F&G Annuities & Life, Inc. ($FG)

Good morning and welcome to the F&G's First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Lisa Foxworthy-Parker, SVP, Investor and External Relations. Please go ahead.

Thanks, operator, and welcome, everyone. I'm joined today by Chris Blunt, Chief Executive Officer; and Conor Murphy, President and Chief Financial Officer. Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events or changes in strategy. Please refer to our most recent quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP measures, which management believes are relevant in assessing the financial performance of the business. Non-GAAP measures have been reconciled to GAAP where required and in accordance with SEC rules within our earnings materials available on the company's investor website. Please note that today's call is being recorded and will be available for webcast replay. And with that, I'll hand the call over to Chris Blunt.

Good morning, and thanks for joining today's call. The first quarter was a solid start to the year and in line with our expectations. Today, I'll share some highlights of the business as well as details of our investment portfolio and capital allocation. Then I'll turn it over to Conor to cover results in more detail. Starting with business highlights. From a top line perspective, F&G has consistently grown AUM in recent years. We have generated strong free cash flow and reinvested it back into the business, driving our diversification and accelerating our growth that has brought AUM before reinsurance to nearly $75 billion at the end of the first quarter, an 18% compound annual growth rate since 2019. Today, F&G is a recognized market leader across multiple products and distribution channels with a strong strategic foothold in large and growing markets. The retirement landscape is creating a powerful and lasting demand for our business. The peak 65 retirement wave is driving unprecedented demand for guaranteed income and growth solutions. With more than 4 million Americans turning age 65 every year through 2027 at a rate of 11,000 people per day, this structural tailwind is fueling industry sales in the U.S. across retail indexed annuities, index universal life and pension risk transfer, which are our core product lines. Industry results are more mixed for our opportunistic products. Funding agreement-backed notes reached record industry issuance last year, while the multiyear guaranteed annuity market began to normalize in the fourth quarter as consumers felt less urgency to lock in rates following the interest rate movements earlier last year. As F&G navigates the competitive landscape, we are focused on disciplined sales growth and capital allocation priorities between core and opportunistic sales to power our AUM growth. We view AUM as our primary metric to track the top line growth of our business as sales volumes may fluctuate year to year depending on opportunities and returns. Having reached a meaningful level of scale, our focus has shifted to continuing to improve margins and expand ROE. We are intentionally shaping our product mix, managing our sales volumes and utilizing flow reinsurance to capture the highest return opportunities and deliver sustainable long-term value while growing AUM. From a bottom line perspective, we have intentionally diversified our business over the last 5 years across our spread and fee-based strategies. This diversification further reinforces the durability of our business model, and it supports a more predictable and higher quality earnings as well as expanded returns over time. For our spread-based business, we have a long and proven track record across varying interest rate environments, including the current landscape, where credit spreads remain near historical lows despite recent volatility. Our approach is straightforward and disciplined. We source attractive, stable and surrender-charge-protected liabilities. We source high-quality assets with a deep understanding of our liabilities to achieve well-matched asset and liability cash flows, and we have a clear line of sight to investment returns, actively managing our new business pricing and in-force renewals to maintain spreads. The result is a stable cost of crediting aligned to our expanding in-force book that generates steady long-term growth in spread-based earnings over time. This is complemented by the increased earnings contribution from our fee-based strategies, including flow reinsurance, owned distribution and middle market life insurance. These strategies are higher margin, less capital-intensive and positioned to generate higher returns and valuation over time. In 2025, fee-based strategies represented approximately 15% of our adjusted net earnings, excluding significant items, and we expect that mix to grow to approximately 25% by year-end 2028. As the mix shifts, we believe ROE will become the most important return measure for our business, reflecting the higher quality and capital efficiency of our growing earnings base. Next, shifting to our investment portfolio. Our $53 billion retained investment portfolio is well-diversified and performing very well. The retained portfolio is high