رونوشت کامل Finding Stability in Investing: Masters in Business with Seth Bernstein

don't know what they're doing either. So come on board. And so that's what I did. 00:06:14 Speaker 2: That's unbelievable. So you were global head of fixed income and currency for 10 years, but then CFO of investment management and private banking. 00:06:24 Speaker 1: That was before that. 00:06:25 Speaker 2: That was prior. So I'm working backwards. So the Was fixed income and currency the final spot or was it Global Head of Managed Solutions? 00:06:34 Speaker 1: Global Head of Managed Solutions. I ultimately was asked to go over and run the multi-asset businesses of both investment management, J.P. Morgan Asset Management, and the portfolios for the private bank of J.P. Morgan, which was hard to do because one was a distributor, one was a manufacturer, and we ultimately split it up because we had to. And I then ran all the discretionary money for the private bank and Chase Wealth Management. 00:07:01 Speaker 2: All right. So from there, 32 years at essentially many, many different jobs, but ultimately in the same organization, you decide, all right, I've been doing this for three plus decades. Let's look around and see what's out there. What led you to take the top job at Alliance Bernstein? And that was 2017? Correct. Correct. 00:07:26 Speaker 1: Well, they asked. 00:07:28 Speaker 2: How did they find you? Obviously, when you take on a position like that, they're looking from a variety of different applicants. How did they find you? 00:07:41 Speaker 1: They found me through a person who worked. AXA was the ultimate owner, majority owner of Alliance Bernstein, and it was the owner of Equitable. Alliance Bernstein was part of Equitable prior to AXA purchasing Equitable in 1990-ish. If you'll recall back then, that was right after Drexel collapsed, high-yield collapse, real estate collapse. Equitable got caught up in that. And so Equitable was acquired by AXA, the French insurer, and they made a lot of money with it. They had bought it at a by 2017, AXA had decided to go in a different direction. They wanted to get out of the life insurance business. And so they decided that they needed to sell Equitable in a way to facilitate that sale was to bring Alliance Bernstein and Equitable back together. And so they were looking for a new head of Alliance Bernstein to do that. And so a person I knew from my time at J.P. Morgan was at AXA, and she introduced me to number of the senior people there, and the rest is sort of history. 00:08:55 Speaker 2: So you've been CEO since 2017. At the time you joined, Alliance Bernstein has $ 500 billion. This is significantly higher, coming up on a trillion here. But when you were joining, you're fighting some pretty substantial headwinds. There was a big investor shift going on really since the financial crisis, from active to passive. Fee compression was everywhere. Institutional sales training, I remember when that was 20, 25 cents a share. It went to pennies and then fractions of a penny. What did you find when you joined the company? Anything surprising? Was it what you were expecting? 00:09:37 Speaker 1: No, I don't think you have any idea. Oh, really? When you go from one company after nearly 33 years into another company. I knew a lot of people. I had been a private wealth client. believe it or not, of Bernstein for at that time, 16, 15, 16 years. I competed against them in fixed income. I knew a lot of people worked there, but I had no idea. what was going on. What I found was a company that had had a very tough financial crisis, their own investment performance and value adding growth. If you'll recall, Alliance Bernstein is a merger of the Growth Manager Alliance with the Value Manager and Bernstein. And the stock had soared and AUM, the combined entity, had reached intra-quarter almost $ 900 billion. By 2012, they were $ 380 billion. And what was 70% equities roughly in 2006 was 30% equities in 2012. 00:10:37 Speaker 2: So bonds kind of held their own and equities collapsed. 00:10:39 Speaker 1: Bond performance was pretty good, but equity performance collapsed. We faced a lot of redemptions. My predecessor did a very good job restructuring it. a guy they had recruited out of Goldman, and he had brought in some new teams. And the firm began to develop some really interesting investment performance and equities, which allowed us to buck the trend and have net flows and active equities, which was an important growth. He also started the firm's evolution into private credit, which I've taken a lot further. And the firm was listing but doing better from a performance perspective, not gaining much assets, and then really began to take off. 00:11:20 Speaker 2: So what do you learn after 32 years at an institution that eventually becomes JPMorgan Chase about how great financial institutions are built? What was your takeaway that you brought to AB? 00:11:36 Speaker 1: What I think I brought to AB was a different perspective, more global. than they had. They were very US-centric, although they had a great Asian business. I think I brought an appreciation of how investment processes worked and understanding that you can have the smartest people in the world with the most impressive process deliver appalling returns. It's serendipitous why it works when it does work. So be careful mucking around in it. I think I brought an understanding that the way they had rebuilt Alliance Bernstein was to strip resources from everything but the investment teams because they had nothing to sell. They did it. They did a very good job at it. And I began to focus on distribution, whether it's in private wealth and institutional and most importantly in retail. And we decided to go full focus on the insurance business because we saw that as a really important source growth both for our private credit business but also our fixed income business. 00:12:38 Speaker 2: What do you think big institutions get wrong? Like it sounds like post-GFC, Alliance Bernstein before your

