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Finding Stability in Investing: Masters in Business with Seth Bernstein · Masters in Business

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Speaker 1: Bloomberg Audio Studios, podcasts, radio, news.
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Speaker 2: This week on the podcast, we have an extra special guest.
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Speaker 2: Seth Bernstein is the CEO of Alliance Bernstein, as well
0:16
Speaker 2: as head of asset management for Equitable Holdings. The firm
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Speaker 2: manages $ 905 plus billion in clients. He's been CEO since 2017,
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Speaker 2: joining the firm after 32 years of JPMorgan Chase and predecessors.
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Speaker 2: I thought this conversation was really fascinating, and I think
0:36
Speaker 2: you will too. If you're interested in how a firm
0:39
Speaker 2: adopts to changing conditions, you're going to find this to
0:43
Speaker 2: be really a fascinating discussion. With no further ado, my
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Speaker 2: discussion with Alliance Bernstein's CEO, Seth Bernstein. Seth Bernstein, welcome
1:01
Speaker 2: to Bloomberg.
1:02
Speaker 1: Barry, thank you very much. I'm delighted to be here.
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Speaker 2: I'm delighted to have you. So before we start talking
1:06
Speaker 2: about AB, let's delve a little bit into your background.
1:11
Speaker 2: You study political science and economics at Haverford. What was
1:16
Speaker 2: the original career plan? Was it always investment management?
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Speaker 1: No, I had no idea what investment management was. I
1:22
Speaker 1: didn't have anyone in my family who was in the
1:24
Speaker 1: financial services business. The original plan was for me to
1:27
Speaker 1: be an architect.
1:28
Speaker 2: Oh, really?
1:29
Speaker 1: But I came up against two sort of immovable objects. One,
1:33
Speaker 1: I wasn't terribly talented, and two, I didn't have enough dough.
1:37
Speaker 1: So I discovered that no one makes money in architecture.
1:41
Speaker 2: Is that true?
1:42
Speaker 1: No, I'm sure someone does, but not many do.
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Speaker 2: Fat head, long tail. That seems to be the winner-take-all
1:47
Speaker 2: story everywhere. All right, so you come out of Haverford, 84,
1:49
Speaker 2: somewhere around there? And your first gig was at JPMorgan Chase?
1:56
Speaker 1: Morgan Guarantee Trust Company.
1:58
Speaker 2: Morgan Guarantee. How long were you there for?
2:01
Speaker 1: Well, Morgan ultimately was sold to Chase.
2:04
Speaker 2: So I said this wrong, and I actually had a
2:07
Speaker 2: note to myself. Your first gig after college was at
2:11
Speaker 2: JPMorgan Chase or one of its 1980s predecessor.
2:16
Speaker 1: That's correct. Okay.
2:17
Speaker 2: I do my homework, and I literally had to put
2:20
Speaker 2: that into a parenthesis. And I forgot to say it. So, 1984,
2:25
Speaker 2: you start at a predecessor firm to JPMorgan Chase. Tell
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Speaker 2: us about Morgan Guarantee. What were you doing there?
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Speaker 1: I was lucky enough to get into a year-long training
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Speaker 1: program where this firm, irrationally, was willing to train liberal
2:42
Speaker 1: arts majors like me in accounting and corporate finance and
2:51
Speaker 1: higher-level math topics and other areas in order to build
2:56
Speaker 1: bankers and traders. That was the goal.
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Speaker 2: So I understand poli-sci as liberal arts, but did the
3:02
Speaker 2: economics major help at all?
3:05
Speaker 1: I went to a Quaker college.
3:07
Speaker 2: So no. All right, so you're at Morgan Guarantee. Tell
3:12
Speaker 2: us a little bit about the roll-up process and where
3:15
Speaker 2: that ended. How did you end up?
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Speaker 1: Still employed.
3:19
Speaker 2: At JP Morgan Chase. The reason I ask this is
3:21
Speaker 2: around the same time I got married and our bank
3:27
Speaker 2: accounts are JP Morgan Chase, but that's not where it started.
3:30
Speaker 2: It like nine banks ago.
3:32
Speaker 1: Right.
3:32
Speaker 2: And we never changed banks. They would just send, Oh,
3:35
Speaker 2: all right. Manufacturers had an over is now dime is
3:38
Speaker 2: now this is now that. And eventually it became chase.
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Speaker 1: We were at the end of that merger trail basically. And, um, J.P.
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Speaker 1: Morgan had been an independent entity until 1958 or 9
3:51
Speaker 1: when they merged with the Guarantee Trust Company. And that
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Speaker 1: was Morgan Guarantee. The holding company was J.P. Morgan and Company.
