AllianceBernstein Holding L.P. (AB) Earnings Call Transcript & Summary

[Audio Gap] present here today, and we're thrilled to kick it off with Kate Burke. She is COO and Head of Bernstein Wealth Management at AllianceBernstein. So Kate, please take it away.

Thank you, Ben. It's a pleasure to be here with you this morning here in London. To start, I wanted to provide an update on AB's progress on the strategy and also highlight some key investment themes for those who may be newer to our story. Starting with an introduction here on Slide 2. Founded more than 50 years ago, AB is a leading global investment management firm that offers high quality research and diversified investment services to institutional investors, individuals and Private Wealth clients in major world markets. We foster a diverse, connected and collaborative culture that encourages different ways of thinking and differentiated insights. We embrace innovation to address increasingly complex investing challenges. And we pursue corporate responsibility at all levels of the firm from how we work, to enact, to the solutions we design for our clients. With $735 billion of AUM, we are well diversified across both traditional and alternative asset classes. And we'll talk more about the alternatives layer. And we engage clients through global institutional and retail distribution channels as well as direct U.S. private -- our direct U.S. Private Wealth business, which had over $115 billion in assets, enjoys the benefit of long-term client relationships, managed by over 230 financial advisors. So here on Slide 3, we'll review our most recent progress against our strategy, to deliver, diversify and expand responsibly with Equitable. On the deliver front, in the first quarter, we drove organic growth of 6% positive for the eighth consecutive quarter, and we grew excluding the large custom target-date inflow as strong active equities and municipals more than offset weak taxable fixed income flows. Active equities grew by 6% annualized, municipals grew by 7% and Private Wealth grew by 7%, positive for 6 of the last 7 quarters. We diversified across under -- across a broad array of active equity, fixed income and alternative strategies. For example, we saw more than $200 million in inflows each into 3 different values strategies. On the expand front, retail posted more than $20 billion in gross sales for the fifth quarter in a row, Private Wealth also grows well and with sales up 12% year-over-year, and we announced a $750 million acquisition of CarVal. And the responsibility front, our ESG Portfolios with Purpose now stand at $29 billion in AUM. That's up 30% then 37% year-over-year. And our Sustainable US Thematic Equities fund won the U.K.'s ESG Investing Award for Best ESG Investment Fund in U.S. equities. And finally with Equitable, we continue to enjoy a strong partnership with Equitable, which committed $750 million to CarVal as part of its $10 billion permanent capital allocation to our private market strategies. On Slide 4, here we outline the key attributes that distinguish AB as an investment opportunity. Starting on the top left with sustained growth. Our differentiated investment performance, combined with global distribution capabilities has driven sustained organic growth among the best-in-class across the industry. As I mentioned, we have a strong partner in Equitable, who's committed to seeding new strategies as well as supporting inorganic growth with permanent capital as exemplified in the CarVal commitment. We're expanding our suite of higher alternatives -- higher fee alternatives. We announced the CarVal acquisition in March, which brings us to nearly $50 billion in private market AUM. And we are targeting strong incremental margins as we scale, not every year, but over time as we focus on cost reduction initiatives. Our partnership structure as well affords us an attractive less than 10% tax rate, which is a particularly attractive attribute in the event taxes rise in the future. And we have a robust distribution yield in the high-single digits. Our AB and Bernstein brands are renowned among institutional investors, while our Private Wealth business has significant long-term value. Let's review some of these in a bit more detail, starting with Slide 5. Here we talk about our sustained and differentiated investment performance. Both of our equities and fixed-income teams have driven strong rolling performance in recent years. While the most recent quarter has created some challenges for our equities business with 3 year outperformance dipping to 38% and 5 year to 58%, we are not alone in this. With the vast majority of growth investors also challenged to meet benchmarks. We are encouraged though versus our Morningstar peer group with the majority are 61% and 68% of our equity assets have outperformed still over the 3 and 5 year periods. Strategies that have driven the strong performance for us in equities include Sustainable Global Thematic, US Small Cap Growth, Select Equity Long/Short, and then the fixed income side US high yield, US Investment Grade and Global Income. I'd like to emphasize that at AB, we have a time tested investment teams that have invested through numerous cycles in the past and have experience to navigate the complexities that are still ahead. As shown on Slide 6, the combination of good investment performance coupled with the global strength of our Retail, Institutional and Private Wealth distribution capabilities have driven strong organic growth as compared with the industry. The primary differentiator has been Active equity, where organic growth in the 3 year period of 5.7% compares with the negative 5% attrition for the industry. These trends continue in the first quarter as we posted 6% overall annualized growth driven by 6% in active equities and 7% tax exempt. While organic growth won't occur in a straight line, we believe that over time, our global distribution capabilities, coupled with strong investment performance of high-demand strategies should support continued organic growth. Slide 7 here highlights a key driver of recent organic growth, which is in responsible investing for us. Our vision is to become a recognized industry leader in responsible investing with solutions that combine strong financial outcomes with excellence in ESG research, integration and product design. Across our asset management platform, 65% of our AUM is managed using ESG integration. And we have a $28.6 billion and our Portfolios with Purpose, funds that have specific mandates with ESGs targets and goals and report on ESG achievements in additional to the financial returns. Assets for these portfolios have grown at a 42% CAGR over the last 5 years. We've also invested in technology in these areas with ESIGHT, our ESG research and engagement equity platform, enabling real-time sharing of proprietary