predecessor really took the reins kind of was stumbling. Yeah, it's a little bit of hindsight that we know all the things that were going wrong with large active managers but generally speaking What is it about big institutions that sometimes just don't see these things coming and stumble into the dark on these issues that clearly you identified as problematic? 00:13:16 Speaker 1: Look, I think when the good Lord created business models, asset management was really blessed, right? You have... You have no need for capital or de minimis need for capital, working capital in the business. Your whole revenue stream is structured on ad valorem pricing. So even when you destroy value and markets go up, you make more money, kind of a wonderful thing. 00:13:42 Speaker 2: Right. 10% tailwind never hurts, right? 00:13:44 Speaker 1: Never hurts. And we've certainly benefited as the industry as a whole from that consequence. Thirdly, you get to work with some of the most interesting, if weirdest people in the world. 00:13:55 Speaker 2: Absolutely true. 00:13:56 Speaker 1: And frankly, particularly when you have an RIA and you have to be focused on wealth management, you better become a really good fiduciary because if you're not putting your client's interests first, you're going to lose them because all you have is their confidence in you because your business, Barry, is a word-of-mouth business. People don't come to you, I suspect, not because they've heard you on your show. They come to you because you have clients who say, this guy protected us. 00:14:23 Speaker 2: Yeah, there's an aspect of being a fiduciary that it seems so obvious today but you know fifteen years ago with the fiduciaries were small minority it took a lot and i've been saying this for thirty years and uh... it it's taken me uh... being wrong for decades before the industry caught. 00:14:42 Speaker 1: Up i'm not sure the industry's there yet you look at the big brokerage firms at the very least they've all become hybrid r-i-a-b-d's. 00:14:51 Speaker 2: And dominant fee structure is no longer transactional commission. It's pretty much fee-based. But when I discovered this in the 1990s, I'm like, oh, this can't, this has to change right away. I don't see how this... And it took literally 25 years before the industry and the financial crisis certainly helped. 00:15:12 Speaker 1: Well, but the industry hasn't done itself any favors about it either. I mean, while I don't particularly care for it for... abusive and overly law legislation, the changes that they were trying to make with regard to forcing a higher fiduciary orientation was not a bad idea in concept. 00:15:36 Speaker 2: No, it was a great idea. 00:15:37 Speaker 1: But the industry fought it pretty hard. 00:15:39 Speaker 2: Well, because it meant they couldn't spin these accounts around and generate much higher fees. I mean... Look, either it's a fiduciary standard or it's not. 00:15:50 Speaker 1: It is that black and white. Right.

00:15:51 Speaker 2: You could play with suitable suitability. You know, I used to say, what does suitable mean? Don't sell IPOs to grandma. That's suitability. But that isn't the same as being legally obligated to put the client's interest first. That's a very... And the crazy thing is, and I don't want to go on a rant on this here because this is about you, not me, but shouldn't Your relationship with the person handling your finance, be more like your doctor, lawyer, accountant, and less like the guy selling you a used Honda or BMW. That just doesn't make any. 00:16:28 Speaker 1: Sense to me. You see, to me, that's the key issue that I think the industry has gotten wrong. Because I would dismiss the accountant and the attorney. There is no one you put more trust in than your healthcare advisor. Uh-huh. After that. Who's the next? 00:16:42 Speaker 2: You would think it would be the person handling your money. 00:16:45 Speaker 1: It's your future. It's your kid's education. It's your charitable intent. 00:16:49 Speaker 2: Your retirement. 00:16:50 Speaker 1: It's your retirement. Yeah, I think it's really important. And I think we ignore that to our detriment. 00:16:57 Speaker 2: Coming up, we continue our conversation with Seth Bernstein discussing the turnaround at Alliance Bernstein since he's become CEO. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Seth Bernstein. He is the CEO of Alliance Bernstein, a firm which is managing over $ 905 billion and is majority owned by Equitable Holdings. About 31% is publicly traded. 00:17:33 Speaker 1: Is that right? 00:17:34 Speaker 2: So let's talk a little bit about what was going on when you took over and just how this turnaround... came to pass persistent outflows an active management model a lot of written off research department like so many other research departments were having difficulty justifying a lot of the expenses what was the immediate short-term plan what were your first few months on the. 00:18:02 Speaker 1: Job let's talk about it when you run into trouble before the markets turn it is a silver lining and a blessing. And the firm had begun to take actions and was very much focused on costs. And by the time I arrived, the firm was looking at the merits of moving its headquarters out of New York. Because as the industry commoditized, as active sales were declining broadly, the firm's leases were coming up, and they really had a soul-searching discussion of, can we afford to continue in New York, or do we have to diversify our bets? No decisions had been made by the time I had arrived. They briefed me on what was going on, and it seemed pretty clear to me that there was a compelling case to reduce our footprint here in New York and go find a place where we could find really talented people who we wouldn't have otherwise seen because they either couldn't afford to live in New York or, for example, people who were really tech-savvy Were we going to be high enough on the food chain that they'd look for us to hire them here in New York when you had Google at the time searching for everybody north and south? 00:19:09 Speaker 2: Hoovering everyone up and paying big salaries. 00:19:12 Speaker 1: Exactly right. We do pretty well finding investors and keeping them. We know how to manage them. They have very fruitful careers. But outside of that, it's a more challenging career development issue. And so we looked around. We looked at a number of cities. Our firm, It's overstocked with former consultants. And so we overanalyzed everything. And we came down to five cities, one of which was Nashville. And we announced later in 2017 that we were going to relocate to Tennessee. And we are now eight years into it. 00:19:48 Speaker 2: A thousand people moved down there. right? 