3:58
Speaker 1: A wonderful bank. Overvalued people. Almost never went outside to
4:05
Speaker 1: recruit anybody. So it was a fantastic place to have
4:08
Speaker 1: a career because whenever they go into a new business,
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Speaker 1: whether it was bond underwriting because they were prohibited under Glass-Steagall.
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Speaker 2: Right.
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Speaker 1: They would essentially retrain people who were already there. So
4:19
Speaker 1: you got opportunities that weren't necessarily available elsewhere.
4:23
Speaker 2: Promote from within. Not a bad strategy.
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Speaker 1: It worked for a long time until it did.
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Speaker 2: And Glass-Steagall went away late 99, something like that?
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Speaker 1: Glass-Steagall effectively went away.
4:35
Speaker 2: J.P.
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Speaker 1: Morgan was really the first that granted powers. J.P. Morgan
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Speaker 1: got equity powers in 1991 or 2. Mm-hmm. And I
4:44
Speaker 1: was moved to Equity Capital Markets, a new group. And
4:48
Speaker 1: I went there and then ended up running High Yield.
4:52
Speaker 1: And then I was responsible for Debt Capital Markets, loan syndications.
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Speaker 1: And then at the time of the merger, I was
5:00
Speaker 1: in media and telecom because that's what you do with people.
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Speaker 1: who get bored of doing bond underwriting. You make them bankers,
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Speaker 1: whether they're good or not.
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Speaker 2: You did more than just bond writing. You eventually became
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Speaker 2: the global head of fixed income and currency.
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Speaker 1: So after the merger with Chase, I was kind of
5:17
Speaker 1: thinking about what I want to do. Jake and Wayne
5:22
Speaker 1: Chase thought it was a good idea to keep me around,
5:24
Speaker 1: so they gave me incentive to stick around. I figured
5:26
Speaker 1: that would be a great opportunity to look around for
5:29
Speaker 1: a year and figure it out. If you'll recall, markets
5:32
Speaker 1: began to taper off you know, at the beginning of
5:35
Speaker 1: 2000 with the whole fear on the internet, the whole
5:42
Speaker 1: issue around building dark fiber. So the high-yield market was
5:47
Speaker 1: going to hell in a handbasket. And so I decided
5:52
Speaker 1: maybe it would be a good idea to move. And
5:54
Speaker 1: one of my friends said, why don't you come over
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Speaker 1: to investment management and private banking? Be a CFO. figure
5:59
Speaker 1: out what to do. And then he said, you should
6:02
Speaker 1: run fixed income. And I looked in them and I'd
6:04
Speaker 1: been in fixed income for most of my career. And
6:06
Speaker 1: I said, but I've never managed anyone's money. And he said,
6:10
Speaker 1: don't worry, they don't know what they're doing either. So
6:11
Speaker 1: come on board. And so that's what I did.
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Speaker 2: That's unbelievable. So you were global head of fixed income
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Speaker 2: and currency for 10 years, but then CFO of investment
6:22
Speaker 2: management and private banking.
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Speaker 1: That was before that.
6:25
Speaker 2: That was prior. So I'm working backwards. So the Was
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Speaker 2: fixed income and currency the final spot or was it
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Speaker 2: Global Head of Managed Solutions?
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Speaker 1: Global Head of Managed Solutions. I ultimately was asked to
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Speaker 1: go over and run the multi-asset businesses of both investment management, J.P.
6:43
Speaker 1: Morgan Asset Management, and the portfolios for the private bank
6:47
Speaker 1: of J.P. Morgan, which was hard to do because one
6:51
Speaker 1: was a distributor, one was a manufacturer, and we ultimately
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Speaker 1: split it up because we had to. And I then
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Speaker 1: ran all the discretionary money for the private bank and
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Speaker 1: Chase Wealth Management.
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Speaker 2: All right. So from there, 32 years at essentially many,
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Speaker 2: many different jobs, but ultimately in the same organization, you decide,
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Speaker 2: all right, I've been doing this for three plus decades.
7:17
Speaker 2: Let's look around and see what's out there. What led
7:20
Speaker 2: you to take the top job at Alliance Bernstein? And
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Speaker 2: that was 2017? Correct. Correct.
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Speaker 1: Well, they asked.
7:28
Speaker 2: How did they find you? Obviously, when you take on
7:32
Speaker 2: a position like that, they're looking from a variety of
7:38
Speaker 2: different applicants. How did they find you?