quality with 97% of fixed maturities being investment grade. I'll walk through some highlights of our 5 primary asset classes as shown on Slide 26 in our spring investor presentation, including fixed income, public structured, private origination, mortgage loans and alternative investments. First, our traditional liquid fixed income portfolio is $18 billion or 34% of the total retained portfolio. This portfolio is anchored in high-grade public bonds and traditional 144A private placement securities. Next, our public structured portfolio is $11 billion or 21% of the total retained portfolio and provides access to well-diversified and high-quality assets across 3 categories, including $5 billion in CMBS and non-Agency RMBS focused on stable property types with built-in structural protections. $5 billion in CLOs that are well-diversified across industries, issuers and managers with a focus on investment-grade tranches and ample par subordination and $1 billion in high-quality ABS that is well diversified by collateral type. As an aside, we view the NAIC's proposal for higher capital charges on CLOs invested in broadly syndicated loans is very manageable. After properly adjusting for funds withheld reinsurance assets, the effect of the proposal for our CLO portfolio would translate to a decrease in RBC of 5 points or less as a conservative estimate. Next, our private origination portfolio is $11 billion or 21% of the total retained portfolio. Private origination is a key component of our investment strategy. It provides enhanced yield while limiting additional credit risk as well as diversification and strong covenant protection. Our private origination portfolio is well diversified and includes corporate and commercial lending, consumer loans, real estate and other real asset exposures. From a ratings perspective, approximately 90% of the private origination debt portfolio is investment grade and included within the 97% investment grade for our total fixed income portfolio. We primarily use the top 5 nationally recognized statistical rating organizations. Nearly 90% of the private origination debt portfolio and 94% of the rated assets in our total fixed income portfolio are rated by at least one of the top 5 rating agencies. Further, 64% of our total fixed income portfolio is dual rated by 2 rating agencies with at least one being one of the big 3. Egan-Jones ratings are de minimis at less than 1% of our total retained portfolio. And private-letter ratings account for approximately 18% of our total retained portfolio and undergo the same analytical rigor as public ratings. When it comes to private asset origination, most of these are directly-originated asset classes that have historically been underwritten by commercial banks and have a long performance history over multiple market cycles, providing observable data for thorough underwriting. Here, we utilize Blackstone's best-in-class origination, underwriting and structuring teams to source high-quality pools of physical and financial assets. The combination of Blackstone's structuring talent, our ability to complement Blackstone's ability with other asset managers, the track record of these assets and our thorough due diligence has helped generate attractive risk-adjusted returns for F&G that have performed very well to date and through stress environments like the COVID pandemic. Recent headlines have been focused on middle-market lending to midsized corporations. I'd like to provide further details on this subset of our private origination portfolio. Middle market corporate lending is nearly $5 billion or 9% of the total retained portfolio. 89% of our middle market lending positions are investment grade. We have low loan-to-value ratios and strong structural subordination. We are lending to sizable, high-quality companies with average annual EBITDA over $200 million. We have a track record of near 0 credit losses and the upgrade to downgrade ratio is positive for our private origination corporate exposure. Next, our mortgage loan portfolio is $7 billion or 13% of the total retained portfolio. It is weighted toward defensive sectors with 2/3 in residential loans and the remainder in commercial loans concentrated in multifamily and industrial properties, 2 segments that have demonstrated resilience across varying economic conditions. Finally, our alternatives portfolio is $4 billion or approximately 7% of the total retained portfolio. This includes approximately $3 billion of limited partnerships and $1 billion of other equity interest. Under our updated definition of alternative assets discussed last quarter, we have reclassified approximately $6 billion of lower-yielding debt-like assets into our fixed income portfolio. As a result of this updated definition, we have revised our long-term expected return assumption from 10% to a range of 12% to 14% for the remaining LP and equities portfolio. Many of these alternative investments are still in the earlier phases of their value creation cycle, so we are not yet fully realizing the long-term expected returns. During the first quarter, we saw improvement in our annualized return at 8.3%, up from 7.8% in the sequential quarter. Next, with