AllianceBernstein Holding L.P. Units

Thank you for standing by and welcome to the Alliance Bernstein first quarter 2026 earnings review. At this time all participants are in a listen only mode. After the remarks there will be a question and answer session and I will give you instructions on how to ask questions at that time. 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. Yannis Jargali. Please go ahead.

Good morning, everyone, and welcome to our first quarter 2026 earnings review. Today's conference call is being webcast and is accompanied by a slide presentation available in the investor relations section of our website at www.alliancepernstein.com. Joining us to discuss The company's quarterly results are Seth Bernstein, our Chief Executive Officer, and Tom Simeone, our Chief Financial Officer. Onur Erzan, our President, will join us for the question and answer session following our prepared remarks. Some of the information we'll present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure, so I would like to point out the safe harbor language on slide two of our presentations. You can also find our safe harbor language in the MD&A of our 10-Q, which we will file on Friday. We base our distribution to unit holders on our adjusted results, which we provide in addition to and not as a substitute for our GAP results. Our standard GAP reporting and a reconciliation of GAP 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.

Good morning, and thank you for joining us today. While the first quarter was marked by geopolitical tensions and elevated volatility, AB's results underscored the resilience of our platform and our diversified business mix. I want to start by highlighting the key themes that shape this quarter listed on slide three. First, the proposed equitable core bridge merger will provide a step function acceleration of our flywheel and meaningfully enhance AB's scale and growth outlook. The combined company will have over $350 billion of general account assets and generate $70 to $80 billion of new liabilities annually, positioning AB among the most strategically important players in the insurance asset management channels. Over time, we expect to manage at least $100 billion of general and separate account assets from Corbridge. We look forward to supporting our new partner in delivering better outcomes for their policyholders, while we benefit from enhanced scale, improved earnings durability, and increased capacity to invest for growth. We believe this announcement will further accelerate the momentum already evident across our insurance franchise. Today, we serve more than 90 third-party insurance clients with $58 billion of AUM, including $32 billion of general account assets. Deployments from recently announced strategic insurance partnerships are progressing ahead of schedule and are expanding beyond the initial mandates. We are well positioned to benefit as these partnerships continue to grow. Second, while we continue to drive inflows from secular growth engines like insurance, private markets, and active ETFs, We had firm-wide active net outflows of approximately $6 billion in the first quarter, concentrated within a subset of active equity strategies. Active equity outflows of roughly $11 billion spanned across channels and reflect recent performance challenges as well as client allocation decisions. We also had taxable fixed income outflows of nearly $2 billion, as positive institutional engagement was offset by retail redemptions concentrated in the Asia-Pacific regions. Turning to the positives, we generated over $3 billion of organic inflows and tax-exempt fixed income and alternatives multi-asset strategies, respectively. Our private market platform reached $85 billion in AUM, up 13% year-over-year, reflecting strong institutional momentum. At the same time, our SMA business stands at $63 billion, growing organically at 15% annualized rate in the first quarter. We continue to build on our technological edge and efficiency benefits for financial advisors, expanding from a predominantly municipal-focused SMA offering to a broader multi-asset toolkit. We're seeing real traction in taxable fixed-income SMAs, highlighted by a recently funded $300 million mandate. AB has long been a market leader in tax-optimized fixed-income SMAs, an area made increasingly scalable by recent advances in data science. Our active ETF lineup now encompasses 25 strategies with more than $16 billion in AUM of over 150% year-over-year, with eight of our ETFs surpassing $1 billion AUM, including our five-star rated disruptors ETF, ticker FWD. Our security of the future thematic portfolio has surpassed $4 billion in assets, nearly tripling from a year ago, with $1.7 billion of inflows in the first quarter alone. While these offerings are currently smaller than some of our larger marquee services, they represent emerging durable growth engines that will reshape the composition of our AUM over time. Looking forward, our institutional channel is positioned for accelerating net flows in the second half of 2026, supported by the largest pipeline on record, surpassing $27 billion in AUM. Third, our distribution platform provides direct access to