ESG issuer assessments and engagements. Similarly Prism, our fixed-income credit research and ratings platform, incorporate proprietary ESG scores, which directly impact analysts' forward ratings for insurers. Our sustainable thematic team has won multiple industry awards, and these products have been standouts across the industry. We plan to continue to innovate, launching new -- several new strategies in '21, including ESG Fixed Maturity, Sustainable Income, Sustainable Thematic Credit, our 1.5 degrees long/short fund and sustainable climate solutions. Now on to another key driver of growth shown on Slide 8. Our goal is to become a known leader in private alternatives globally. We have built a sustainable business in middle market lending in U.S. and European commercial real estate debt and are adding obviously to these with the addition of the CarVal acquisition. The acquisition of CarVal is a direct outcome of AB's alternatives growth strategy in partnership with Equitable Holdings, which is supported by its recent $10 billion permanent capital allocation to AB's private markets. CarVal augments the firm's position during a time when clients are increasingly looking to private markets for yield enhancement and diversification, and importantly, filling out gaps for us in our portfolio with opportunistic and distressed credit, renewable energy, specialty finance and transportation. And we believe these will accelerate our growth by enabling us to serve our clients more holistically across this space. Combined with CarVal, AB will now have a $49 billion private markets platform. With a 35 year track record focused on opportunistic and credit intensive investing, CarVal has delivered strong returns across the market cycles. We're excited about the growth opportunities ahead, and we anticipate closing the transaction early in the third quarter. As shown on Slide 9, organic growth in active equities and alternatives has led to a meaningful mix shift at AB. With these asset classes now representing just under 40% of AUM, up over 1,000 basis points from 5 years ago. Pro forma for the addition of CarVal, this ratio was certainly approved to over 40%. Importantly, nearly 2/3 of our annualized fee base is now comprised of active equities and alternatives, which will be bolstered by the addition of CarVal. This is been one of the drivers of strong incremental margins which I will get to in a moment. So here on Slide 7, we highlight our continued focus on managing costs. Relative to the industry our firm was early to recognize just over 4 years ago, the opportunity to relocate the firm to a lower cost geography, that represented another opportunity for quality of life for many of our employees. Our Nashville relocation is on track to deliver $75 million to $80 million of cost savings by 2025. And to date, we filled over a 1,000 or 80% of the roles that will be based in Nashville, which is targeted at 1,250 positions in all. We're very pleased with the talent that we have found. And while Nashville has become a very popular town, our position as an employer of choice remains. The right-hand graph shows that we've improved our compensation ratio over the recent years by at least 200 basis points on average as compared with the previous 5 year average. This remains a key focus of ours as we seek to pay competitively to retain our talent and people, while ensuring that we improve our variable and fixed costs structure. We are focusing on -- continuing to focus on pay for performance. Turning to Slide 7, we've discussed our desire to target incremental margins of 45% to 50%, measured over 3 year period. To date we've outpaced the peer group. This in turn has driven our adjusted operating margins, as shown in this chart on the right, which is expanded by over 600 basis points in recent years. On our first quarter earnings call, I highlighted the growth strategy also for our Private Wealth business. I like to take a few minutes to just highlight it again. Here, we serve a channel that is secularly growing with a client base here on average has been with us for over 12 years, driving recurring revenues representing a 1/3 of AB's annualized fee base. To briefly summarize here on Slide 13, we've built a foundation in recent years of a scalable Wealth Management platform that is in its early stages of growth acceleration. We've increased strategy breadth and improved our core services. And we've developed a segmented approach and changed the engagement model. On our go forward strategy, which is summarized on Slide 14, we aspire to double our revenues over an 8 year period by strengthening our business and accelerating growth. Specifically, we plan to expand the footprint through accelerated new advisor hiring and opening new select offices in alternative cities. Our segmented clients strategies will also enable us to reshape to compete more effectively in the fastest growing segments such as ultra high net-worth, and the emerging affluent. Our enhanced investment offering allows us to compete for increasingly sophisticated and complex clients and upgrading our technology will allow us to drive greater scale and improved client service. More details related to these slides were shown in our most recent earnings call, which I invite you to take a look at on your own if you have not already. And so here to wrap it up, I'd just like to talk about our path forward on Slide 16. As an investor in AB, you can expect the following from us over the next 5 years as we've continued to build on our recent accomplishments. Specifically, you'll see AB extend our leadership in traditional active management with continued discipline in producing idiosyncratic or non-replicable alpha in equities and systematic returns in fixed income. We will become a known leader in alternatives globally as we continue to build out differentiated liquid and illiquid alternatives platforms, supported by our strategic insurance partner in Equitable. We will continue to grow our distribution capabilities, leveraging our investment in both U.S. and European retail to further grow market share and have renewed focus on our RIAs. We will continue to expand our foothold in Asia, including building our foundation in China, and we will grow our Private Wealth business particularly in the ultra high net-worth category. We're also now enjoying our new state-of-the-art national headquarters, which is on track to generate this $75 million to $80 million in annual cost savings by 2025. And we will optimize our portfolio and cost structure, driving higher margins as we display operating discipline and a more efficient variable versus fixed cost structure with, as I said, a focus on paying for performance. I look forward to reporting on the progress on these initiatives to you going forward. And with that, Bill -- Ben, we will hand over for the Q&A.