00:19:50 Speaker 1: Ultimately, we have 1,100 plus jobs there. 00:19:54 Speaker 2: So let me guess the other cities you were looking at. 00:19:56 Speaker 1: Okay. Are you ready? Yes. It was 15 originally, but I'm only expecting the five. 00:20:00 Speaker 2: I'm going to give you three off the top of my head. Right. Charlotte. 00:20:05 Speaker 1: That was one of the five. 00:20:06 Speaker 2: Because there's so many big banks there and there's a lot of talent. Chicago. 00:20:09 Speaker 1: No. 00:20:10 Speaker 2: Really? A lot of finance talent, half the price in New York. Tampa. 00:20:15 Speaker 1: No. Really? Okay. So you're not doing so good. 00:20:18 Speaker 2: All right. I'm one for three. Dallas. Okay. 00:20:22 Speaker 1: Austin, where we already have a great operation. 00:20:24 Speaker 2: Well, Austin was actually number five in my head. 00:20:26 Speaker 1: Yeah, but it didn't come out there. 00:20:27 Speaker 2: DFA is there. There's a few other people there. 00:20:29 Speaker 1: Schwab's there. 00:20:30 Speaker 2: Mm-hmm. There's still big presence in San Francisco. 00:20:33 Speaker 1: Yeah, yeah, but they have a big operation. And Denver. Denver. 00:20:38 Speaker 2: Oh, that's really interesting. Right. So the obvious question, why Nashville? 00:20:43 Speaker 1: We wanted to be a big fish in a small pond, which we couldn't have been in Charlotte. I mean, Charlotte's a very compelling place. 00:20:51 Speaker 2: Or Dallas. 00:20:52 Speaker 1: Or definitely not Dallas, although what a dynamic. 00:20:55 Speaker 2: A tremendous economy, a ton of hedge funds, a ton of finance. 00:20:58 Speaker 1: A lot of talent there, a lot of people moving everywhere, good demographics. Austin. 00:21:03 Speaker 2: And by the way, Dallas is a very livable city. 00:21:06 Speaker 1: It is, I agree. 00:21:07 Speaker 2: Without, you know, Houston is just a humid swamp, but it's located near all of the oil markets. 00:21:15 Speaker 1: But great art scene and really good food. 00:21:18 Speaker 2: Fantastic food in Houston. Absolutely. You know,

people, Texas is filled with all these lovely things. Really fun stuff. Dallas is, Dallas, I haven't been to Dallas in a few months, a few years. I'm going to be there in the fall. It's just a delightful city. 00:21:32 Speaker 1: Denver's, Austin, sorry, I mentioned Austin, but Austin's tough to get to for our people who are in Asia and in Texas. you know, Europe. 00:21:41 Speaker 2: There's that nerd bird, they used to call it, back and forth from Silicon Valley to Austin. 00:21:46 Speaker 1: Right. 00:21:47 Speaker 2: Decades ago, in the 90s, because even then, the tech companies were moving back office to cheaper taxes, cheaper land, cheaper. 00:21:56 Speaker 1: Yeah, but it's no longer back office. 00:21:58 Speaker 2: Well, that's been the big change. Although, post-pandemic, a lot of Wall Street moved to Miami, and then a bunch of them kind of boomeranged back. It's kind of interesting. We are wildly off topic. Let me bring this back to your first six months at Alliance Bernstein. 00:22:18 Speaker 1: We decided to move to Nashville. That was worth roughly $ 85 million a year to us. 00:22:24 Speaker 2: Really? Yeah. Oh, my goodness. That's a massive savings. 00:22:28 Speaker 1: Oh, my goodness. It was a huge savings. Part of it was real estate. Part of it was people. And it's worked real well for us. 00:22:35 Speaker 2: Wow, almost $ 100 million a year. 00:22:37 Speaker 1: And here's just another part of it. We didn't force any of our investors to move because we're price takers of that talent. 00:22:43 Speaker 2: Right. 00:22:44 Speaker 1: I think now, and I may be wrong, I think we have nearly 100 investors who have elected to move down there. 00:22:50 Speaker 2: When you say investors. 00:22:52 Speaker 1: Money managers. 00:22:53 Speaker 2: Who picked up and left New York and went. 00:22:56 Speaker 1: Or elsewhere. Or wherever. Correct. Uh-huh. 00:22:58 Speaker 2: I mean, don't get me wrong. Nashville is a spectacular, super fun town. 00:23:02 Speaker 1: It's a great town. 00:23:04 Speaker 2: Just not what you think of when you think of as finance. 00:23:06 Speaker 1: Well, you know, ironically, it was like the financial center for the Upper South for many, many years. Oh, really? 00:23:13 Speaker 2: I had no idea. That's really interesting. 00:23:16 Speaker 1: All right. 00:23:16 Speaker 2: So you have this strategic and financial savings by moving there. What were some of the challenges? 00:23:26 Speaker 1: What was. 00:23:27 Speaker 2: oh, gee, we didn't anticipate this happening. 00:23:30 Speaker 1: You mean in moving? Look, I think the most notable challenge is it's a domestically focused city from a private sector employment perspective. It's the healthcare services capital of the U.S., but guess what? Hard to find international tax accountants locally, people with those kind of exposures, and people who had you know, more traditional Wall Street-like training, whether from an operations or technology side. What was a delightful surprise is we got over the wall lots of resumes from people in Atlanta, Chicago, New York, Boston, Chicago, and the West Coast. You're saying, hey, you know, I'm from there, or my spouse is from there, or really like the lifestyle, was there for a bachelorette party, dot, dot, dot. You know, so, but it worked. And so it's been pretty good for us. 00:24:20 Speaker 2: So, As for the international tax accountants, do they have to physically be located in Nashville? If we learned anything during the pandemic, hey, if you have a computer and an internet connection, you can pretty much be anywhere. 00:24:34 Speaker 1: Ultimately, I'm a big believer in people working together collaboratively within the office. We recognize we've got to be flexible, and we're never going back to five days a week. But we want people as close as we can around. But yes, we have people all over the country. We do all over the world. We have functions which operate in multiple locations simultaneously. So of course we can do it, but we want a critical mass there. 