secularly growing channels, including ultra-high net worth, insurance asset management, and defined contribution. Together, these account for more than 45% of firm-wide AUM and provide relative stability across market cycles. Bernstein Private Wealth ended the quarter with $155 billion in assets under management, and it contributes more than one-third of firm-wide revenues. Our insurance asset management business now manages approximately $120 billion of insurance general account assets across a growing roster of global partners. Our customized retirement business exceeds $100 billion in defined contribution assets, and we continue to innovate by incorporating a broader set of asset classes, including private markets and insurance solutions that provide guaranteed lifetime income. Overall, while this quarter's results reflect mixed dynamics and pressure from the challenging macro backdrop, We believe our broad product capabilities and differentiated distribution position AB well to generate organic growth over time. Slide four provides an overview of our financial results, and Tom will walk through these in greater detail later. Turning to slide five, I'll review our investment performance, starting with fixed income. Global bond markets posted modestly negative returns in the first quarter. as heightened geopolitical tension, rising energy prices, and shifting policy expectations pushed yields higher across most developed markets. Credit markets were mixed. Investment-grade and high-yield corporates posted modest declines overall, with U.S. corporates outperforming Eurozone peers, while secured-size assets proved resilient. The Bloomberg U.S. Aggregate Index was roughly flat, outperforming the global aggregate, which returned negative 1.1% in the quarter. Our American income and global high-yield products both underperformed their respective benchmarks in the first quarter. Yield curve positioning and allocation to emerging markets detracted from AIP's relative returns, while GHY was similarly affected by European high-yield exposure and EM corporates. Notwithstanding near-term headwinds, our fixed income platform continues to form well over longer measurement periods. when half of our assets outperformed over the one-year period, while 80% outperformed over three years and 64% over five years. Turning to equities, U.S. equity markets were hurt in the first quarter of 2026, with the S&P 500 returning negative 4.3%. The quarter began constructively, but reversed with the emergence of credit concerns, AI-related disintermediation risks, and escalating geopolitical tensions. Despite some early signs of improvement in year-to-date relative performance, our track records remain pressured and below our expectations. 23% of assets under management outperformed over the one year, 24% over three years, and 44% over five years. This primarily reflects the outsized impact of our larger U.S.-oriented growth strategies that have underperformed this quality growth derated in recent quarters. However, our equity platform is intentionally diversified across styles and geographies, avoiding over-reliance on any single market regime. International and emerging market strategies with a smaller AUM base continue to perform well. In fact, we have more than 25 strategies with nearly $40 billion of AUM that are outperforming their respective benchmarks or composites over both the three- and five-year periods, with eight out of the ten largest among them being international or global strategies. As market breadth began to improve entering 2026, a growing share of our growth, value, core, and thematic strategies delivered stronger relative results. Looking ahead, we believe a more balanced earnings environment and continued economic stability could favor international and value-oriented strategies, while lower tracking error portfolios may provide clients with more consistent participation across shifting market leadership. Turning to slide six, I'll discuss our retail highlights. Retail growth sales rose sequentially and surpassed $23 billion for the first time in four quarters. However, the channel recorded net outflows of nearly $6 billion in the first quarter, reflecting elevated redemptions. Active equity and taxable fixed income each exceeded $4 billion in outflows, driven primarily by redemptions from select marquee U.S. services in Asia Pacific, as relative value and capital flows have shifted toward neighboring and domestic markets. Passive equities and passive fixed income also posted outflows. These headwinds were partially offset by more than $3 billion of tax-exempt inflows and nearly $1 billion of alternatives and multi-asset inflows, continuing their durable organic growth trajectories. Our retail muni SMA platform has consecutively positive quarterly inflows for more than three years, a testament to the compounding strength of our market-leading capabilities. We are well-positioned as the bond reallocation trend continues to unfold, particularly as we extend our success into tax-aware SMAs. Moving to slide seven, I'll cover our institutional channel. Institutional gross sales also increased, both sequentially and year over year. However, the channel had roughly $2 billion of net outflows, primarily driven by more than $5 billion in active equity outflows. Despite some short-term headwinds from insurance hedging activity, the channel recorded over $2 billion of inflows in taxable fixed income, reflecting broadly improved institutional appetite. Alternatives multi-asset also saw positive inflows for the fifth consecutive quarter, supported by deployments in private markets and fundings of defined contribution plans. Institutional engagement across private credit has persisted, with nearly $1 billion of deployments on the back of improved terms and widening spreads. This includes direct lending, where ABPCI recently secured a half-billion third-party institutional mandate reflected on our pipelines. Furthermore, our pipeline has reached a record-high $27.5 billion in assets under management, supported by $9 billion in new commitments. This growth reflects expansion of our recently announced insurance partnerships to include additional mandates. It also includes an increase in Equitable's commercial mortgage loan commitments to $12 billion, up from the previously announced $10 billion. The pipeline fee rate declined slightly to 19 basis points, primarily due to the addition of sizable fixed income and passive equity mandates. Excluding roughly $5 billion in passive mandates included in the pipeline, the fee rate for active AUMs stands at 23 basis points. Next on slide 8, I'll cover private wealth. Quarterly growth sales continued to set new records of Bernstein private wealth, with the channel registering its third consecutive quarter of organic growth. Inflows grew nearly 2% annualized, while net new client assets rose 5% annualized in the first quarter. Redemption requests for private credit products that offer periodic liquidity stayed well below our 2.5% quarterly cap. This is a testament to the combined strength of our highly specialized advisory sales force, coupled with ABPCI's strong investment track record, built on a decade-long partnership since Bernstein was among the pioneers that distributed direct lending as an asset class. I'm particularly proud of the differentiated client service we offer in Alternatives. reinforced by the seamless collaboration between our homegrown distribution and investment teams, a defining advantage for Alliance Bernstein. Advisor Headcount is tracking ahead of our 5% annual growth target. We believe our platform offers exceptional support and training that drives industry-leading advisor productivity, attracting both experienced and emerging talent. As we continue to invest in Advisor Headcount growth and productivity, including integrating generative AI capabilities into daily advisor workflows, we anticipate continuous client experience improvement, along with more targeted and effective prospecting. Advisor headcount remains a key area of focused investment and a critical lever for long-term growth within the channel. I will close with slides 9 and 10, which highlight the momentum of our private markets platform and the opportunities from the equitable core bridge merger. In partnership with Equitable, we have scaled our private markets platform to $85 billion in fee-paying and fee-eligible AUM, anchored primarily in credit-oriented strategies, including direct lending, asset-based finance, commercial real estate debt, and investment-grade and corporate structured private placements. Equitable's $20 billion permanent capital commitment, now fully deployed and exceeding the original commitment, has been a critical catalyst, accelerating our expansion in private markets while strengthening our ability to seed and scale higher-feed strategies. Our collaboration continues to deepen and evolve, progressing across residential mortgage solutions, structured private placements, and most recently, commercial mortgage loans. Each initiative builds incremental scale while broadening the applicability of our capabilities across third-party insurance and other institutional client channels. Our goal is to serve a diverse base of retail, institutional, and insurance clients across a wide range of risk-return objectives. The proposed equitable core bridge merger amplifies the supply wheel. With a combined general account asset base exceeding $350 billion and a broader liability profile, the merged company will be one of the largest players in the industry, creating significant opportunities for AB. Importantly, the strategies developed for equitable are not bespoke or standalone solutions. They form the commercial foundation from which we serve a growing universe of third-party insurance and institutional clients worldwide. Amplifying the flywheel with the inclusion of Corbidge is a defining moment in AB's evolution, not simply additive to our existing asset base, but potentially transformative in its impact on scale, earnings, durability, and long-term strategic positioning. With a proven operating model, a powerful strategic partner, and a focused growth strategy, We're well positioned to achieve our $90 to $100 billion private markets AUM target by 2027 and extend our growth trajectory beyond that milestone. With that, I will pass it on to Tom to discuss our financial results.