regard to our overall portfolio, our fixed income yield was 4.77% in the first quarter, in line with the first quarter of 2025. Relative to the fourth quarter of 2025, our yield decreased 16 basis points as a result of 4 items in the first quarter: The removal of the assets associated with our sale of F&G Life Re, lower yields on floating rate assets, lower preferred stock dividends due to seasonality and an investment expense true-up adjustment. These were largely one-time items or due to timing. Excluding these items, we maintained our core spread in line with the fourth quarter. As a reminder, our fixed income yield excludes alternative investment income as well as variable investment income, which we define as prepayment fees. Software exposure across the total retained portfolio is below 5% and relatively short-duration. The vast majority of our software positions are protected by high switching costs, large competitive moats, regulatory barriers and/or embedded in workflows that are difficult to disrupt. We believe this exposure is very manageable. Credit-related impairments have remained low and stable, averaging 6 basis points over the past 5 years. Through the first quarter, credit-related impairments were a modest 3 basis points. Portfolio credit quality has improved over time through implementation of derisking programs. Since 2020, we have selectively repositioned over $2 billion of assets to optimize, derisk and position the portfolio to perform in varying market conditions while also improving credit quality. We believe our portfolio is performing exceptionally well as expected and conservatively positioned to withstand economic downturns. Now turning to the liability side of our balance sheet and how we think about the intrinsic value of our business. F&G reported GAAP equity, excluding AOCI, of $6.2 billion at quarter end and has grown its book value per share, excluding AOCI to $46.51, up 70% since the 2020 FNF acquisition. We think about our business as 3 distinct and complementary value-creating components: our new business platform, our profitable in-force block and our capital-light fee-based strategies. Each contributes meaningfully to earnings and together, they support a compelling sum of the parts valuation. At the core of our business is a high-quality and profitable in-force book that delivers steady spread income on a growing AUM base. We do not have any problematic legacy blocks of business. Our GAAP net reserves of $55 billion are diversified across $37 billion of retail fixed annuities, $8 billion of pension risk transfer liabilities and $7 billion of funding agreements. In addition, our $3 billion index universal life in-force book is less capital intensive than our annuity business and generates significant recurring product fee income annually. This is a top 10 IUL franchise with strong positioning in the cultural middle market that has demonstrated above-average growth rates. F&G is also uniquely positioned to provide flow reinsurance to third parties and through our sidecar, a capital-efficient strategy that generates fee-based returns. Demand for reinsurance capacity has greatly increased in recent years, and we have reinsured over $15 billion of cumulative annuity new business. Our own distribution franchise, Peak Altitude, rounds out the picture. With approximately $700 million deployed into this business and approximately $80 million in annual EBITDA, we believe the value of Peak is not fully appreciated by the market or reflected in our current share price. As a result, we have initiated a formal process to explore strategic alternatives for Peak to capture its significant growth opportunities and unlock that value for our shareholders. Importantly, each of these components, our new business platform, our profitable in-force block and our capital-light fee-based strategies represent a distinct and measurable source of value. Taken together, we believe the sum-of-the-parts framework reveals meaningful value that is not yet fully reflected in F&G's current market valuation, and we remain focused on closing that gap. Next, turning to capital allocation. During the first quarter, F&G returned $67 million of capital to shareholders through $38 million of common and preferred dividends and $29 million to repurchase approximately 1.2 million shares of common stock at an average price of $24.14. The company's existing stock repurchase authorization permits aggregate repurchases of up to $50 million, of which approximately $3 million remained available as of March 31, 2026. Effective March 13, 2026, our Board of Directors authorized an additional new 3-year share repurchase program under which F&G may repurchase up to $100 million of common stock. Our Board views repurchasing shares at current levels as a compelling use of capital. Despite the progress we have made to increase our outstanding float through the stock distribution at year-end, buying back shares at current prices reflects our confidence in the results we have delivered and our conviction in the significant long-term opportunities ahead. Let me now turn the call over to Conor to provide further details on F&G's first quarter highlights.