00:25:02 Speaker 2: So let's stay with that idea of corporate culture, having everybody in the office together when you can. When you arrived at Alliance Bernstein, what really struck you about part of the culture that needed to be preserved? 00:25:14 Speaker 1: What was. 00:25:15 Speaker 2: Like, hey, this is really something. 00:25:17 Speaker 1: Deep fiduciary culture. Really, really putting clients first, whether it's in our private wealth business or our investment teams. I think both Alliance and Bernstein did that beautifully. And I think that continues to thrive, I hope. That's one of the most important things for me about the institution. We had, as you pointed out, a very well-regarded sell-side research business, which I decided to see if we could reduce our exposure to for exactly the reasons you said. It is an accident of history why a buy-side firm had a sell-side money management, I'm sorry, sell-side research business to start with. But almost everyone cross-subsidizes those businesses. So if they're equity capital markets business or prime brokerage business, we didn't have any of those cross-subsidies to provide to them. And so we entered into a joint venture with SOCGEN, Societe Generale, which has proven to be pretty successful. And their quality of the research remains very strong, and they have a much stronger partner with deep markets capabilities that they are really, I think, doing a good job commercializing. 00:26:29 Speaker 2: And all those other banking relationships that make sense to have a research department with, eventually they take over the research group, or is it always going to be a joint venture? 00:26:39 Speaker 1: No, ultimately it'll transition to them. And that was always the intention. We were quite clear about it. They were very concerned about the culture and not damaging it. It's a large French institution, and these were a bunch of Americans and Brits. And so we needed

to make sure we took stuff very, very mindfully, step by step. We're still midway through that period. We have five years from the anniversary. We have an arrangement, which we talk about from time to time, but that's the plan. 00:27:12 Speaker 2: And in 2022, AB buys Carval, which is a specialist in private market credit and debt issuance. The combined private market platform between Bernstein and Carval is 91, almost $ 100 billion. 00:27:28 Speaker 1: Right. It was roughly 35 before we bought them. So 3X. Right. But they were another $ 16 billion, so call it 50. So we're nearly double what we were when we acquired Carval. 00:27:40 Speaker 2: So I'm really curious, how does what's essentially an equity and fixed income shop like Alliance Bernstein, how do you go about kicking the tires of an alternatives business? There has to be a ton of challenges there. How do you conceptualize those risks? 00:27:57 Speaker 1: Look, I grew up lending. I ran the leverage finance business at J.P. Morgan. It's a business I knew. I'm certainly no current expert on the intricacies of it today. But we had built, prior to me arriving, AB had built quite a successful private credit business. When Lehman collapsed, we took a team out of Lehman to build a middle market lending business. They're with us today, based in Austin, and been remarkably successful, private real estate debt business. And we had a natural client base. We have, in addition to Equitable and now CoreBridge, When that merger occurs, we have 60 insurance companies as clients who we manage money for. 00:28:42 Speaker 2: So you guys are uniquely situated to sell into the insurance market. Obviously, having a majority owner that's an insurer provides one aspect. But given that history, what has it been like looking into that market, which I don't hear a lot of other large shops being aggressive sellers into the world of insurance? 00:29:06 Speaker 1: Sellers or buyers into the world? 00:29:08 Speaker 2: Either or both. Well, you're selling your product to them and taking their assets in, as well as the parent company. Now, we'll talk about that merger later, but you're on, I don't want to say both sides of the trade, but you're selling into that marketplace and have a deep understanding of what the insurance business is. 00:29:29 Speaker 1: We've been managing insurance money forever. I mean, Alliance was started by a life insurer, effectively. And the skills are very different. The client service model is totally different, highly customized, very relationship dependent. The expertise around subject matters, whether it's regulatory accounting, whether it's asset liability matching, really are critical parts of that sale. We do that very well and we continue to invest in it. And, frankly, it's the largest pool of institutional capital there is in fixed income, and it's growing. It's growing at a pretty rapid rate. 00:30:12 Speaker 2: Yeah, you guys and this other kid named Warren Buffett at Berkshire figured out, hey, there's a tremendous amount of stable assets. 00:30:21 Speaker 1: What a great funding source. Right? 00:30:24 Speaker 2: How is it that nobody else really seems. 00:30:26 Speaker 1: To figure this out? Other people have thought about that. Mark Rowan thought about it. I think he's done pretty well. Apollo's done very well. KKR has figured that out. Guggenheim figured that out. A lot of firms have figured it out. 00:30:39 Speaker 2: Really interesting. 00:30:40 Speaker 1: Prudential being a good example. 00:30:42 Speaker 2: Right. They started, but they started on the insurance side, not on the asset management side. Very fair examples. I have to ask about the ETF business. It was effectively non-existent when you joined. Is that a fair statement? That's correct. 31 strategies, $ 21 billion, pretty rapidly. 00:31:03 Speaker 1: All active. 00:31:04 Speaker 2: Actively managed. 00:31:04 Speaker 1: Almost all. 00:31:05 Speaker 2: Very, very little in terms of just passive indexing. 