Thank you, Seth. Good morning, everyone, and thank you for joining our call. Adjusted earnings for the first quarter of 2026 were 83 cents per unit, representing a 4% increase year over year. Distributions grew uniformly with EPU as we distribute 100% of our adjusted earnings to unit holders. On slide 11, we present our adjusted results, which exclude 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 first quarter, net revenues reached $871 million, representing a 4% increase year-over-year. Base fees grew 5% year-over-year, reflecting 8% higher average AUM partial offset by a lower firm-wide fee rate due to mix shift. Performance fees totaled approximately $23 million, down $16 million year-over-year, reflecting lower realizations from private market strategies. Our full-year private markets performance fee outlook remains unchanged at $70 to $80 million. Importantly, we are increasing our full-year combined performance fee outlook to $95 to $115 million, reflecting stronger-than-expected contributions from public market strategies. I will cover this in more detail shortly. 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 losses totaled $5 million, largely attributable to hedging costs associated with seed-like investments. Other revenues totaled $20 million, up $6 million versus prior year's quarter, driven primarily by higher shareholder servicing fees and mutual fund reimbursements. Turning to expenses, First quarter, total operating expenses were $580 million, up 4% year-over-year, driven by a 4% increase in compensation expense and a 5% increase in non-compensation expenses. Total compensation and benefits rose 4% year-over-year, with a compensation ratio of 48.5% of adjusted net revenues, consistent with last year's accrual rate. We expect to continue accruing at 48.5% compensation to net revenue ratio in the second quarter, while remaining mindful of market volatility and potential adjustments in the second half of the year as conditions evolve. Promotion and servicing expenses increased by $1 million, while G&A expenses increased by $6 million, or 5% year over year, reflecting normalization from relatively depressed levels in the first quarter of last year. For full year 2026, We continue to expect non-compensation expenses to range between $625 million and $650 million. This outlook reflects normalization in promotion and G&A expenses, along with discretionary investments in technology and the operational build-out for new strategies. Promotion and servicing expenses are expected to represent 20% to 30% of non-compensation expense, while G&A comprising the remaining 70% to 80%. We are making steady progress integrating the new commercial mortgage loans platform. Importantly, Equitable has increased its long duration general account mandate to $12 billion from $10 billion, with onboarding in the second half of the year and the assets producing a high single digit fee rate. Interest expense on borrowings was flat compared with the prior year. ABLP's effective tax rate was 5.6% in the first quarter of 2026, which reflects a favorable mix of earnings. We continue to forecast ABLP's effective tax rate in 2026 to be between 6% and 7%. Our operating income of $291 million is up 3% versus the prior year, slightly below the growth in revenues and operating expenses. Our adjusted operating margin was 33.4% in the first quarter, down 30 basis points year-over-year due to investments in the business. These investments include technology initiatives, the onboarding of new investment teams, and increasing financial advisor headcount. Importantly, margins remain at the high end of our investor day target range of 30 to 35 percent, which we had expected to achieve by 2027. As markets normalize, we expect improved operating leverage to support stronger flow through from existing services, reinforcing our ability to balance reinvestment with profitability. In the first quarter, our firm-wide fee rate was 38.1 basis points, reflecting a negative mixed shift in AUM. As we've noted previously, the fee rate remains highly mixed dependent and several factors weighed on the rate relative to the prior year. In retail active equities, average AUM declined to 18.7% of firm-wide AUM from 20% a year ago, as market appreciation was largely offset by outflows. In fixed income, elevated rates and FX volatility pressure taxable fixed income AUM with outflows concentrated in higher fee strategies such as American income and global high yield, while inflows were primarily driven by lower fee municipal SMAs. Finally, turning to slide 12 and our outlook, we now expect total performance fees for fiscal year 2026 of $95 to $115 million, up from our prior range of $80 to $100 million. with additional potential upside dependent on market conditions. This reflects an increase in our public markets performance fee outlook to $25 to $35 million, driven by first quarter realizations from our alpha generating international small cap strategy. Our private markets performance fee outlook remains unchanged at $70 to $80 million, despite a light first quarter driven by prudent proactive markdowns concentrated in software and tech services exposures. Note that these markdowns were not driven by credit events, and even if realized, they would be within our assumed annual loss framework. As a long-term buy-and-hold investor, ABPCI fully expects to realize value recovery across all creditworthy borrowers over time. It is important to note that the rates outlook and wider spread environment is supportive of forward-looking returns. All other guided items remain unchanged from last quarter. Looking ahead, we are encouraged by our institutional outlook, supported by a record pipeline of $27.5 billion, including public market mandates expected to fund next quarter and private markets mandates expected to fund by year-end, most notably the increased $12 billion commercial mortgage loan mandate from Equitable. We expect continued inflows across secular growth areas, including private wealth, SMAs, ETFs, and private alternatives. Taken together, we have meaningfully strengthened our business mix and positioned the firm for the future by leaning into areas of structural growth while addressing areas of pressure with discipline. We look ahead with optimism, confident in what we believe to be a position of strength. With that, operator, please open the line for questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Please limit your initial questions to two in order to provide all callers an opportunity to ask questions. You are welcome to return to the queue to ask follow-up questions. We'll take our first question from Craig Seigenthaler at Bank of America.