Thank you, Chris. This morning, I will provide some additional details of our earnings, asset growth and other performance drivers as well as our strong capital position. Starting with earnings. On a reported basis, adjusted net earnings were $110 million or $0.82 per share in the first quarter. Alternative investment income was $44 million or $0.32 per share below management's long-term expected return for the quarter. Adjusted net earnings included an unfavorable significant item totaling $5 million or $0.03 per share from investment and other income true-up adjustments. As Chris mentioned, effective January 1, 2026, our presentation of investment income for alternative investments does not include fixed income assets. Prior periods are presented on a comparable basis to reflect the new definition. We believe this updated definition more appropriately delineates between the fixed income portfolio and alternative investments while also improving comparability to others in the industry. Importantly, this updated definition does not have any impact to adjusted net earnings on an as-reported basis. Please see Page 42 in our spring investor presentation for further details. Overall, as compared to the prior year, adjusted net earnings reflect retained asset growth, growing fees from accretive flow reinsurance, steady owned distribution margin and operating expense discipline driving scale benefit. First quarter results were in line with our expectation and our core spread remained consistent with the fourth quarter of 2025. With regard to asset growth, we achieved record gross AUM of nearly $75 billion, up 11% over $67 billion for the first quarter of 2025. Retained AUM was $56 billion for the first quarter, up 3% over $55 billion for the prior year quarter. The current period excludes a $1.8 billion in-force block reinsured with the sale of the F&G Life Re legal entity effective March 1, 2026. F&G reported gross sales of $3.2 billion for the first quarter, up 10% over $2.9 billion for the first quarter of 2025. This includes core sales of $2 billion for the first quarter, up 11% over the first quarter of 2025. This reflects higher core retail indexed annuity and indexed universal life sales and pension risk transfer sales. This also includes $1.2 billion of opportunistic sales for the first quarter, up 9% over the first quarter of 2025. This reflects $1 billion of funding agreements in line with the prior year and $200 million of multiyear guaranteed annuities, which we intentionally moderated to allocate capital to the highest-return opportunities. F&G's net sales were $2.2 billion in the first quarter. This reflects flow reinsurance in line with capital targets for multiyear guaranteed annuities and fixed indexed annuities. The first quarter showcased the diversity of our new business engine, allowing us to flex across our products and channels to source the most attractive liabilities in the current environment to grow AUM. Next, turning to fee-based earnings. Our fee income from accretive flow reinsurance was $16 million for the first quarter as compared with $13 million in the first quarter of 2025. Our fee income from owned distribution margin contributed $9 million for the first quarter as compared with $7 million in the first quarter of 2025. Next, turning to scale benefit. As F&G grows, we are benefiting from increased scale as our ratio of operating expense to AUM before reinsurance decreased to 48 basis points at quarter end, benefiting from higher AUM and due in part to favorable timing of expenses. This compares with 50 basis points at year-end 2025 and 60 basis points at the end of 2024. As AUM grows and we continue to manage expenses, we expect the operating expense ratio to improve to approximately 45 basis points by year-end 2027 for a cumulative 15 basis point or 25% improvement over the 3-year period. From a return perspective, our reported results include short-term fluctuations from alternative investment income. As reported adjusted ROE, excluding AOCI, was 8.4% for the first quarter. As-reported adjusted ROA was 76 basis points for the quarter and 87 basis points on a last-12-month basis, which was in line with full year 2025. Taking into consideration management's long-term expected return for alternative investments and the unfavorable significant item would have resulted in 3.4% of additional ROE and 34 basis points of additional ROA for the quarter. Turning to our strong capital position. We remain committed to our long-term target of approximately 25% debt to capitalization, excluding AOCI and expect that our balance sheet will naturally delever over time. We continue to target holding company cash and invested assets at 2x interest coverage. Our annualized interest expense is approximately $165 million or roughly a 7% blended yield on the $2.3 billion of total debt outstanding. We expect to maintain our estimated company action level risk-based capital or RBC ratio above our 400% target. Importantly, F&G maintains strong capitalization and financial flexibility. We conservatively manage to the most stringent capital requirements of our regulators and 4 rating agencies. As a reminder, F&G remains a U.S. domiciled company. We are a full U.S. taxpayer and all new business is originated in our U.S. subsidiaries. Our majority shareholder is FNF, a U.S. domiciled business regulated by Florida and is also a full U.S. taxpayer. To build on Chris' earlier comments, I'd like to provide some added perspective on capital allocation. Our business is built around a diversified and self-funding capital model designed to support growth and reward shareholders without relying on any single source. This is an important part of our story, and I want to take a moment to walk through both where our capital comes from and how we put it to work. We have multiple reliable sources of capital supporting our business. Our in-force generates approximately $1 billion from the existing book of business. We expect even stronger capital generation in the future as we rapidly move toward a more fee-based, higher margin and less capital-intensive business model. Our reinsurance sidecar provides approximately $1 billion of on-demand third-party capital that we can access without diluting shareholders. Our strategic flow reinsurance partnerships add another layer of flexibility, allowing us to adjust retained sales levels and support cash from operations as we grow. Our statutory excess capital provides additional capital strength in line with our ratings. And as the balance sheet continues to delever, our available debt capacity will only grow over time. We deploy capital across top priorities. Starting with interest and dividends, we fund our $165 million of annual interest expense and are committed to our $135 million of annual common-stock dividend that we have consistently increased over time as well as our $17 million of annual preferred stock dividend. We also invest for strategic growth. That means reinvesting in our core business to drive continued AUM expansion and selectively pursuing acquisitions to strengthen our own distribution strategy. And finally, as Chris discussed earlier, we launched opportunistic share repurchases during the first quarter and have over $100 million of authorization remaining at March 31. Taken together, our capital allocation reflects the financial strength and flexibility we have built and our confidence in the future. To bring it all together, as I look ahead to the remainder of the year, our focus is clear: grow our core revenues and earnings, expand ROE and create long-term shareholder value. On the top line, we are focused on growing assets under management with an optimized sales mix that maximizes return on capital. For our core retail products, we expect indexed annuity and indexed universal life sales growth to track in line with the strong industry trends Chris outlined earlier. In pension risk transfer, the pipeline remains strong, and we expect annual sales between $1.5 billion to $2 billion. For our opportunistic products, we are pleased to have completed a $750 million funding-agreement-backed note issuance in early January when market conditions were particularly attractive, and we will continue to monitor that market closely. We expect multiyear guaranteed annuity sales to continue moderating given the current rate environment. Beyond AUM growth, we remain focused on 3 additional priorities: First, generating additional scale benefits as our business continues to grow; second, expanding returns on equity, excluding significant items, while maintaining our return on assets, excluding significant items in a corridor around our current level. And third, continuing our evolution toward a more fee-based, higher-margin and less capital-intensive business model, a natural advantage of our position as one of the largest sellers of annuities and life insurance in the industry. This concludes our prepared remarks, and let me now turn the call back to our operator for questions.

