Operator: Hello everyone and thank you for joining us. Welcome to the AllianceBernstein Second Quarter twenty twenty six 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. 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 Giorgali. Please go ahead.

Ioannis Giorgali, Head of Investor Relations, AllianceBernstein: Good morning, everyone, and welcome to our second quarter twenty twenty six 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 Arzan, 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, so 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 and A of our 10 Q, which we will file on Friday. 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 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, so please ask all such questions during this call. Now I’ll turn it over to Seth.

Seth Bernstein, Chief Executive Officer, AllianceBernstein: Good morning, and 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 90,000,000,000 to $100,000,000,000 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 $9.00 $5,000,000,000 This milestone reflects both market appreciation and more importantly, the returns on years of investment and 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 $218,000,000,000 including $128,000,000,000 in general account assets. We continue to see strong momentum in third party insurance, where we manage $61,000,000,000 across roughly 100 clients. This includes $34,000,000,000 of general account assets, which are up more than 30% year over year. In the first half of twenty twenty six, we initiated seven new relationships and deployed nearly $3,000,000,000 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’ll add at least $100,000,000,000 of CoreBridge assets, meaningfully enhancing AB’s scale and providing our organic glide path toward $1,000,000,000,000 in firm wide AUM. While it’s too early to be specific, we see synergies from partnering with Corbridge and the new Equitable that go well beyond just managing $100,000,000,000 of incremental assets. Bernstein Private Wealth continues to strengthen its position as a leading advice led wealth platform, ending the quarter with $167,000,000,000 of assets and contributing nearly 40% of firm wide revenue. By serving as our clients’ trusted adviser, 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’ve introduced five new strategies in Europe where we pioneered a dual share cloud structure, offering active usage ETF shares alongside mutual funds. Our platform now spans 31 strategies and over $20,000,000,000 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 $100,000,000 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 $69,000,000,000 of AUM and generated 17% annualized organic growth over the last year. While municipals are still the foundation of our SMA business, we’re 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 $117,000,000,000 in assets.

As plan sponsors increasingly see 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 the 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. Firmwide net flows were nearly $800,000,000 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 $9,000,000,000 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 $3,000,000,000 of inflows. Alternatives and multi asset solutions generated more than $4,000,000,000 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 $11,000,000,000 while taxable fixed income outflows exceeded $4,000,000,000 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 remain resilient and investors continue 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 U. S.

Ag 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 8161% 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 and P five hundred gaining 15%, its strongest quarterly advance in six years. Emerging markets were a standout performer globally as the MSCI Emerging Market 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 232831% 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 $45,000,000,000 of assets under management that continue to outperform over both the three and five year periods. This includes our $10,000,000,000 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 the VAI build out. Now 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 $31,000,000,000 the highest level in five years, driving $900,000,000 of net inflows in the channel’s first quarter of positive organic growth since the first quarter of twenty twenty five. Excluding fixed income mandate from Equitable, our gross sales were $22,000,000,000 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 $9,000,000,000 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 $5,000,000,000 in assets under management and generated nearly $2,000,000,000 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 $05,000,000,000 of net inflows. Demand was driven by alternatives and multi asset with over $4,000,000,000 of net inflows, growing at an 11% annualized organic rate. This marked the sixth consecutive quarter of positive organic growth for the category.

Roughly $5,000,000,000 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 $3,000,000,000 in the quarter. Earlier this month, we successfully onboarded $12,000,000,000 of commercial mortgage loans from Equitable ahead of schedule. Beyond the revenue contribution, the mandate roughly doubles our scale in the 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 new originations and servicing revenues are layered in. Our remaining pipeline totals approximately $14,000,000,000 and is well diversified, including roughly $5,000,000,000 in private alternatives, dollars 3,000,000,000 in customized retirement, 3,000,000,000 in fixed income and $2,000,000,000 in indexed equities. I’d note that this pipeline does not include any of the $100,000,000,000 in expected assets from CorBridge. As a result, we have good visibility into future growth. Turning to Slide eight, I will cover Bernstein Private Wealth.

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 negative $700,000,000 However, net new assets have grown at a 6% annualized rate over the last twelve 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 raise 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 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 platform. I’m particularly proud to report that we’ve already reached $91,000,000,000 of private market assets under management, achieving our 90,000,000,000 to $100,000,000,000 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 $12,000,000,000 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 bankable and CorBridge strengthens what we believe to be a unique competitive advantage for AV. 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 CorBridge meaningfully expands that opportunity. As the $100,000,000,000 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?