hey good morning seth hope everyone's doing well, my question is on the equitable core bridge merger. And your expectation and manage hundred billion of incremental am over time, so in terms of general account assets for the new co what percent of total GA assets do you assume you're going to manage. And is the current GA level at equitable in the $70 billion range now? Plus, I think there's $17 billion on the side of private market initiatives still. I just want to kind of refresh her on all the numbers.

Hi, Greg. Honor. Let me take that question. Obviously, the core bridge equitable merger is a very exciting development for us. As it was announced at the March 26 call, we expect at least $100 billion over time from both GA and separate account assets. Obviously, it's very early days since that announcement, and that deal is most likely going to take another nine months or so to close, roughly by year end or fourth quarter. And hence, it will take us time to really do the bottom-up buildup of that $100 billion between GA and separate accounts. And in terms of funding of the assets, given the deal will likely close end of 26, it's going to be more 27 and beyond in terms of the new AUM coming to AB. So on one hand, we are super excited. On the other hand, we recognize it's going to take a few quarters to materialize those opportunities given the deal timeline. In terms of the GA buildup, we're not dependent on only Equitable or CoreBridge. As you have seen in our slides, our GA assets from third-party clients grew by 28%. If you look at our pipeline, we had significant momentum in the pipeline. So, for instance, we added a $3.5 billion CLO opportunity to our pipeline as an example, and we have a lot of other pipeline opportunities, which makes up 80% of our pipeline fees. coming primarily from insurance clients. So overall, we are very excited about the trajectory in GA, both for proprietary as well as third-party clients.

Thanks for that, Onur. Just as a follow-up, as you look at that $100 billion, what is the expected mix of public, corporate, or government debt that has QSEPs? versus private assets that are originated by your proprietary private markets businesses?

Again, we don't have an exact bottom-up build-up yet that is in works. Our estimate is, given this includes the separate account business, which tends to be more public, and given some of the assets from the GA will be coming from the fixed income book, I think it's going to skew heavily towards the public versus private in terms of day one opportunity, if you will. But over time, if you think about this balance sheet, it's going to be one of the largest U.S. retirement companies, and it will originate annuities across RILAs, fixed annuities, variable annuities, et cetera. That means your general account assets will grow materially. And a portion of that new flow, if you will, will make its way to privates, and we're going to be a strong beneficiary of that growth. So you shouldn't only look at it in terms of what is mappable on day one. You should look at it as what is the expectation on a go-forward basis, given the new equitable will be double the size of the origination and the assets at the minimum.

Thanks for that, owner, and congrats on the $100 billion future wins.

Thank you.

We'll move next to Alex Bloestein at Goldman Sachs.

Hi, good morning. I was hoping you guys could expand on what you're seeing in the institutional private credit market. Obviously, lots of volatility on the retail side. You guys don't have a ton of exposure there. But as you think about both opportunities and risks that are in the market today, how are you approaching that channel? Thanks.

Thanks, Alex. Let me take that question as well. We continue to see strong momentum in our institutional business for private credits. To underline your comment, yes, you're right. We don't have a significant exposure on the retail side, but we're also very pleased with what we have seen on the retail and private wealth side of private credit. If you look at our BDC, our redemption rates has been less than 2%. So that's much lower than what we have seen from our competitors. That speaks to the strength of our integrated asset and wealth management franchise. Proximity to the client helps us maintain lower redemption rates in these retail vehicles, particularly in our private wealth channel. If you look at our private alt cap raise and private wealth, Actually, it grew from 25. Our first quarter fundraise in the 26 versus 25 for private wealth was more than 30% higher. So definitely we also continue to see momentum across private equity and private credit in our private wealth business, which admittedly skews more high net worth and ultra high net worth. And on the institutional side, to get to your core question, as I mentioned, we continue to add significant mandates to our pipeline. As Seth also mentioned in his opening remarks, we are seeing more accelerated and expanded benefits from some of the strategic partnerships we announced around the third-party insurance, and that remains the largest driver of our new pipeline. It's broad-based. It includes both asset-backed ABF type of mandates as well as fund financing like NavFinance and real estate debt. And furthermore, we had several new mandates outside insurance in core institution as well. So net-net broad-based momentum skews heavier towards insurance, but seeing strength in non-insurance institutional as well. The implication is we're going to be comfortably hitting and exceeding our private markets AUM goal of $9 to $100 billion.