[Operator Instructions] Our first question is from Wilma Burdis with Raymond James.

Excited to be covering you guys. This is a bit of a housekeeping item, but do you consider 1Q '26 EPS a good intermediate-term run rate of which you can continue to grow? And should we largely expect EPS to grow along with AUM over time given share repurchases are a relatively small part of the equation?

Yes. Wilma, thank you for your coverage and your interest. I would say broadly speaking, if I think about near term, I'm just talking about the next few quarters here. But broadly speaking, I think that's true. If I break it down, if we get into maybe the core fixed income yield, it's probably down a few basis points from things that are actual rate related and so on in the market. And we'll manage that core spread maintenance. There'll be maybe a tiny bit of a lag effect there. But we also saw some green shoots on the upside. So my view on the sort of fixed income or core spread is, timing aside, it will be pretty close. It might -- maybe it will tick down a little bit. We'll see how surrenders will be in the industry. They're staying relatively close to where they have been. So that should probably be there or thereabouts. It could be a little bit lighter. We'll see. The core reinsurance and distributions should continue to move along nicely and grow up a little bit. The expense number, we're very focused on getting that full 25% reduction from where we started a little over a year ago. I would argue that's maybe a little too good this quarter. Some of that is timing. But all in all, I think, yes, broadly speaking, this is around the range with the big unknown being how will the alts portfolio do. Right now, we've been assuming a longer-term return in this new definition with the LP and equity portfolio of kind of 12% to 14%. We've been planning on a number below that for capital purposes, et cetera, just so that if that doesn't happen quite so soon, we're not in a hole of that. So hopefully, that answers your question. I'm very happy to clarify any component of that you'd like me to.

And Wilma, this is Chris. The only thing I would add to what Conor said is because I do think what you said is broadly true. Obviously, we see opportunity to expand ROE over time due to, I would say, own distribution as we continue to move down this capital-light path and reinsure more assets, that obviously has a very positive and accretive impact on ROE. So yes, I would say, historically, it would track AUM very tightly. It will diverge, I would think, positively as we go forward because of those other 2 sources of fee-based income.

Great. That was helpful. Where do you guys see opportunities to take advantage on the asset side? Spreads have widened in some asset classes, but just are you still kind of remaining conservative given spreads are still overall tight?

Yes, we have been. There are pockets. Mortgages is a good example, particularly on the residential side are still attractive on a return on capital basis. So that's an area. You have seen opportunities in some of the asset-backed lending area, but those are much more, I would say, opportunistic and idiosyncratic as opposed to something that you've got a steady flow pipeline into. But I think as a general rule, this feels like a good environment to keep a little dry powder and stay a bit conservative.