00:31:08 Speaker 1: Very little in terms. And more importantly, almost all of them are new strategies. So they aren't cannibalizing existing strategies. It's not a new wrapper for the vast majority of that. 00:31:19 Speaker 2: So what led you to the ETF business and how did this ramp up? 00:31:22 Speaker 1: I hired an incredibly talented guy named Onur Erzan from McKinsey, who is now president of Alliance Bernstein. And he absolutely banged the table, pounded the table that we got to ramp up our active ETF business. And I think he was right, and we backed it. And it's been a big story for us here. It's a growing story for us in Asia, where we really punch above our weight. And we're excited to see what we can do in Europe. 00:31:49 Speaker 2: Where do you think the ETF business can go for AB? How big can this get? 00:31:55 Speaker 1: I'm pretty confident, absent some weird regulatory or legal reason. You know, for example... 401K plans have a difficult time owning ETS. Department of Labor can change that. But we're not going to launch another mutual fund in the U.S. 00:32:13 Speaker 2: Really? 00:32:14 Speaker 1: I think it'll all be ETS, unless the asset class doesn't suit it for the liquidity constituency of it. But I think it will be the vehicle of choice along with separately managed accounts. I think those will be the two wrappers we really focus on. For an individual who's a client of yours... If you can deliver most of that in SMA form, he or she is paying a lot less tax because you can tax manage it much more effectively. You can avoid wash sales. You can have a less overly diversified portfolio because, remember, you have lots of unintended bets when you have a multi-manager portfolio. Right. 00:32:52 Speaker 2: Really interesting. Coming up, we continue our conversation with Seth Bernstein, CEO of Alliance Bernstein. discussing the current environment for asset management. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg

Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest is Seth Bernstein. He is the CEO of Alliant Bernstein and head of asset management at Equitable Holdings. Alliant Bernstein manages over $ 900 billion in client assets and I have to ask you a funny question. Many years ago, I worked with a guy who, by dumb coincidence, had the same last name as one of the names on the door of the firm. 00:33:40 Speaker 1: Alliance? No, no, no. 00:33:41 Speaker 2: Totally different company, but similar concept to you. And whenever a prospective client would ask, he had this terribly amusing non... answer something along the lines of, look, I'm trying to create my own reputation and brand separate from the family wealth, and I just wish you would treat me as an independent. Never saying, no, I'm completely unrelated to the family. I called it the non-denial denial. I'm curious if Your last name is Bernstein of Alliance Bernstein. Does anyone ever say to you, hey, are you the. 00:34:23 Speaker 1: All the time. 00:34:23 Speaker 2: All the time. Not just a, obviously, you haven't been there. 00:34:27 Speaker 1: Since the beginning. The more insulting question is, are you the founder? And I said, no, I'd be over 100 years old. 00:34:34 Speaker 2: Right. 00:34:34 Speaker 1: 1960, when was it founded? 00:34:34 Speaker 2: 1967. 00:34:34 Speaker 1: Okay, good. 00:34:42 Speaker 2: So when you were done playing with blocks, you didn't have to go into the office that morning? 00:34:48 Speaker 1: No, not that day. 00:34:49 Speaker 2: Not that day. But this really legitimately comes up? 00:34:53 Speaker 1: Regularly, particularly in the private wealth business, but where it's really important to make it clear is in Asia. Because they just assume? Everyone assumes because most of their businesses are family-oriented. But just so you know, in the... final moments of whether I was going to get this job or not, I did offer to change my first name to Alliance. 00:35:15 Speaker 2: That's really amazing. And the fascinating thing about that is if there's any industry that's a meritocracy, it feels like Wall Street has evolved. You live and die on your, forget annual performance, like what your numbers last quarter, last month, last week, it really is performance driven and not you know necessarily your last name uh. 00:35:39 Speaker 1: uh. 00:35:40 Speaker 2: i had to ask if if that came up that's really fascinating uh... so let's talk a little bit about the current environment uh... there is a merger that was approved by shareholders of equitable and core bridge uh... i know the deal has enclosed and so you probably can't really say a whole lot about it this is going to create about a hundred billion dollars of core bridge assets that are going to ultimately end up, I assume, move over to AB. Does anything change for you guys with the soon merger of Equitable and Corbridge? 00:36:19 Speaker 1: Other than the assets, I'm not aware of anything changing. And they very much value the identity that AB has. And we are thrilled by the merger and the opportunities that will bring. uh... but known no changes anticipated. 00:36:39 Speaker 2: So so let's talk a little bit about about some of the assets that that you guys have been growing private credit at least up until this year has been a house of fire uh... what do you think about the future of private credit what what's going on there. 00:36:56 Speaker 1: Banks are constrained in their ability to continue to service through loans their clients. They've been that way structurally certainly since the financial crisis and even before that. It was hard to hold these assets on balance sheet. JP Morgan spent enormous amount of time and money trying to securitize their loan book. In fact, that's where Credit Derivatives started and I worked in the groups that helped formulate that, although I certainly was in no way the father of the engineer around that. it was critically important to reduce that exposure on most bank balance sheets. I believe that trend continues. Banks are levered players. They're funded short. They're not natural holders of long-lived, particularly fixed-rate assets. Insurers are a much better home for that. And frankly, so are funds, because funds don't offer true liquidity options for you. There's no run Now, what we've seen recently, and one of the reasons private credit has been in the news is vehicles structured for wealthier clients did have some very limited liquidity options. But ultimately, there is no maturity transformation in credit. You got what you got. And frankly, I think there shouldn't be any liquidity other than the payment of interest and credit. repayment of the debt itself. 