Great. Thank you. Follow-up for me, I was hoping to touch on the theory dynamics, both in the quarter, but really more importantly, looking further out. A couple of dynamics at play. Obviously, you mentioned that the active equity performance has been challenged, and we've seen that show up in retail flows, which are obviously higher fee rate, a bit mixed on the retail fixed income for now as well, but some wins on the institutional side of things. You mentioned private credit. So, When you put it together, how does the evolution of the fee rate likely to look over the next couple of quarters?

Hey, Alex, it's Tom. We generally don't provide fee rate guidance, but we do prioritize sustainable organic growth and long-term profitability over focusing solely on the fee rate. Looking forward, we expect the fee rate trajectory to continue to reflect the mix of organic growth and market movements, which have been supportive in early 2Q. Okie dokes. Thank you.

Next, we'll move to Bill Katz at TD Callen.

Great. Thank you very much for taking the questions and all the updated info. Just coming back to the expense outlook for a moment. It wasn't exact how to interpret the slide on the initial take this morning. So you're keeping your expense not up growth relatively stable. If I look at the first quarter, I think your run rating well below the low end of the guide. How do we think about maybe the pacing to the spend as the year unfolds? and what kind of flexibility do you have if the markets remain volatile? Thank you.

Hey, Bill. How you doing? There's some seasonality in there. This happens from time to time. I would continue to stick with our guide at 6.25 to 6.50, and then maybe just divide it up less what we have in there for 1Q so far. As far as some flex, you may recall last year we did have a lot of flex. We actually flexed down quite a bit because our business is delivered due to all the market volatility. So we do have flexibility that we can pull on this year if needed, but we did want to let the advisors get in front of some clients and attend some firm meetings that they withheld last year.

Okay, that's helpful. This is a follow-up. Maybe stepping back, talk about wealth management, very durable asset for you guys. A lot of cross-currents in the industry at large. I wonder if you could talk a little bit about maybe, and I appreciate you're also at the upper end of the market, so maybe not quite as intense as some of the key players that I think you're pumped up against. That being said, I wonder if you could talk a little bit about maybe the competition for financial advisors, what the market dynamic has been in terms of industry churn, and then sort of curious, there's a lot of sort of anxiety around agentic AI. I was wondering if you could maybe click down a layer and sort of talk about where you're leveraging that and where some of the risks might be prospectively. Thank you.

Thanks. Yeah, let me break that into two questions. One, talent market dynamics, how are you feeling about that? And second, come back to agentic AI and impact on the business. On the talent side, we feel pretty good. We are well immune from the high churn that some of our competitors are facing. Ultimately, our retention rate for our senior advisors, which drive majority of our flows and the ones that helped us achieve the record productivity this quarter, have remained loyal. Again, our attrition rate remains very low depending on the year. It tends to be low single digits. And if you look at our recruiting, as you have seen, we added roughly 14 advisors, and that means our advisor headcount is up roughly by 5% in the first quarter, so we remain on track in terms of our ability to add talent, so feeling good about that. I mean, ultimately, we are not complacent. We'll continue to pay competitively for talent And we'll continue to make our platform a preferred platform for existing and new talent based on our investment expertise, the tools that we provide like tax management, as well as investments in technology. In terms of the segue to agentic AI, given we are more on the high net worth plus side of things, we tend to deal with more complex client situations. our highest growth part of our business, our ultra network business grows at four times as fast as the rest of the business. So that creates, in my opinion, some modes in terms of the technology disruption because we deal with a lot of complex tax issues. We deal with a lot of complex global family issues. Some of the value add is also in value added services, not the standard asset allocation and or basic tax mitigation strategies. So that is the bigger picture. In terms of how we are taking advantage of AI, it's in several different areas. We are definitely using it much more for client meeting preparation, like using our CRM system to be better prepared for client engagements and hopefully using that to drive more growth from those conversations, driving share of wallets. We are definitely using it to create efficiencies in the way we manage our business, particularly the client servicing side. Actually, if you look at our client service associates onshore, that has been relatively flat, although we have been adding advisors, new clients, as well as growing organically. So some of that servicing efficiencies are driven by the usage of technology in client servicing. One example would be how we deal with RFPs. We use technology and AI heavily in that. And then finally, in more client acquisition, we are using much more advanced lead generation technologies, and we are getting into much more AI-driven marketing to drive new growth. So all in all, it cuts across servicing and efficiency, the effectiveness in client conversations, as well as new client acquisition. That said, I cannot put a number on it yet. Probably I'm in the same zip code with my colleagues in wealth management. I mean, again, there are a lot of good things happening, but still early innings of AI. Although we see the benefits, it has not translated into very concrete financial impact yet, but that's yet to come. Thank you.