Thanks so much, Kate. Maybe we can start by talking about some of the asset classes. Alternatives are sort of one of the hottest spaces in asset management. Can you talk a little bit about the strategy there? You recently acquired CarVal, which kind of expands the verticals which you serve. Do you see future growth being organic versus inorganic? And maybe at a high level, how big of a piece of the overall business can this be?

Well, as I stated our goal is to be a known global leader in the private alternative space. So we certainly have great ambition here. Look we have a -- before the CarVal acquisition, we had already started to build out our private alternatives platform. We have a great middle market lending business. We have a U.S. and European commercial real estate, as well as energy. But CarVal is a really meaningful addition to the platform. It enables us to get to a meaningful size and scale. We think quickly we'll be just under $50 billion in AUM. And importantly, it adds a number of products to our platform that really I think create a breadth of platform that is going to be attractive to our clients and enable our salespeople and distribution capabilities to kind of maximize that opportunity sort of to clients. So with opportunistic and distressed credit, we've got infrastructure, renewable energy infrastructure, as well and then the specialty finance and transportation, I think really help complement what we currently have. So in the near-term, look, we have to be very focused on making this integration work. We've had -- since the announcement, we have met with the CarVal counterparts kind of across the broader organization. We're very excited about them a as a new part of the AB team. They're a great cultural fit. Their product category, as I said, we think are highly complementary. And then we'll continue to look for both. As we complete that integration, we'll also continue to look for other opportunities, both inorganic and organic. And on the organic front we're continuing to build out our middle markets lending business and other categories. And then on the inorganic side, we'll continue to look for potential teams to join us and we think we offer a very attractive organization to be a part of, to take advantage of the strong distribution capabilities, and the committed focus we have on the alternative space. So we're really excited about our future in the alternatives arena.