And I would add, we do remain thoughtful and active in the portfolio. So we'll take advantage. Again, that's something that will lead to a higher yield, but it takes a little time. Obviously, before that you get the full benefit of that through the portfolio. The other thing I would say we're constantly monitoring is how the capital charges might be changing on the margin for different asset classes and because that's just a constant, I would say, capital pressure that you weigh up. So marginally, we'll do some -- probably do some rotating here and there to just help balance that factor as well.

If I can sneak one more in. It seems surrender charge income remains similar to last quarter or recent quarters. Has the environment remained similar? And what are you seeing from policyholders in terms of surrender behavior?

Yes. I think there's a little bit of seasonality that we've seen. This is maybe the third year in a row where first quarter is a little weak because keep in mind, the policies that get processed in the first quarter is activity from the fourth quarter. So as you get into the holidays, not most clients' preference to spend their holidays with their insurance agent, talking about moving policies. So, so far, it's followed us a fairly similar pattern. Then you get into the nuances of which policies are being surrendered early, what's the surrender charge income. But yes, I would say pretty consistent.

Yes. And just mathematically from sort of a modeling perspective, it is actually -- it's remarkably consistent perhaps when you compare this quarter with both last quarter and the first quarter of last year. Yes, I would -- I don't expect it to necessarily go up from here. I think it's possible that it could move down. We have fewer surrenders in the industry. But what it's worth, April, I would say, has been a consistent month as well. So it hasn't shifted. I might be mildly surprised by that, but not much.

Our next question comes from Mark Hughes with Truist Securities.

Yes. Just following up on Wilma's question. When we look at the adjusted ROA, the 80 bps in the quarter, obviously, substantially impacted by the return on the alts. Was your suggestion there that, kind of, the run rate, the starting point on a go-forward basis ought to be the 80 bps. And then over time, perhaps the alts performance as it matures, you would see improvement. But for the near term, kind of stick with the 80 basis points. Is that fair?

Yes. I think if I look at the yield in the quarter, and it ticked down about 16 basis points. We had about probably $4 million of that roughly being, call it, market-related changes in things like SOFR and floating assets, et cetera. A couple of it is because we had assets that were tied to the Bermuda entity that we don't have anymore. So I'd call that kind of a permanent difference as well. But about $10 million of it is largely timing related. It's -- it was a combination of fewer preferred stock elements coming in, in the quarter, just a fewer days, if you will, in the quarter. We had a little bit maybe of, I would say, investment expense cleanup in the quarter as well. So maybe 1/3 roughly of the decline we saw in the quarter will likely be permanent and the other 2/3 likely kind of one-time for now.

Yes. And there, you're talking about sequentially, is that?

Yes.

[ 87 to 76. ] Okay. And then is there -- when we think about the return on the alts portfolio, that's dampening your adjusted ROE kind of the 8% -- 8% to 9% here lately. Is that something that needs to be factored in, in terms of the product pricing if the alts portfolio is uncertain. I know you're going to be shifting more fee income and more of a capital-light model, and that will help returns. But is there anything in terms of the pricing that is relevant? And maybe I'll ask in the context because I think this is -- the investment in alts is a competitive dynamic. Do you think others are maybe too dependent on better alts performance? Just trying to think through this, how it interacts with ROE and ROA.

Yes. I would say the pricing dynamic is a lot more complicated, right, because it depends on duration of the liability. We're looking at this. We're not repricing daily, but we're repricing frequently, and we're going through the calculations of exactly where we are on a real-time basis. So I think in terms of the long-term assumption that we guided to, the purpose of it is literally to just try to help you all think about how to forecast our earnings going forward. And the reason we give a range is we're just in an environment where you could make a compelling argument for the lower end of the range. You can make a compelling argument for the higher end of the range. As Conor said, most importantly, from a capital perspective, we take a very pessimistic view because you don't want to get that one wrong. So there's probably more upside than downside from a capital perspective. And then on a pricing basis, yes, we're modeling all real-time inputs, and it's done not just on a deterministic basis, but on a stochastic basis of various environments, what's the range of returns? Is the lower end of that band acceptable to us? So I know that was a complicated answer. In terms of us versus competition, I don't know that we're an outlier in either direction. I think most of the folks in our space are in and around the 5% or 6% alts allocation within their portfolios. I think everybody tries to look at it long term. Now there could be big mix differences if you have -- if you're skewed towards credit, we tend to be skewed towards PE and real estate. And within real estate, you've got the classic Blackstone themes of infrastructure, multifamily housing as opposed to office. So I realize, again, long-term answer, hopefully, that got to some of what you're looking for.