We'll move next to John Dunn at Evercore ISI.

Thanks. Maybe just staying on private wealth for a second. I know there's seasonality in the second quarter, and then you mentioned private wealth demand. But could you remind us about maybe seasonality for the rest of the year, maybe shifting product demand and then the temperature of the channel's appetite to put money to work?

Yeah, sure. Sure. Yeah, seasonality, John, definitely is something to be mindful of. Obviously, April is the tax month, so we tend to have soft April in general in terms of flows because a lot of our clients pay taxes, and it happens every year. In terms of the client demand, even though obviously there are heightened risks in terms of macro, the war in the Middle East, oil prices, this and that. Our high net worth and ultra net worth clients remain very engaged. Actually, it has been relatively robust in terms of risk taking. We have not seen them go to the sidelines. As a result, we remain excited about the fundraising and growth. Again, as you have seen in Q1, we had very high uh sales relative to the previous eight quarters so we definitely seen a momentum in sales and we are not seeing a major slowdown yet uh the two words of caution would be uh number one obviously if the middle east uh situation gets worse if the conflict gets longer, et cetera, et cetera. I mean, those all have impact on consumer sentiment and high net worth and ultra net worth clients will not be immune to that. So that's definitely a risk that we are monitoring. And then secondly, given some of the volatility and some of the software headlines, et cetera, some of the M&A activity has slowed down. When M&A slows down, It also slows down exit for entrepreneurs and the liquidity events of business sales, IPOs, et cetera. And that has an impact on our business. So if that slowdown, again, extends because of the macro environment, that might slow our business down. But we're not going to be alone in that. We're not going to be an outlier. It's a little bit of a market beta, if you will.

But, John, I would just add that the resilience in the private client group is echoed. I think, more broadly in the business. And given the volatility we've seen, it's kind of amazing markets are where they are, and we continue to see people exploring committing money to longer-term opportunities. So, you know, look, there are a lot of potential drawdowns arising given the volatility in the macro market, we're pretty pleased with progress today.

Got it. And then maybe could you just walk through some of the factors like outside of investment performance that could get, you know, high yield fixed income funds distributed in Asia back to being less of a headwind?

Yeah, we are soon reopening our global high yield strategy in Taiwan. We've gotten regulatory approval, which is what stopped us, and so we're optimistic that we'll see incremental flows from there. We continue to see appetite for fixed income, but it's been more competitive, and the alternative opportunities, particularly locally, have been stronger. However, the dollar remains fairly strong. I'm hopeful we'll see some recovery. along with performance. I don't know, owner, if you have anything more to add.

Yeah, I think that those are the main points. I mean, the only other minor I would add to that is our ETF platform continues to build momentum as well. If you look at the monthly run rate domestically, we are basically getting close to half a billion net flows per month. So definitely a very healthy growth rate for our ETFs, which are across asset classes, including fixed income. And then we are expanding that momentum into international. We launched two ETFs, fixed income ETFs in Taiwan. We launched several used ETFs in Europe this week in fixed income. So the results, you will see us tabbing into new markets, outside our traditional intermediary channel using the ETF. So it's going to take, again, a few quarters to build momentum in those new products, but we are seeding the ground for future growth and new products as well. Thank you.

Next, we'll go to Dan Fannin at Jefferies.

Thanks. Good morning. So one more just on the private wealth side. And tracking above the 5% advisor growth target. And so I was curious if you could just give a little bit of a framework or profile of the advisor that's joining your platform. I know you generally aren't paying the same levels of transition assistance or other things, but curious about the profile and then how you anticipate those to ramp as they integrate into your platform over time.