Let me ask also about active equities. I think one of those slides you had back there, I think the differential between AB's inflows and industry inflows, you probably had the starkest contrast. So to what do you attribute that kind of success? And what kind of gives you confidence that it can continue going forward?

Yes. Look, I think one of the -- we've always had a lot of pride in being an active manager. And what we've done over the course of the last decade has really been to build out a diverse team of portfolio managers and teams that have the ability to be unique in their investment platform. The [ PM ] drives that model, their strategy, they've build out a strong team, but we're also collaborative across the platform. So they're able to leverage each other in terms of research and insights and discuss their various views around the active equity space, and ultimately have shown over cycles to be very good investors. And so I think that gives us a lot -- and that makes us attractive to others who seek out to be successful in active management to join our platform.

Well, so moving to fixed income then. I think this is probably one of the spaces people will get most challenged right now just given the rising rates, but also inflation. How are you guys thinking about this? And what have you seen from your clients? Are the rate increases enough to kind of entice investors back into the space or is the worry of inflation keeping people on the sidelines?

Yes. Well, I think we're certainly closer to the point where investors will become interested again in the higher yields, but we have not yet really seen that from a flow perspective. If you look in April, so I wrote a note here, our Global High Yield portfolio had a yield to the [ worse ] of 8.6% versus 7.4% for the broader market, which historically would have been a dynamic, which would have been an indicator for good longer term future flows, but we haven't yet to see that yet to occur. I think the market is dealing for the first time with inflation, which is creating a different set of expectations here. We'll want to see the growth rate for CPI rollover before we anticipate seeing significant money beginning to flow back here. Asia you'll need to see their comfort with risk return with there. And I think what's great is on our Munis platform, we continued a very strong performance, but it's not immune from these same inflationary pressures and the current view of investors. So we're confident in the long run that flows will return. But here in the near-term, we need to continue to kind of work through the challenges of the market.

So maybe you're kind of putting that all together. You talked a little bit about how the mix shift is sort of supporting your -- the fee rates you generate versus a lot of peers sort of are suffering with fee pressures, investments are shifting from active to passive. Can you perhaps talk about that a little bit? Are there any other factors that are kind of supporting the fee base? And just kind of, is there any kind of outlook you can provide? Or how should investors think about where fees are going over time?

Yes. I would love to say that we're immune to the secular fee pressures of the asset management industry, but we are not. However, we are fortunate in that where we have shown success in where we are looking to continue to grow is in the active equities and alternative space, which tend to generate higher fees than our traditional business. So that mix shift should be -- should continue to help support our fees. If we look at our institutional pipeline right now, the split between higher fee active equities and alternatives, the pipeline fee rate now is about 3x our institutional channel average. And that is driven largely by private alternatives being about 2/3 of that fee base. And certainly, over time, we would anticipate that continue to improve, particularly as CarVal and other alternatives come online. But you have to remember, too, it's a very cyclical business. You have quarterly bumps. You saw with the custom date -- target-date business, that had a big inflow in January. So that, obviously, was a lower fee business. So I would not expect a straight line of fee improvement here, but we continue to think in the longer term, we'll be able to attend -- we'll be grinding that fee higher, I think, in the long run.

Maybe switching gears and thinking about kind of the business outside of the U.S. We didn't talk a lot about that in the presentation. Can you maybe talk about where you're positioned in Europe? And Asia in particular, I understand you have quite a strong position there. You kind of hear a lot of asset managers talk about Asia as a big -- future growth opportunity. So maybe if you could talk about that business a little bit and perhaps if you kind of see any signs of competition picking up or anything like that?