And then the -- you're going through a process to look at your alternatives. Was that for the owned distribution that you're talking about, the $80 million in EBITDA? Could you talk a little bit more about that, what you might be looking to do, how that would -- to the extent that you have some alternatives, how would that impact the go-forward business model?

Yes, absolutely. Thanks for bringing that up. I would say the good news is this is driven by -- we realize we're on to something really substantial here. So what started as trying to help a handful of long-term distribution clients who are looking for growth capital and wanting an alternative to the PE model has become a real business and a real business that's growing nicely. We really like the platforms that we own. We see opportunities to acquire more platforms. And really, the exercise we're going through now is where is the best optimal place to hold this business? Is it underneath the carrier? Would it be beneficial to deconsolidate it from F&G? What's the best way to fund it? So that's the exercise that we're going through. Everything is technically on the table. I would say it's pretty unlikely that we would sell the whole business at this juncture, just given where we are on the inflection curve for the business. But it's something that we're super excited about.

And so presumably, you'd keep the same distribution relationships, your own distribution, your own sales on a go-forward basis would not be influenced by that transaction.

Yes, correct. Because keep in mind, this was never about forcing market share because it is independent distribution that name has -- that label has meaning. You can't force. You have to earn it and they're separate teams. So yes, we don't see that impacting the deep relationships that we have today.

Our next question comes from Alex Scott with Barclays.

Follow-up on the conversation you're just having there on the IMO and the potential. Would you expect that, that would raise some amount of capital that the holdco has available for deployment, whether -- I guess, whether it's putting it down into the operating companies or selling it to a third party or deconsolidating? I mean, will that generate cash for the holdco if you pursue one of those avenues? And if so, what would you look to do in terms of deployment?

Yes. Alex, it's Conor. The simple answer is yes. Obviously, it depends a little bit on how exactly we do it. But in a scenario where someone joins us in that ownership of Peak and bring some capital in, one of the things I would mention or highlight would be right now, the debt -- all of our debt is at the holdco, not at the peak level. So I would expect some element of the proceeds we would likely use to pay down some debt because perhaps going forward, like right now, the dividends that we earn from the peak entities, obviously service that debt coming through. So we would want to balance that. But aside or outside of that, yes, we would have capital available to -- for call it, for general business purposes or continue to grow AUM, et cetera.

But I guess, are you thinking of it from the standpoint of this would help you fund growth down in the opco? Or is this -- because you mentioned some of the parts. And like that sort of suggests that you're frustrated with the sum-of-the-parts discount, and that would cause me to believe maybe you'd take proceeds and buy back stock. But which would you favor?

Yes, Alex, this is Chris. I would say -- I mean, obviously, a little premature. It's not that we haven't thought about this question. But yes, I don't think it would be to then convert that capital into additional spread earnings since our goal is to grow the fee portion of the earnings. And so yes, once it's there, it's like any other holdco cash, all the various options are on the table of dividends, share buybacks, other things that we could do with that capital. Hopefully, that...

Yes. No, that is helpful.

Sorry, the other thing I would squeeze in is there is a very tangible benefit of deconsolidating which is obviously you would pick up some leverage capacity on the business itself that we cannot do today. So you would pick up a pretty attractive funding source to do more deals if, in fact, you deconsolidate it from F&G.

Yes. And I might add, I mean, our expectation would be having someone alongside us to continue -- there's -- as Chris is saying, there's great opportunity for continued momentum and growth in the entities as well. We would very much expect to continue to participate in that going forward. So we have that advantage as well of continuing perhaps accelerating the growth of the peak entities alongside a partner.

Got it. Okay. Next one I had for you is on the investment portfolio. I really appreciate enhanced disclosure, of course. One thing I realized, though, you guys shifted some AUM out of what we were calling alternative investments. The private origination fixed income that you guys kind of disclosed more on in the presentation this quarter, it looked like I think it was still around the same level at $11 billion from like the last time you talked about it. So where is this AUM that, I guess, is no longer considered alternatives, more fixed income like? Like does that have private credit like features? Like I would have guessed that, that would have been considered private credit and didn't see anything specifically on that. So I was hoping maybe you could dimension that for us a bit too, so we could just understand that alongside the private origination that you've got in the deck here.