00:38:27 Speaker 2: I'm glad you say that because I frequently have this conversation with peers elsewhere. Which part of seven-year lockup did you find confusing? Like the illiquidity premium exists because it's illiquid. If you want liquidity, well, here's a hundred trillion dollars in the public fixed income markets. Have at it. Am I being too harsh or is that a fair statement? 00:38:51 Speaker 1: Look, I think People want to get the stuff sold, and so they try to do what they can. But frankly, I think giving any expectation, and frankly, I think the documents were pretty clear that liquidity isn't there. But I think better that we go through this now before there's any significant credit deterioration. I mean, clearly, there's some deterioration out there. 00:39:14 Speaker 2: It's relatively, for anyone who lives through GFC, this is. 00:39:18 Speaker 1: Nothing. So the truth of the matter is, while there will be loans that go bad, I think most of these funds will be pretty fine at the end of the day. And ultimately, there's a role for it to play. But it's really, our focus is much more institutionally focused. 00:39:35 Speaker 2: Than what we've seen some of the areas in it. And just so people understand,

there's a, depending on the funds, 2%, 3%, 4% default expectation built into these models. It's not like oh my God, something defaulted, that's just what happens in the normal. 00:39:53 Speaker 1: Course of events. That's just the nature of lending money, and that's absolutely true. Now, we have private credit in our private wealth businesses as well, and I think properly structured does a role for you, particularly if you have an tax-advantaged location to put it. 00:40:08 Speaker 2: So let's talk a little bit about private credit. I think the big issue from earlier this year, and hold aside the specific companies that kind of ran into trouble, but You know, when you look at what's going on, there's a wide dispersion of underwriting quality. There's some variance in how often and how precisely these marks happen in these non-traded things. And then, again, we come back to the redemptions in non-traded vehicles always kind of shocked me. What does this industry need to do to get past the sort of difficult first half of the year We saw in 2026. 00:40:50 Speaker 1: Post numbers would show that maybe there's a deterioration, but it's not meaningful yet. Educate clients on what's going on by providing them more transparency and the ascent of clarifying how many names are on your watch list, how many have gone non-accrual. 00:41:11 Speaker 2: There's no obligation to do that currently. 00:41:14 Speaker 1: There is, and they do it for accounting and reporting reasons, but ultimately regular periodic updating of your clients probably makes them more comfortable with what's going on. You should be over-communicating during periods like this. 00:41:27 Speaker 2: That's really... During periods like this or always? 00:41:31 Speaker 1: Well, I think always, because ultimately they're trusting that you're giving them a balanced view of what's going on. 00:41:38 Speaker 2: And to be fair... The headlines are not about the whole industry. It's about a small handful of companies that have run into modest issues, not terribly... Again, we're not in. 00:41:51 Speaker 1: And there's always been fraud. And that's what we've seen come out from time to time. 00:41:55 Speaker 2: In a couple of places. 00:41:56 Speaker 1: In a couple of places. But the truth of the matter is there's been an enormous amount of money that's focused on this segment. And so I think you're absolutely right. Structuring terms and pricing... got out of whack. But frankly, it's a much better time to be investing today post that event. 00:42:14 Speaker 2: So let's talk a little bit about where this space is going. For most of my career, private credit has been pretty much all institutional. Over the past few years, we've seen a big take up from wealth management side, RIAs, etc. And then a lot of conversations about this being available for retirement accounts or 401ks. Tell us your thoughts. What do you think happens with private credit? And how do we do this the right way so we don't run into

these problems? 00:42:45 Speaker 1: I think actually, target date funds, 401ks generally might be a perfectly appropriate place for it. Highly predictable needs. You have professional management making those decisions, usually separate from the people managing the money themselves, the sponsors of those 401k plans. They're pretty sophisticated investors in their own right. Private credit, particularly for individuals who need the income that those portfolios will generate, might have a very welcome spot in it. And in fact, we are. We think leaders in working with other private asset managers in developing vehicles to utilize side by side with your target date funds in order to build a highly diversified private credit, private equity, private real estate exposures for the beneficiaries of those plans. To me, that's an institutional purchase because there's someone intermediating that decision. 00:43:57 Speaker 2: So let's talk about that group. It's Alliance, Bernstein, Brookfield, and Carlisle working together. How did this come together, and where do you think this goes? 00:44:08 Speaker 1: Well, I think it came together as we were talking to other firms about what we thought. We've been a pioneer in the 401k business and building particularly custom glide paths and target dates for big, sophisticated plan sponsors, state plans, corporate plans, and There was clearly a desire to get a higher return built in over time into these portfolios, given the aging population, the need for diversification and different sources of return. And so we went and polled a number of different firms, and we ended up finding we had really compatible philosophies and capabilities with Carlisle. We engaged with a number of firms and tried to understand who would be a a natural compliment to us. And from a private or real asset side, we thought Brookfield would be a very strong