Sure. Great question. Yes, you're absolutely right. We typically have a bias towards more new to industry internal promotes as well as mid-career switches from other careers as our historical recruiting model. We have not done major recruiting in book takeovers, if you will. And as a result, our cost of talent acquisition seems to be much lower than what we see from some of the competitors. That being said, as we look at the talent mix, we are open to adding some experienced advisors, some of which might have books. So as we think about the rest of the year and the broader pie, I mean, I would say probably 75% would fit into the more traditional profile, and then roughly a quarter would be more on the experience side, some of which might have existing transferable assets. So that's how I think about the advisor mix. And in terms of the year-end advisor kind of numbers that we are targeting, probably given we have been intentionally fast in terms of adding new advisors early in the year. It's going to be slower in the rest of the year by our recruiting plan, but we probably would end a couple of percentage points higher than what we exited this quarter on a net basis. So that would be a rough number that we are targeting. Again, these are, I would say, directional targets. Ultimately, we flex up and down based on the talent we are seeing. Finally, in terms of how much time does it take for a new advisor to ramp up, et cetera, we have specific initiatives to get the advisors to full productivity over a shorter period of time. We have dedicated teams that are focused on it, but typically it takes four years or so for an advisor to be break even if it's a completely new to industry kind of advisor. And then you see that advisor to peak probably within five to 10 years. So that's sort of the typical profile for new to industry kind of fresh talent, if you will.

Great. Thank you. And then just a follow-up on the pipeline, obviously record levels. And I think you gave some context around the funding of that, but could you talk more broadly about momentum as you think about the institutional channel and kind of sales activity and, you know, kind of product mix in context of outside of what is actually in the pipeline today?

Yeah, sure. And if you think about our average deployment for the pipeline, we are currently running at nine months. So the good news is the record pipeline will be deployed relatively quickly. So that's good news because that pipeline runs through fee-generating sales based on that. In terms of new opportunities, we touched on Corbridge Equitable, the $100 billion, so that definitely is quite a sizable opportunity ahead of us in 27 and beyond. In terms of other areas, a couple of things I would highlight. One, again, the broadening of the third-party insurance franchise, so we really have good momentum there. We continue to add new relationships, and I expect more there, both on the general account side with private credit and fixed income, but also on the separate account side with equities and multi-assets. And then in terms of the other broader institutional markets, we are definitely seeing some momentum in Asia Pacific. Some of our more quantitatively oriented strategies have found good demand there and definitely expecting more opportunities materializing across our systematic platform globally, but also specifically in Asia, given they are pretty big buyers of systematic strategies, particular equities. Thank you.

And next we'll move to Benjamin Badish at Barclays.

Hi, this is Mason on for Ben. I just wanted to ask more about your ETF business. Can you talk more about the current distribution footprint outside of your wealth platform? And if possible, can you share any color about the current economic arrangements with distributors and how they may be changing at all?

Yeah, for sure. In terms of our ETF franchise, you're absolutely right. It cuts across our proprietary wealth channel as well as our third-party distribution. The third-party side has been growing at a faster rate, but from a smaller base. As you would expect, as we launched the ETF business starting back in 2022, we first leaned into our private wealth channel and then used that original foundation to scale into third party domestically and then overseas. On the third party side of things, we are definitely seeing momentum. We onboarded our ETFs to multiple new platforms, wirehouses, regional broker dealers, independents, etc., In terms of the total sales mix, we tend to have a very small, immaterial almost, distribution through the direct platforms. So think about the Fidelity, the Schwab's of the world, the direct-to-consumer part of those businesses. So as a result, our dependence on those funds, supermarkets, et cetera, is much lower than some of the other ETF providers that has large ETF franchises particularly impassive. So I would say our third-party distribution cost is not materially impacted by what's happening with some of those platforms.

Thank you. That's all for us.

And we'll take a follow-up question from Bill Cass at TD Cowen.

Great. Thank you very much for taking the extra questions. Just coming back to performance fees, thank you for the updated guidance. Can we unpack the incremental pickup in the public side? How much of that is just due to maybe market positioning versus anything going on on the hedge fund side, if anything related to maybe the shuttering of a relatively sizable hedge fund you announced? And then on the operating expense side, coming back to that for a moment, it looks like it's about 6% on the midpoint year on year. As we look out into 2027, would you anticipate any kind of deceleration of the core expense growth? or would that likely stay the same just given the myriad of different growth factors out there? Thank you.

I mean, generally it would stay the same, speaking from the operating expense side first. We generally haven't offered any next year's information this early on, but it would generally be flat. There's nothing on the horizon that I'm aware of to offer any additional color on the expenses. As far as the performance fees, no, the changes in performance fees aren't impacted by the closure of ARIA that we announced recently. And then what's driving the public is our international SMIT product in 1Q versus last year. Excellent. Thank you. Okay. You're welcome.

And there are no further questions at this time. Mr. Gergali, I'll turn the call back over to you.

Thank you very much, Audra. And thank you, everyone, for joining our call. I hope you have a great day. And please reach out if you have any questions.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.