Tom Simeone, Chief Financial Officer, AllianceBernstein: Thank you, Seth. Good morning, everyone, and thank you for joining our call. Adjusted earnings for the second quarter of twenty twenty six 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 unitholders. 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 $888,000,000 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 $24,000,000 compared with $30,000,000 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 $2,000,000 while other revenues were unchanged from the prior year period. Turning to expenses. Second quarter total operating expenses were $595,000,000 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 year period and our guidance. We expect to continue accruing at a 40.5% 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 and A expenses increased 2%. Given our continued expense discipline and operating efficiency, we are lowering our full year non compensation expense outlook to $620,000,000 to $640,000,000 compared with our prior range of $625,000,000 to $650,000,000 Promotion and servicing expenses are still expected to represent approximately 20% to 30% of non compensation expenses with G and A comprising the remaining 70% to 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 five to 6% from our prior range of 6% to 7%. Operating income totaled $293,000,000 an increase of seven percent 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% to 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 $9,000,000,000 passive fixed income mandate from Equitable, which funded on June 30. 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 $11,800,000,000 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 $91,000,000,000 of private markets AUM during the quarter, surpassing the low end of our $90,000,000,000 to $100,000,000,000 target, more than a year ahead of schedule and before the onboarding of the commercial mortgage lending mandate. With the addition of approximately $12,000,000,000 of CML assets in July, private markets AUM now exceeds the high end of that target range.

This milestone validates our multiyear 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 twenty twenty six of $115,000,000 to $135,000,000 compared with our prior outlook of $95,000,000 to $115,000,000 This increase is primarily driven by our public market strategies.

We now expect public market performance fees of $60,000,000 to $70,000,000 compared with our prior outlook of $25,000,000 to $35,000,000 The increase reflects second quarter realizations from our alpha generating U. S. 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 $55,000,000 to $65,000,000 compared with our prior range of $70,000,000 to $80,000,000 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 $620,000,000 to $640,000,000 and our expected ABLP tax rate to five to 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 90,000,000,000 to $100,000,000,000 of AUM more than a year ahead of schedule and continue to see a strong pipeline for sustained growth. Looking forward, the addition of $100,000,000,000 of CorBridge 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 CorBridge 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.

Operator: We will now begin the question and answer session. 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. Your first question comes from the line of Craig Siegenthaler with Bank of America.

Your line is open. Please go ahead.

Craig Siegenthaler, Analyst, Bank of America: Good morning, Seth. Hope everyone is doing well. Our question is on the merger of EQH and CorBridge. And CorBridge’s general accounts are managed by a number of third party managers, which have various contracts. And I heard your low fee rate, high margin comment.

But can you update us on your ability to manage more of CorBridge’s general accounts? Specifically, could AB one day manage the whole $200,000,000,000 And actually, it will probably be bigger than $200,000,000,000 when we think about that day in the future.

Onur Arzan, President, AllianceBernstein: Hi, Greg. Good morning. It’s Onur. Let me take that question. As you pointed out that Equitable Corbridge merger represents a big AUM opportunity for AllianceBernstein.

As it was announced at the time of the merger announcement, we expected these $100,000,000,000 of AUM post the close of the transaction over a couple of years time period. And that comes from both general account assets and separate account assets. To put things into perspective, the combined general account assets will be around $350,000,000,000 separate account assets will be around $200,000,000,000 So the AUM base of the combined entity is very, very significant. And on top of that, the origination on the liability side is around 70,000,000,000 to $80,000,000,000 per year. So it will have a lot of money in motion.

So given that large AUM base and the liability origination, we believe even in the existence of other asset managers managing GA assets, 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. But we remain very confident and optimistic about its impact both on our AUM revenue and profitability.

And 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. But 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.

Craig Siegenthaler, Analyst, Bank of America: Thanks, Jonah. I have a follow-up on Asia. So 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. So through these events, I’m curious on how overall appetite and allocations for U. S. Assets have trended across Asia?

Onur Arzan, President, AllianceBernstein: Yes, 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 clients, retail clients basically rotated into high performing local equity markets and stayed away from some of the income generating fixed income strategies. And 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 gathers significant assets as well as some of the more international type strategies like international equities, emerging markets, etcetera. On the broader picture, we have definitely seen some broadening of appetite away from U.

S. Only equity strategies to regional and global. So definitely we have seen a bit of that client demand for diversification across retail institutional. And then 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 and 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. And then finally on alts, the retail alts, particularly retail private credit 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. There is 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. So that’s a bit of the broad picture for you.

Seth Bernstein, Chief Executive Officer, AllianceBernstein: I guess, Craig, it’s Seth. I just would add that we have seen what I would call cyclical rotations in and out in prior periods. And 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 Ono 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. So that is the alternative. And we don’t see any buyer strike. I just think it’s a cyclical phenomenon.