partner. And from a private equity side, we thought Carlisle brought a lot to the table. So we ultimately formed it. And it's very early days. I think the industry has been too enthusiastic about how quickly all of this will be adopted. Plan sponsors tend to be a pretty conservative group of people. at the end of the day. And it's going to take years for this really to develop. But 10 years from now, will that be part of most of the large plans? I suspect it will be. 00:45:35 Speaker 2: How do you address some of the criticism? Anytime we see a new 401k plan come along or a sponsor come along, I always am raising my eyebrows about how much the industry, and to some degree you can blame BlackRock and Vanguard for this, has driven fees down generally but even more so in for one case it in the old days i look over for one k indy aghast that why you paying two percent for an s & p five hundred fund this doesn't make any sense now i look across uh... some of the for one case that i see they're very inexpensive can can privates find their way into for one case at a competitive price. 00:46:20 Speaker 1: Point yes i think for two reasons one These are institutional investors in their own right, so they're going to negotiate hard to get lower fees. Insurers don't pay huge fees for private credit because the cost of funds matters enormously to them. Secondly, it's a very small portion of the title portfolio, and frankly, the cost of administering the overall plan. So between their competitive power as buyers, institutional buyers, and the small component of the total target date portfolio that they're going to constitute it's a pretty small part of the of the fee burden that a client is going to be carrying and frankly it should be fairly easy to outperform net of fees and that's all anyone really cares and that's really all that right. 00:47:11 Speaker 2: Especially we've been in a low rate environment for so long the expectation is maybe it's higher for longer but not ten years So we'll be back to a lower interest rate, not zero, but lower interest rate environment. And people want some yield. That's really the driving thinking here. 00:47:29 Speaker 1: I think that's exactly what the thing is. Look, if you look at the supers in Australia, which are really interesting innovations, the super attenuation funds in Australia have been intellectual leaders in how to think about retirement. And one of the really interesting things they do is they structure glide paths through retirement. rather than to retirement. The last thing you need most people at age 65 is to be predominantly in short-term fixed income and cash. You need to be invested. 00:48:02 Speaker 2: On the assumption you have another 20, 25 years to go. 00:48:05 Speaker 1: Even 10 years to go. 00:48:07 Speaker 2: Yes. 00:48:08 Speaker 1: Most people don't have enough money to retire. So a lot of people defer their ultimate retirement and get supplemental income elsewhere. So planning into retirement, I think, is a pretty prudent thing to do. Ultimately, if you're able to tie that to purchasing annuities at a pretty low cost, so not purchasing them necessarily up front, but maybe planning your target dates to end with a pool of liquidity to turn around and buy annuities at age 75, for example, you could really reduce the cost of that and give people income protection for a longer period of their life. I think the really interesting things that are going to continue to evolve in the target date space. 00:48:48 Speaker 2: Really, really interesting. Since you mentioned 65, I have to ask, you're coming up on a decade as CEO. Do you think about succession planning? Have you thought about who follows you when you decide to take your retirement? 00:49:07 Speaker 1: You see, I think that's one of my most basic obligations. And we spend a lot of time on succession planning, not just for me. but for all the senior leadership of our firm. And yes, we... we have plans in place. And I don't expect to be there forever. So yes. 00:49:30 Speaker 2: So given that you're there in a few months, 10

years, what are you most proud of? What decisions did you make? Would you wish you could undo, and what of the long-term plan remains unfinished at Alliance Bernstein? 00:49:47 Speaker 1: Oh, good question. What should I have done that I didn't do? I should have put my own people in quicker. Just as a learning to me and any new CEO, you need people you really trust can execute a transition and are bought into it, and change is a good thing. It's not necessarily a bad thing. Secondly, I'm particularly proud of what we've done in our private credit space. I'm really proud of what we've done in the insurance space. I think those are winners. We have built a market-leading SMA platform for munis. We are growing really rapidly. We've automated the investment process. We give people choice. We give people... We give people information and we give people client service that they don't get at other firms. And it's been growing like a weed for a while now. I'm very proud of what our fixed income team has done there. I think our private wealth business remains a gem. We have incredibly loyal clients and I'd love to grow that business more rapidly than we have. We are growing at a good rate, but we don't... We grow organically. We haven't grown inorganically, frankly, because valuations for our IAs are hard to justify. Also, we're very sensitive to cultural implications of big mergers. They just don't have a great track record of working, either in the wealth management space or the investment management space. 00:51:26 Speaker 2: So last question, which I have to, before I get to my favorites, which I have to ask you as both the current CEO and former CFO, uh... the the a b stock price has been fairly stable your dividends are pretty beefy something like nine or ten percent it is that something that is by design or is it just the nature of you guys throw off a lot of free cash. 00:51:51 Speaker 1: Flow the industry throws off an enormous amount of free cash flow and in a mature business you should probably be distributing in our case it's by design were about the last publicly traded partnership. 00:52:05 Speaker 2: Which is an unusual structure in itself. 