Look, Asia is a very important market for us. It is about 25% of our annual revenues. And we're fortunate that over the last couple of decades we've built a very strong brand within the Asia market. We're excited about our most recent expansion into China. We're one of the first foreign managers there to apply for license there, which is currently submitted and under review. But I would anticipate -- look, Asia is -- broadly is a very important global market. And when you look at what's happening there in terms of their savings that are managed by a wealth managers is at 25% versus 44% globally. So there's a lot of room for active wealth -- for wealth management to continue to grow in that marketplace. So it's not a surprise that you'll hear of others talking about it. But let's be clear, Asia is a very diverse -- that encompasses many, many countries with many different aspects to it. And because we've been in that region for so long with such success, Taiwan, Hong Kong, Japan, the establishment of the AB brand there is very high. We have very strong partnerships there with the distribution and the wealth platforms and banks that are currently there, and getting on their shelf space is not necessarily easy. And so we think that the strength that we have today will continue going forward. It's something we're very excited about. And as others look to enter that market, we're pretty confident in our competitive positioning in the long run and what we're seeing both in interest and multi-strategy, our equities, the eventual return of fixed income, and we anticipate over time increasing comfort in alternatives. We actually think the platform that we have built is very well positioned to continue to perform well in Asia.

So moving over to ESG. You talked about the Portfolios with Purpose.

Yes. I think I switched that around when I first said it. But yes, Portfolios with Purpose.

So you have ESG-focused products and then can you talk about those a little bit? But also sort of like the ESG approach you take to sort of all of your products, maybe something that doesn't have a specific ESG bench to it, but just a portfolio of active equities. How you sort of incorporate that into the decision-making process?

Yes. There's a couple of -- yes, it's a great question. There's a couple of elements around ESG that I think is important to identify. So one is this idea of ESG integration, right, which is taking different factors associated with ESG creating proprietary models and having them be part of every one of our investors array of things that they're looking at when deciding about whether or not they want to invest into a certain company or security. And that's the integration part of it. And about 65% of our AUM is currently in strategies that have ESG integration as part of that. And I think you'll continue to see us build out that technology and those proprietary services for our investors, so that they're able to take advantage of that. Because in the long run, we do believe that that's an important factor in making an investment decision. But that's different than our purpose-driven portfolios, which are ones that are specifically designed to take advantage of opportunities and to meet needs in the ESG space. And also, we report on those results as well as their financial results in that view. And so our goal, ultimately, is really be a leader in the responsible investing space. So that's on the research and product front. But if you think of AB historically and our whole history of being deep research thought partners and really trying to have a long-term view in the research that we do, we're also looking to continue to partner with other thought leaders in the space. So we have a partnership with Columbia University. They've actually created a climate school that talks about the longer-term trends there. This enables us to really be at the front-end, I think of thought provoking and important research in the space. And so we're going to continue to build out those capabilities as well. And then finally, the other point I would just make around ESG is, as an active manager, I think ESG is a very important space -- is a very important part of our space. And that as an active manager, we do engage with companies and with their CEOs and talk about that opportunity set, and we'll continue to do that as part of our broader offering and then also clearly look internally around our own governance practices to make sure that what we're doing as a responsible company is meeting the highest bar out there.

And let me ask this, just I hear from my wonderful colleagues in London all the time about how Europe is just well ahead of the U.S. in terms of ESG adoption. Is that a fair characterization? Do you see the U.S. catching up in terms of interest requirements and so on?

Yes. Look, I do think Europe has historically been at the leading edge in terms of driving the conversation and looking to have that as part of the integration or the products. We are seeing it continue to grow in the U.S. And as the AUM success of our -- of those portfolios are showing, I think you're going to see the U.S. catch up and then Asia is starting -- we're also in Asia are starting to see more interest in those factors.