Craig Siegenthaler, Analyst, Bank of America: Thank you very much. Owner, very comprehensive. Thank you.

Onur Arzan, President, AllianceBernstein: Thank you.

Operator: Your next question comes from the line of Bill Katz with TD Securities. Your line is open. Please go ahead.

Bill Katz, Analyst, TD Securities: Okay. Thank you very much and good morning everybody. Just a couple of questions, maybe to start off with Owner perhaps. I wanted 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.

So curious if you’re seeing at the higher end. And 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.

Onur Arzan, President, AllianceBernstein: Sure. Thanks, Bill. Yes, our private wealth business remains very resilient and robust. So 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 twenty twenty five. So definitely seeing strong results there. And then in terms of the alternative side of things, we had a very strong alt fund raise in the second quarter. It was around $900,000,000 for private wealth, significantly higher than the same period prior year as well as the first quarter despite all the headlines.

And our private credit strategies continue to hold up really well with low kind of redemptions. So 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% and I can definitely see that based on our target asset allocation going up to mid teens over time.

I mean, we are a fiduciary, are client need and demand driven. We are not going to shoot for a precise number. But given the client demands and the robust product set we have, we will see that go up. I mean to give an example, I mean in the second quarter alone, we launched multiple new products ranging from long short hedge fund strategies to a muni private credit funds and then new vintages of some of the private equity and venture capital funds. So as a result, our platform continues to broaden and it attracts more assets from existing clients and also brings new clients.

Bill Katz, Analyst, TD Securities: Great. Thank you. And then 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 more be on base rates, but it’s sounding more like some kind of write down.

Just wondering if you could maybe click in a couple of sentences and give a little more detail what’s driving the decline versus the prior guide? Thank you.

Tom Simeone, Chief Financial Officer, AllianceBernstein: Yes. 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.

Bill Katz, Analyst, TD Securities: Thank you. Your

Operator: next question comes from the line of Alex Blostein with Goldman Sachs. Your line is open. Please go ahead.

Alex Blostein, Analyst, Goldman Sachs: Hi. 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 margin. So 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?

Onur Arzan, President, AllianceBernstein: Yes. Hi, Alex. Let me take that. As I referred earlier in the Q and 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. I mean, definitely in line with our current margin or even better depending on the asset class. So as a result, we remain quite optimistic and bullish about the impact of that AUM on our business economics. And then 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 persistence, lower fee asset classes that are highly profitable like our industry leading mini platform.

So as a result, 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 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.

Alex Blostein, Analyst, Goldman Sachs: Yes. No, totally. 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. So I was just kind of thinking through like once it’s all onboarded where the profitability of the business could kind of shake out over time.

Onur Arzan, President, AllianceBernstein: Yes. Definitely there’s more upside from an incremental margin perspective.

Alex Blostein, Analyst, Goldman Sachs: Yes. 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.

So 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?

Onur Arzan, President, AllianceBernstein: Yes, absolutely. So 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. So I don’t see there’s a material risk for our business.

I think they were very clear. They’re not targeting the broader tax away investing or tax loss harvesting strategies if done properly. And great majority of our assets fall in those categories. As you mentioned, munis is the most significant part and that was not referenced. And direct indexing platform, which we have over $10,000,000,000 is the long only.

So as a result, exposure to those other categories is very, very small.

Bill Katz, Analyst, TD Securities: Great. All right. Thank you very much.

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

Dan Fannon, Analyst, Jefferies: Thanks. Good morning. So I 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 funding and operating at scale, that’s where I think the profitability starts to increase. So curious as to how you guys define scale in some of these newer strategies and what is a reasonable time period for which you think you can get that?

Onur Arzan, President, AllianceBernstein: So I mean 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. So that was typically even as high as 45%, 50%. So 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 and some of those asset classes as we build the business will have lower margin. So overall, we are focused on our overall margin and our targets as Tom would remind us is in the 30% to 35% range. We are right in the middle of that. So we feel comfortable with it.

And we again see upside potential from existing large categories like munis, like institutional fixed income, systematic fixed income. So 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.

Tom Simeone, Chief Financial Officer, AllianceBernstein: Yes. If I could just add to that, Omer. We don’t necessarily have to invest in new infrastructure or teams. We already have them here. So we’re going be able to take on those assets with very little incremental costs, and that’s why there’s 45% to 50% dropping down to the bottom line in incremental margin as owner noted.

And then 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 corporate and Equitable at this point, but we do think around 20% to 30% of those assets would come online in 2027 and accelerate from there into 2028 to complete the first $100,000,000,000 that we expect.