00:52:06 Speaker 1: Very unusual. The only place people used to see them were really in MLPs and stuff, in the energy sector in particular. 00:52:15 Speaker 2: And the dreaded K-1s. 00:52:17 Speaker 1: And we issued K-1s. So that's a hassle, which limits institutional interest in the stock. But that's who we are. That's what we have. 00:52:30 Speaker 2: And I find that such a fascinating, quirky thing, and yet I guess it's the institutional allergy to K1s. Otherwise, I would imagine there'd be broader ownership of a coupon like that. It's essentially a high-yielding bond with an equity kicker. 00:52:53 Speaker 1: That's essential. It's a convert. 00:52:55 Speaker 2: That's what it looks like. 00:52:56 Speaker 1: And, I mean, the truth of the matter is that if I really believed, if the board really believed the stock price would really pop, if our majority owner didn't have a negative tax implication of doing it, I think you're obliged to look at it. But the honest answer is, if you do it and you don't get that pop, you've got a lot of people who are not so happy with you. 00:53:20 Speaker 2: To say the very least. All right, I only have you for a few more minutes, so let's jump to our favorite questions that we ask all of our guests, starting with, Who are your mentors who helped shape your career? 00:53:33 Speaker 1: Oh, I had a number of mentors. I guess my most influential mentor was my mother. She was a very successful advertising executive. And she was no nonsense, always. But when I go beyond that, at J.P. Morgan, the guy who ran equity capital markets and believed in me, a guy named Brian Watson, who ended up running the private equity, I'm sorry, the venture capital and private equity business of JP Morgan before the merger. He was a really instrumental mentor to me. I think that the guy who runs Equitable, Mark Pearson, has been an unbelievable mentor and partner in running it because the relationship between those two firms was rocky for time. And I think we've run it as well. one larger business while maintaining the individuality of the individual business units. Those are three people that come to mind. 00:54:33 Speaker 2: Really interesting. Let's talk about books. What are some of your favorites? What are you reading currently? 00:54:39 Speaker 1: I am reading the new book on the Trump administration that came out that Maggie Harrison wrote. 00:54:46 Speaker 2: She's always a fun, fiery writer. 00:54:49 Speaker 1: She sure is. And it brings it home and it brings it live. During During COVID, a bunch of friends and I got together and created a book club. And so we were leading... We never read fiction. And so for... While the book club was operating, we read a ton of fiction, which was. 00:55:08 Speaker 2: Give us a few names. 00:55:11 Speaker 1: We read Razor's Edge. We read Kim by Roger Kipling. We read the. 00:55:24 Speaker 1: Um, we were kind of having a senior moment, um, which come more and more frequently. 00:55:31 Speaker 2: Um, it only trends James direction as an older man. 00:55:34 Speaker 1: It gets worse as an older man. I can tell you it only, right. 00:55:37 Speaker 2: I'm a day older than you. And let me just share my experience. It only gets worse. 00:55:42 Speaker 1: One of the books we read, which we, I love was James, which is kind of a retelling of, of, of the, um, Huckleberry Finn. 00:55:54 Speaker 2: Oh, really? 00:55:54 Speaker 1: It's a fantastic film. 00:55:55 Speaker 2: James, I'm going to definitely put that on my list. Since you mentioned what you were doing. 00:56:00 Speaker 1: Tom Sawyer, yeah. 00:56:02 Speaker 2: Since you mentioned what you were doing during the pandemic, what about streaming? Are you watching or listening to anything? 00:56:10 Speaker 1: No, my wife hates me because I don't watch stuff with her. Oh, really? I mean, we did. We watched a lot of things like Shrinking. We love Shrinking. I was a big Game of Thrones fan and stuff like that. But no, I don't I read a lot, yeah, so I'm not great at that. 00:56:26 Speaker 2: Final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing, wealth management, fixed income trading, anything along those lines? Sure. 00:56:40 Speaker 1: My advice to them is never act like you know the answer if you don't because you don't People aren't going to trust you because of your experience. So if you lose that trust early, it's really hard to regain. 00:56:55 Speaker 2: Wait, don't fake it until you make it? 00:56:57 Speaker 1: I think you're out of your mind. 00:56:59 Speaker 2: I heard that year after year after year and always hated it. 00:57:03 Speaker 1: The second thing I would say to you is the other side of that coin, which is ask lots of questions. It's okay. I mean, you can get totally irritating, and I'm going to throw you out of my office eventually. But I don't expect you to know. The answer. 00:57:18 Speaker 2: And our final question, what do you know about the world of investing today might have been useful 30, 40 years ago when you were first getting started? 00:57:30 Speaker 1: People who think they can time the market and actually can prove out that they really do it well, you can count on one hand. Diversification, no one diversifies to get rich. You diversify to stay rich. 00:57:44 Speaker 2: And those are two very different skill sets, aren't they? Exactly. Really fascinating. Seth, thank you so much for being so generous with your time. This has been absolutely delightful. We have been speaking with Seth Bernstein. He is the CEO of Alliance Bernstein and the head of asset management at Equitable Holdings. If you enjoy this conversation, well, check out any of the 659 we've done over the past 12 years. You can find those at Bloomberg, iTunes, Spotify, YouTube, or wherever you find your favorite podcasts. I would be remiss if I didn't thank the craft staff that helps put these conversations together each and every week. Sean Russo is my head of research. Anna Luke is my producer. And today is the last episode of Alexis Noriega, my video producer, who helped bring Masters in Business to the video world over the past year. I just want to say an extra special thank you to Alexis for everything she's done for us. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.