Maybe switching gears a little bit then. You showed some slides with kind of the company's margin improvement over the last several years. And I know the company has kind of a stated incremental margin target of 45% to 50%. Given kind of like the macro headwinds as well as the kind of growth expenses that you're currently incurring, how should kind of investors think about the margin profile over the next, say, 12 to 18 months in terms of both the things you can control and sort of the things you can't?

Look, so yes, the 45% to 50% is a 3-year average for a reason, because there are always -- it's difficult to predict near-term challenges that we may facing. And the current market conditions, obviously, are creating challenges for any asset manager out there, and we are not immune to that. I think importantly, we were at the forefront in terms of some of the cost initiatives we did. The move to Nashville is not insignificant in terms of the longer-term opportunity, the $75 million to $80 million in 2025. We are very focused right now on our overall spend levels. I mean, we are seeing T&E come back as people are starting to do events like this and to travel again and see clients and meet with companies. So we do see that continuing to increase year-over-year, but probably not reach sort of the level we were in 2019. So maintaining -- certainly, in this kind of environment, you have to maintain very strong capital discipline internally about where you're looking. Big stewards of the firm, so we'd continue to look at opportunities on where we can per se. But we also have investments that are underway, and we plan to continue to invest through the cycle, so it's really just trying to manage those complexities right now in that challenge.

Maybe kind of tied into that is sort of what you hear about the war for talent. How do you think about kind of hiring, retaining and what sort of challenges are you facing right now? And given kind of the relocation in Nashville, it looks like you're -- you said 80% of the way, which you're kind of filling that. Are you seeing any kind of turnover? Or I bought a house last year and I think I was headed New York, so I'm well aware of perhaps the allure of more for less, but any kind of challenges? Or are people mostly kind of looking forward to that kind of change?

Yes. Look, I think there's clearly a war for talent. As we look in the broader market, not again, just in asset management, but overall, there's been no shortage of articles around the Great Resignation and the like. We actually have not experienced it to that degree within asset management. Our average -- our turnover is very much -- it's just modestly above our 3 year average. And so it hasn't been that significant yet -- I'd say yet, hopefully not ever within -- with AB, where we have seen it is in the earlier lower tenure -- earlier career stages, lower tenured employees. I do think that there is some impact of that from working remotely for people who -- we added over 600 people during the pandemic at -- from 4,000 that's 15% of our headcount, who were had to be onboarded remotely. So it's a very different environment, and we're very proud of the AB culture and we think that, that's part of what makes us -- our long-term success, has a lot to do with our culture and our partnership model and really paying it forward to the broader employee base and really developing that talent internally. So we think we're still very highly attractive for people to join and have flourishing careers. But we are -- but it is a challenging market. Sort of average time of filling roles is higher, and it remains really very, very competitive. And so it's been in this return to office approach that we've really looked to be reminding people what it means of why to be back in the office. We have a hybrid approach. We're doing 3 days in, 2 days remote. Most part -- and we've let it very much be led by the managers of the various teams to determine that return schedule. Most have asked to have teams come in at least 1 to 2 days a week on the same days for consistency and to get that collaboration and problem-solving and learning that we think is so critical to the culture. And broadly speaking, we've had very good response and people have been excited to be back together. Again, it's been -- it had been a long time coming.

Maybe now let's spend some time talking about the Private Wealth business, which is sort of the other hat you wear. Can you maybe talk about kind of just like the recent trends since 2020? I think prior to that, you saw a couple of years of kind of flattish net flows, but that's really kind of picked up in the last 1.5 years, 2 years. Can you maybe talk about kind of like the drivers there and what sort of is kind of causing this?