Yes. So I'll maybe do it in reverse order. If you say what's in -- what we actually consider alternatives because part of what we found is peers were defining it differently. And so we look like an outlier when we knew that we were not in terms of the size of "alts," but of the $4 billion sitting in alts, I think it's about $3 billion in traditional LPs. That's overwhelmingly private equity, private equity real estate with the themes, the classic Blackstone themes that we've talked about. There's $1 billion that says other equity interest. It's not exclusively, but the bulk of that is what we would just say credit residuals, so equity tranches, but on the credit side. So what people think of as the longer-term higher returning, but therefore, more volatile, that's why that sits there. The reason we moved the credit over is those properties are going to look very, very similar to a high-quality CLO tranche or any other investment-grade piece of paper. So again, it was really a bucketing thing. I think we were defining it for a while based on where it sat on the schedule as opposed to what the underlying characteristics will look like. So hopefully, that helps. And yes, on the disclosure side, we feel like we're -- we've been through all of our peers. We feel like we're giving as much, if not more disclosure than anybody because we feel good about the portfolio, and you can see that in the credit losses, upgrades versus downgrades, percentage of first lien, LTVs, you just across the board. So I'm not sure what more we can do at this point [indiscernible] some concerns.

Well, just to be clear, so the CLO-like assets that you moved out of the definition of non-fixed income alternative, that is or isn't in the $11 billion that you gave more disclosure on? And if it's not, could you just help us think through that piece of it a little more? Like what's the size of it even? I mean, I just want to understand it a little better.

Sure. Yes. So again, if you go back to what used to be $11 billion, and we now define as $4 billion, the remaining $7 billion is largely that. It is investment-grade tranches of fixed income coupon clipping securities. So yes, it would look a lot like CLO or CMBS type structure.

And that's not in the $11 billion that you've got in your slides or it is?

It is.

It is in that $11 billion. Got it. All right. That was the piece I was missing.

And I think Chris carved out the, hey, there's $18 billion of kind of core fixed income, $11 billion of origination, $11 billion of structured, $7 billion of mortgage loans and now $4 billion of alts. So all of that should add up to the whole portfolio.

Got it. All right. That's all clear now. Just on -- sticking with this, of that $11 billion, like can you talk about software? Because I know you mentioned 5% for the broad portfolio. Can you tell us about, like, just the private origination because I think that's sort of the area of software people are a little more concerned about. Like do you know what that number is for just as a percentage of private origination?

Yes, I have to confirm this, but I want to say it is about 20%. And then within that, the reason we've given the kind of the piece that's at risk, and I know because you've written on this, I know you get it, software comes in so many different flavors. So I would say the vast, vast majority of this, we do not think is at high risk of AI disruption, particularly in the near term because keep in mind, a lot of these loans are pretty short duration. I mean these are like 2-, 3-year loans, not -- these are not 20-year loans to these companies. But yes, I think based on what we've seen from some of our competitors, I don't know that we're necessarily an outlier in terms of software exposure.

Got it. Okay. That's helpful. And maybe one last one, if you'll entertain it on the investments. A lot of peers are defining it in different ways. So like some peers are including like 144A private placements. And I'm sort of looking at it both ways. So I just wanted to see if you could opine on that piece of it. Like how much 144A private placement do you have? We can obviously see in the scheduled disclosures, but I know there's funds-withheld consideration. So I just wanted to check if you have that number handy.

I do not, but we can certainly dig that out and follow up for you.

And this will conclude our question-and-answer session. I will now turn the conference back over to the CEO, Chris Blunt, for closing remarks.

Thanks again to everyone for joining us this morning. We delivered a solid start to 2026 with record gross AUM, disciplined capital allocation with an increased capital return to shareholders and a high-quality investment portfolio that continues to perform well. We continue to execute on our strategy toward a more fee-based, higher margin and less capital-intensive business model. Underpinned by our diversified new business engine and the structural tailwind of the peak 65 retirement wave, we remain confident in our ability to grow AUM and expand return on equity. We appreciate your continued interest in F&G as we remain focused on delivering long-term shareholder value, and we look forward to updating you on our second quarter earnings call.

Thank you for attending today's presentation, and the conference call has concluded. You may now disconnect.