AllianceBernstein Holding L.P. Q2 FY2025 earnings call

• Firm-wide assets under management reached $829 billion, a post-financial crisis high. - Private wealth represents 17% of assets and 35% of base management fees. - Pipeline AUM reached nearly $22 billion. - Net flows turned negative in Q2 with active strategies shedding $4.8 billion, but June flows turned positive. - Active equity shed $6 billion firm-wide, with some slight inflows in active ETFs, thematic and international strategies. - Active fixed income had slight outflows. - Taxable fixed income had $1.5 billion firm-wide outflows offset by $1.2 billion inflows in tax exempt franchise. - Alternatives multi-asset inflows totaled $1.6 billion. - Private markets platform AUM grew 20% YOY to $77 billion. - On track to deliver 33% operating margin in 2025 assuming flat markets. - Investment performance: fixed income portfolios performed well, equities had mixed performance with some strategies outperforming, private alternatives platform had solid performance.

Firm-wide assets under management reached a post-financial crisis high of $829 billion. Private wealth represents 17% of assets and 35% of base management fees. Approximately 10% of the $685 billion asset management business is permanent capital managed for Equitable. Net flows turned negative in the second quarter with active strategies shedding $4.8 billion. Active equity shed $6 billion firm-wide, mainly led by retail. Active fixed income had slight outflows. Alternatives multi-asset inflows totaled $1.6 billion. Private markets platform reached $77 billion in fee paying and net fee eligible AUM for quarter end, growing 20% year-over-year. Retail flows turned negative in the second quarter with active equity shedding $3.7 billion and taxable fixed income generating $2.4 billion in outflows. Excluding passive redemptions, core active strategies had slight inflows in the institutional channel.

• On track to deliver 33% operating margin in 2025 assuming flat markets. - Total performance fees for 2025 projected at $110 million to $130 million, up from prior estimate of $90 million to $105 million. - Non-compensation expenses for full year tightened to fall within $600 million to $620 million. - Aim to grow private markets AUM to $90 billion to $100 billion by 2027 from $77 billion in Q2 2025.

• Geopolitical tensions, policy uncertainty and debt sustainability concerns can impact market sentiment and flows. - Overseas demand for marquee income strategies can lead to outflows. - Market turbulence can impact short-term net flows. - Volatility in rates and foreign exchange, along with uncertain fiscal and trade policies can dampen demand for U.S. dollar-denominated assets.

Q: With Pacific Life Insurer now joining your multi-insurer lifetime income platform, how are you thinking about scaling your retirement income business more broadly? And how should we think about AB share of economics on the retirement income platform? Is this more of a pass-through structure?

A: Onur Erzan: It honor. Thanks for the question. Let me answer it in a couple of different ways. I mean one is, as we highlighted in our earnings announcement and call, Insurance segment is very critical for us, and we continue to expand our engagement and deepening of the Insurance segment in many different aspects of the business and lifetime income is one of those. We are one of the pioneers in lifetime income. Obviously, we have seen an uptick in interest in lifetime income solutions given the demographics, aging of baby boomers as well as some of the SECURE 2.0 Act, kind of dynamics. So there's no material change in our product structure. We continue to add insurers and some insurers drop off. So that's a bit of the backdrop on the PacLife announcement, but we're excited about our relationship with them and the ability to do more over time. In terms of the economics on these products, ultimately, we continue to focus on delivering the guaranteed income for our clients. So although these can be relatively sizable mandates, they tend to be lower fee from an asset management perspective, while some of the economics obviously accrue to the insurers based on the liability structure. And then finally, we continue to work on different lifetime income solutions, both with our main shareholder, Equitable and as well as other third-party insurers. Over time, we might come to the market with different fee economics that could be even more accretive to our overall top line.

Q: Following the amended exchange agreement with Equitable, can you clarify how we should think about the likelihood of further exchanges into AllianceBernstein Holding units?

A: Onur Erzan: Sure. Let me start and Tom and Seth Bernstein, can add. Look, the actual conversion from public units to private units is really driven by a more beneficial tax treatment for the private units. So it really has no bearing on the daily trading volume or anything else. And it has been something that has been done before. So there's nothing unusual about it. Tom, do you have anything you want to add? Thomas Rudolph Simeone: Yes. I guess the only thing I'd add there is, I'd remind everybody that this brings everybody Equitable back to similar to what they had pre-2022 before the CarVal acquisition. Seth Perry Bernstein: You mean in terms of their total holdings... Thomas Rudolph Simeone: Yes.

Q: I wanted to hit on the capital allocation strategy. There were some recent headlines on maybe potential M&A. So if you could speak to your willingness to go down that route and what that would look like?

A: Seth Perry Bernstein: Alex, it's Seth. Just sorry, with regard to the optimization of capital that Tom was referring to or with respect to our investment. Onur Erzan: I think M&A. Seth Perry Bernstein: I just wanted to clarify. Anthony Jameek Corbin: M&A. Seth Perry Bernstein: Okay. Sorry, yes. So look, we continue to look at a number of opportunities, whether it's insurance sidecars or other forms of partnerships with key insurer clients around the world. And it's been pretty active. And we think that we have an opportunity, particularly if we can utilize Equitable's underwriting skills in analyzing those risks to actually utilize our capital, potentially Equitable's capital or a combination of the two to realize incremental flows into our key private alternative strategies. And so there is obviously a limit. We don't want to become an asset-heavy or capital-heavy type of entity, and we would raise the money through issuance of units to fund that as a general proposition, just as we did in the case of Ruby Re. So I don't think it will ever be a material amount of money on our balance sheet, and we are going to watch it very closely. But we do think it's a competitive edge we have, particularly with Equitable's underwriting skills that we want to take advantage of Onur, if there's anything you want to add? Onur Erzan: Yes. One minor add and one additional extension. These sidecar investments, obviously, we have been looking at it for multiple years and looking at the return profile, these tend to generate low to mid-teen kind of ROE. So they're also attractive on a stand-alone basis and any economics we get on the investment management side is accretive or additive to that ROE. So we really like the ROE profile, number one. Number two, I think some of the -- obviously, press has been around our active posture in wealth management. That shouldn't be new news, if you will, going back to previous earnings calls and other market communication. We are always active in the wealth management space. We like wealth management. We have an head scale platform in terms of independent platforms with $150 billion. And we have been in this business for a long time, and we believe we do a good job of serving our clients and growing our business. The way we think about M&A is an enabler. It's not a hammer looking for the nail. We are not a private equity-backed roll-up. But we believe we have operating leverage in our business and scalability in private wealth. And as a result, we can easily double, triple our adviser headcount. We organically continue to hire advisers in attractive geographies and segments. We will continue to add experienced advisers and teams. And in certain cases, adding a small to midsized business might be a faster path to getting that expanded growth. That being said, we're always very selective from a culture perspective, from a platform fit perspective as well as our financial discipline. But the good news is we are getting a lot of inbounds, and this is true both for insurance transactions as well as wealth management transactions. Seth Perry Bernstein: And just to add, I guess, Alex, it's important that Onur made the point about small to midsized because we're very cognizant of the prices for these kinds of businesses. So we need to be careful.