Sure. So I think we're at -- that the platform is now really well positioned for accelerated future growth. But to get there, there needed to be really reinvestment over the past 5 plus years in the platform itself. We had challenges. Look, you need to have adviser headcount growth to really be able to grow the business. And plus, post the global financial crisis, we had challenges with the adviser force both with retirements, people choosing to go into different careers as well as just general competitive factors. And we really needed to stabilize and invest in the investment platform and in our wealth capabilities. And so -- as well as get back to really pretty reasonable margins again. And so there was a lot of focus, I would say, in the previous 5 years of investing in that in the platform offering. And you've seen that with some success, particularly in the ultra high net-worth space. I think it was 22 -- I'm going to make sure I get the number right. 22% in 2015 of our AUM was within the ultra high net-worth space. In 2021, it was 38%. So really creating the capability set so that we could win there was incredibly important. I think we are very confident now in the product set as well as in the investment solutions, as well as in our wealth advice that we're able to meet those client needs. And so now it's really maximizing the opportunity on the platform, which is, again, leaning into adding new advisers in the future, and we hire and train our own advisers. So it's a big investment for us to make, but we think one that will ultimately in the long run help drive sustainable margin and growth there given the length of the clients when they're with us.

So maybe drilling down on the investment side there. I think on the recent earnings call, you talked about investing in the user experience, the investment platform, the tech and infrastructure. Can you kind of talk about that in a little more detail? Like what is the change that the customers kind of seeing? And then kind of along the same lines, how do you hire? And can you talk a little bit more about how you kind of hire and retain? It seems like we talked a little bit about the war for talent. Most of us probably experienced that through like the sales or asset manager side, but it's a bit different perhaps with advisers. Maybe could you speak to that a little bit?

Sure. So there's a couple of things I would highlight. So on the investment platform or investment solutions front, we have added to our offering over time, moving from the 60-40 sort of traditional model to adding in alternatives as an asset class into this mix and that -- and we're able to take advantage then both of -- all of the breadth of the AB offering, as well as on occasion partner with third-party outside asset managers. We'd like to call it integrated plus, right, which is taking the best of what Bernstein has to offer and then looking very specifically outside of AB when we think that there's a need in the asset allocation approach to provide another offering as part of the solution set to our clients. And so that flexibility of our approach, we think, is actually is a competitive advantage in it. And then on the segmentation of the clients, we've always done very well with what I would say is our traditional high net-worth client -- that $3 million to $20 million client. But over time as you think about the complexities that wealth creates, the needs of the $25 million plus are different, and it requires more distinct research or thoughtful insights about the challenges they're facing. And so we've invested and continue to really build out our thought leadership along a variety of different verticals, whether you're an early-stage entrepreneur or a founder who's looking to sell their company. We've actually had -- we've seen in the last 18 months, really good opportunities with that client set helping them as they're taking their business to go to sale being a third-party adviser to them. That's not part of the deal, but has the insight of helping them understand the complexities about what they're going to do and the long-term tax implications of it. So we're much a tax-aware client offering, and that's been very beneficial. So that's -- those are some of the things on the investment platform. On the talent front, that was the other part of the question, right, with advisers. Well, there's a couple of things. One, we do build our own talent, as I said earlier. And so we think that our training program is honestly one of the best in the business. And we have a track record of advisers who are fortunate enough that I would say, to become part of our platform that the training that they receive over the first 12 months to 18 months of their career is really intense. Both the in-classroom work that they do and then the partnership that they have with both our trainers and our managing directors in our local markets to leverage the Bernstein brand and to learn from very successful peers in the organization, really enables them to kind of build out their business, we think, in a very structured but consistent way. And that makes us very attractive to people who are looking to be a lateral hire and who tend not -- we tend not take -- hire from our peers. But who have some career in finance that -- but are looking to move into the Wealth Management space or promoting up through the organization.

You mentioned earlier the 60-40 allocation is kind of changing. And I want to talk a little bit about alternatives. But maybe first, more of a crystal ball question. You guys hinted at crypto as kind of sort of a potential offering clients may be interested, and it's something we've been doing kind of a lot more work on internally just, because, gosh, nobody knows what's going on and it's complicated. So what are your kind of thoughts there? Is that something you're seeing demand from? And what are the kind of regulatory and technical challenges of doing some of that?