Dan Fannon, Analyst, Jefferies: Great. That’s helpful. And then just, I guess, following up on areas of investment and some of the expense guidance. So guidance coming down a bit, curious about where some of the savings are coming from. And then in terms of seems like you’re spending or still investing in several growth areas.

So maybe highlight kind of the areas where the spend is growing and maybe where you’re seeing some of those savings come from?

Tom Simeone, Chief Financial Officer, AllianceBernstein: 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 reinsurance vertical, so 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 accounting.

And this quarter, we did reduce our guidance 5,000,000 to $10,000,000 That’s all we have line of sight into now, but we continue to look and challenge the businesses and they continue to challenge us. So if anything more shakes out, we’ll certainly give you an update in 3Q. Great. Thank you.

Operator: Your next question comes from the line of John Dunn with Evercore. Your line is open. Please go ahead.

John Dunn, Analyst, Evercore: Thank you. You mentioned the future, the security and future fund. Maybe are there any other areas in active equities on the retail side you point to that can be partial offsets? And then maybe same thing for institutional side, any areas of demand you could point to?

Onur Arzan, President, AllianceBernstein: Yes, 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 $7,000,000,000 and so related to the new product. So 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 $3,000,000,000 So really has strong track record, but also really attracting new clients.

So really excited about that. As I mentioned earlier in the Q and A, we have also seen a broadening of the client appetite for non U. S. Strategies. So 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 long standing track records of some of those more maybe historic initiative products, we are also seeing some success on those. Like for instance, we had a good institutional client coming into our REIT global REIT strategy this quarter. So definitely that was great to see as well investing in the public REIT market in equities. And 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 and this excludes our shareholder equitable.

So really pleased with that and it’s broad based in terms of the deployment across different types of private alternatives. So really excited about that. And then we definitely see broadening of the investor demand on the fixed income side. Have seen strong demand on the systematic fixed income in addition to our fundamental fixed income strategies.

Seth Bernstein, Chief Executive Officer, AllianceBernstein: 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. But ultimately, despite having really good performance, U.

S. Large cap value being an excellent example of that, it’s what as you know, what the clients are really interested in buying that really drives those flows.

John Dunn, Analyst, Evercore: Got it. And then just as active ETFs become more of a contributor, maybe could you talk about your kind of strategy around where to put fee rates, what the profitability is and like what client sub like segments are you going after and just like a flavor of the sales process, how you’re finding it?

Onur Arzan, President, AllianceBernstein: No, absolutely. As you pointed out, our ETF franchise hits $20,000,000,000 It’s a $12,000,000,000 increase from a year ago. So 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. So now our annual run rate revenue for the ETF franchise is $100,000,000 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

Seth Bernstein, Chief Executive Officer, AllianceBernstein: the world on the active side widens. And a really small portion of that were reboots of existing strategies. Most of them were new strategies.

Onur Arzan, President, AllianceBernstein: Absolutely.

Seth Bernstein, Chief Executive Officer, AllianceBernstein: Bernstein helped captures investors, so it’s good. Thanks.

Operator: And your next question comes from the line of Mason Fleming with Barclays. Your line is open. Please go ahead.

Ben Budishan, Analyst, Barclays: Hi. This is actually Ben Budishan. Wanted to maybe a follow-up on the private markets piece. Just curious maybe a two parter. I guess first could you kind of remind us of the normal composition of private markets performance fees?

And 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? And 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?

Tom Simeone, Chief Financial Officer, AllianceBernstein: So what we’re seeing in private credit is we are seeing the 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 step up from Q1 and Q2. And then I think your question was

Dan Fannon, Analyst, Jefferies: on the

Tom Simeone, Chief Financial Officer, AllianceBernstein: marks. One thing I should have added on the earlier call from Bill 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.

Ben Budishan, Analyst, Barclays: Okay, understood. Maybe a follow-up on the retirement side. You announced the partnership with Brookfield and Carlisle 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, to eighteen months, where things could maybe start to rotate into more private markets and target date funds? Thank you.

Onur Arzan, President, AllianceBernstein: Yes, sure. We’re very excited about our partnership with Brookfield and Carlyle on the new multi manager multi else 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 kind of takes a pretty long time from consideration to deployment in DC. So it’s very hard to put precise numbers, particularly over a relatively short twelve to eighteen minutee period.

I would say we are very strongly positioned in the DC channel, given we have a robust credit sorry, custom retirement platform. So 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. So as the DC market adopts private, 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.

Ben Budishan, Analyst, Barclays: Okay, great. Thank you very much.

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

Onur Arzan, President, AllianceBernstein: Thank you, Tracy, and thank you for everyone joining our call. We look forward to catching up with you next quarter. Have a great day.