our capital here. We're spending in private markets, ETFs. We continue to expand in the insurance vertical. We're spending there as well as expanding private wealth advisor base. As far as where we're seeing the savings, we're seeing it in all non-controllable comp expenses, both on the promo and servicing side, as well as general and administrative. This quarter, we did reduce our guidance $5 million-$10 million. That's all we have line of sight into now. We continue to look and challenge the businesses, and they continue to challenge us. If anything more shakes out, we'll certainly give you an update in 3Q.

Great. Thank you. Your next question comes from the line of John Dunn with Evercore.

Your line is open. Please go ahead.

Thank you. You mentioned the Security of the Future. Maybe are there any other areas in active equities on the retail side you'd point to that can be partial offsets? Maybe same thing for institutional side, any areas of the band you could point to?

Sure. As you pointed out, we had several equity products that had really strong investment performance, which translated into very strong commercial performance. Security of the Future, which is a thematic product, just exceeded $7 billion, and it's a relatively new product. It is a great evidence of our ability to innovate and scale. Similarly, our technology-oriented disruptor strategy has done very well. That ETF is around $3 billion. Really has strong track record, but also really attracting new clients. Really excited about that. As I mentioned earlier in the Q&A, we have also seen a broadening of the client appetite for non-U.S. strategies. We have definitely seen positive momentum in some of the international strategies, emerging markets, as well as international equities.

Finally, there are several products historically that didn't have a lot of visibility, but given the longstanding track records of some of those more maybe historically niche products, we are also seeing some success on those. For instance, we had a good institutional client coming into our global REIT strategy this quarter, so definitely that was great to see as well, investing in the public REIT market in equities. On the institutional side, as I briefly referenced earlier, we continue to see strong demand on the private alternative side. If you think about our insurance third-party general account business, that grew by 33% year-over-year. A really robust growth on the third-party side. This excludes our shareholder Equitable. Really pleased with that, and it's broad based in terms of the deployment across different types of private alternatives. Really excited about that. We definitely see a broadening of the investor demand.

On the fixed income side, we have seen strong demand on the systematic fixed income in addition to our fundamental fixed income strategies.

Just staying on equities, though, international small and mid cap that drove the performance fees, U.S. select. We've had a number of strategies that have continued to perform very well. Ultimately, despite having really good performance, U.S. large cap value being an excellent example of that, it's what the clients are really interested in buying that really drives those flows.

Got it. Just as active ETFs become more of a contributor, maybe could you talk about your strategy around where to put fee rates, what the profitability is, and what client segments are you going after, and just a flavor of the sales process, how you're finding it.

No, absolutely. Yeah. As you pointed out, our ETF franchise hits $20 billion. It's a $12 billion increase from a year ago, it's an incredible growth rate. We are very excited about it. The platform started to globalize as well. Our also Taiwan ETF assets tripled in a very short period of time, obviously from a small base. The effective fee rate on that business is around 50 basis points. Now our annual run rate revenue for the ETF franchise is $100 million. For a business that is only four years old, we are very excited about the scaling of that platform globalization and the prospects as the ETF adoption in the world on the active side widens.

A really small portion of that were reboots of existing strategies. Most of them were new strategies.

Mm-hmm. Absolutely. Bernstein. Thank you.

helps us capture it faster, it's good.

Excellent. Thanks. Your next question comes from the line of Mason Fleming with Barclays.

Your line is open. Please go ahead.

Hi, this is actually Ben Budish. I wanted maybe a follow-up on the private markets piece. Just curious, maybe a two-parter. I guess first, could you remind us of the normal composition of private markets performance fees? I think most of it comes from credit, but between Part one fees, sort of recurring performance fees, and realization-related revenues, what's the typical mix? Is there any more color you can share on the unrealized marks? I know we've seen some of the non-traded BDCs start to report a little bit, but curious what you're seeing in your portfolio.

What we're seeing in private credit is we are seeing a slight decrease in what we saw last year. I think what we saw last year was in the mid-to-upper teens. You saw the step down in Q1 and Q2. I expect that to more normalize in Q3 and Q4, but not to necessarily the levels of last year, but certainly a step up from Q1 and Q2. I think your question was on the marks. One thing I should have added on the earlier question from Bill is the marks are not related to credit events. These are just unrealized marks that we go out and get the portfolio marked by a third party every quarter, and that's what's driving the reduction in the guidance that we're providing now.

Okay. Understood. Maybe a follow-up on the retirement side. You announced the partnership with Brookfield and Carlyle earlier in the quarter. Just curious, what are your near-term expectations? How should we think about things evolving or how are you thinking about the next, say, 12-18 months, where things could maybe start to rotate into more private markets and target date funds? Thank you. Yeah, sure. We're very excited about our partnership with Brookfield and Carlyle on the new multi-manager, multi-alt product we launched for the DC channel.

We also have several other products in the pipeline in the private credit space. Ultimately, it's a slow-moving part of the industry, given the trustees' kind of fiduciary requirements and some of the committee and other dynamics that takes a pretty long time from consideration to deployment in DC. It's very hard to put precise numbers, particularly over a relatively short 12-18 month period. I would say we are very strongly positioned in the DC channel, given we have a robust credit custom retirement platform. We have the ability to customize glide paths. With those glide path-aware expertise, we can create very differentiated alternatives products by ourselves as well as in collaboration with others.

As the DC market adopts privates, we're going to be a formidable competitor, combining the strength of our DC solutions business with our private alternatives experience. That said, probably this is a more medium-term opportunity versus something that we will play out in the next couple of quarters.

Okay, great. Thank you very much.

There are no further questions at this time. Mr. Zirgali, I will now turn the call back over to you.

Thank you, Tracy. Thank you for everyone joining our call. We look forward to catching up with you next quarter.