Yes. Look, there's certainly a lot of interest in crypto questions about it as a sustainable asset class. What I would say is we're -- in the research space, we have a number -- actually in partnership with Equitable. We have a number of working groups right now, not only looking at how do you use the technology -- the blockchain technology around in our infrastructure and in our offerings, but also looking at some of the -- what the potential product evolution might look like in crypto and how to think about it as an asset class. But really here in the short-term, what you're going to continue to see out of AB is one great thought provoking research on it. We've published on both sides of crypto, which is one of the wonderful things about AB is that, because we have different teams in different areas, we're happy to demonstrate both sides of the view and let that persist in our organization. We think that creates a really healthy debate around it. So you'll continue to see us put out, I think, thought provoking research around crypto. For private wealth clients, in particular, we are seeing some of the clients have it as part of their own independent investment decisions or particularly in some of the foundations that we have as clients are starting to get it as donations, which requires them to then think about it for many of them the first time when they have a client who has had some success in crypto or when they have a donor who has had some success in crypto. And given some of the returns of crypto, I think it's a tax advantage way of making a donation, want to give it to a not-for-profit, what they do with it, but importantly even how they custody it and how do they sell it? And so we're looking into providing some of those capabilities for our private wealth clients.

So how about on the alternative side, maybe something actually happening right now? Are you seeing a lot of demand kind of on the retail side for that? It kind of seems like anecdotally that the chatter is picking up that there's a lot of retail demand for kind of alternative assets with higher returns, something more stable and macro resistant than fixed income. What are you seeing there? What's kind of the approach?

Yes. Look, we're certainly in the private wealth channel. Look, it has to be the right investment offering for the client. I don't think alternatives is the panacea for all investors out there. They are more sophisticated. They have more complexity. And so you do want to have alternatives be positioned appropriately for the clients. But we are seeing picked up interest. And I do think given the growing wealth that we have, that you're going to see more and more clients looking through alternatives as a source of differentiated and idiosyncratic returns. And that is a trend that has and will continue, like I said, we're seeing it in the private wealth space, which means you're seeing it in the U.S. retail space, which means you'll be seeing it become more -- I think, more of a norm over time as people gain better understanding and we figure out how to make that offering to the client -- to that distribution channel.

Maybe this is an impossible question to answer, but do you have a view on how big a percentage -- 60-40, how much can alternatives be? I think the CEO, one of the major alternatives -- like pure-play alternatives, I think, at a conference not long ago said within 5 years, 50%. Any thoughts there?

Yes, I'm not going to go on record just predicting that. That's not my preview. I have great investment strategists who have views on that as well. But look, we do believe that it will become an increasing important part of people's asset allocation. And it is something, as I said earlier, I think the number is I think, over 45% of our clients currently have alternatives as part of their asset allocation strategy. I would anticipate that number will grow. The mix of that asset allocation is going to be very dependent on the complexity of the clients and their appetite for risk and the volatility that go along with alternatives. And so we'll see where that pans out. But we do anticipate you'll see that continue to -- that asset allocation will continue to favor alternatives over time.

Maybe one final question, we have just a minute left here, kind of on the growth strategy in private wealth. I know you've talked about like the private bank and RAA segments. Are there sort of any other verticals or any other go-to-market approaches where you might see kind of incremental growth or any kind of launching in new cities, anything like that, maybe over the next couple of years?

Yes. So as part of the private wealth strategy, we've been clear that, that we're looking to expand our headcount and our adviser head count, not only in the existing 19 cities that we're in, but also looking at other cities within the U.S. that have the right demographics around emerging wealth and growth over time. So you'll see us adding either satellite offices in areas where we have a strong -- already have clients that are based there and having a local presence would be beneficial as well as adding assets. On the channel side, look, for private wealth, I think we're really well positioned sort of in between the U.S., the private banks and the RIA channel. But our asset management business, AB is very focused on U.S. retail. And I think you'll continue to see that be an important growth channel for us in the future.

Well, we're out of time, but thank you so much, Kate. It was a pleasure to have you today.

Thanks. Thanks for having me.