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Speaker 1: They found me through a person who worked. AXA was
7:45
Speaker 1: the ultimate owner, majority owner of Alliance Bernstein, and it
7:50
Speaker 1: was the owner of Equitable. Alliance Bernstein was part of
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Speaker 1: Equitable prior to AXA purchasing Equitable in 1990-ish. If you'll
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Speaker 1: recall back then, that was right after Drexel collapsed, high-yield collapse,
8:05
Speaker 1: real estate collapse. Equitable got caught up in that. And
8:11
Speaker 1: so Equitable was acquired by AXA, the French insurer, and
8:17
Speaker 1: they made a lot of money with it. They had
8:20
Speaker 1: bought it at a by 2017, AXA had decided to
8:27
Speaker 1: go in a different direction. They wanted to get out
8:30
Speaker 1: of the life insurance business. And so they decided that
8:33
Speaker 1: they needed to sell Equitable in a way to facilitate
8:37
Speaker 1: that sale was to bring Alliance Bernstein and Equitable back together.
8:41
Speaker 1: And so they were looking for a new head of
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Speaker 1: Alliance Bernstein to do that. And so a person I
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Speaker 1: knew from my time at J.P. Morgan was at AXA,
8:50
Speaker 1: and she introduced me to number of the senior people there,
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Speaker 1: and the rest is sort of history.
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Speaker 2: So you've been CEO since 2017. At the time you joined,
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Speaker 2: Alliance Bernstein has $ 500 billion. This is significantly higher, coming
9:07
Speaker 2: up on a trillion here. But when you were joining,
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Speaker 2: you're fighting some pretty substantial headwinds. There was a big
9:14
Speaker 2: investor shift going on really since the financial crisis, from
9:18
Speaker 2: active to passive. Fee compression was everywhere. Institutional sales training,
9:24
Speaker 2: I remember when that was 20, 25 cents a share.
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Speaker 2: It went to pennies and then fractions of a penny.
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Speaker 2: What did you find when you joined the company? Anything surprising?
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Speaker 2: Was it what you were expecting?
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Speaker 1: No, I don't think you have any idea. Oh, really?
9:40
Speaker 1: When you go from one company after nearly 33 years
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Speaker 1: into another company. I knew a lot of people. I
9:47
Speaker 1: had been a private wealth client. believe it or not,
9:49
Speaker 1: of Bernstein for at that time, 16, 15, 16 years.
9:55
Speaker 1: I competed against them in fixed income. I knew a
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Speaker 1: lot of people worked there, but I had no idea.
10:00
Speaker 1: what was going on. What I found was a company
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Speaker 1: that had had a very tough financial crisis, their own
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Speaker 1: investment performance and value adding growth. If you'll recall, Alliance
10:09
Speaker 1: Bernstein is a merger of the Growth Manager Alliance with
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Speaker 1: the Value Manager and Bernstein. And the stock had soared
10:17
Speaker 1: and AUM, the combined entity, had reached intra-quarter almost $ 900 billion.
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Speaker 1: By 2012, they were $ 380 billion. And what was 70%
10:30
Speaker 1: equities roughly in 2006 was 30% equities in 2012.
10:37
Speaker 2: So bonds kind of held their own and equities collapsed.
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Speaker 1: Bond performance was pretty good, but equity performance collapsed. We
10:43
Speaker 1: faced a lot of redemptions. My predecessor did a very
10:46
Speaker 1: good job restructuring it. a guy they had recruited out
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Speaker 1: of Goldman, and he had brought in some new teams.
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Speaker 1: And the firm began to develop some really interesting investment
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Speaker 1: performance and equities, which allowed us to buck the trend
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Speaker 1: and have net flows and active equities, which was an
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Speaker 1: important growth. He also started the firm's evolution into private credit,
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Speaker 1: which I've taken a lot further. And the firm was
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Speaker 1: listing but doing better from a performance perspective, not gaining
11:17
Speaker 1: much assets, and then really began to take off.
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Speaker 2: So what do you learn after 32 years at an
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Speaker 2: institution that eventually becomes JPMorgan Chase about how great financial
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Speaker 2: institutions are built? What was your takeaway that you brought
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Speaker 2: to AB?
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Speaker 1: What I think I brought to AB was a different perspective,
11:39
Speaker 1: more global. than they had. They were very US-centric, although
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Speaker 1: they had a great Asian business. I think I brought
11:47
Speaker 1: an appreciation of how investment processes worked and understanding that
11:52
Speaker 1: you can have the smartest people in the world with
11:54
Speaker 1: the most impressive process deliver appalling returns. It's serendipitous why
11:58
Speaker 1: it works when it does work. So be careful mucking
12:01
Speaker 1: around in it. I think I brought an understanding that
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Speaker 1: the way they had rebuilt Alliance Bernstein was to strip
12:12
Speaker 1: resources from everything but the investment teams because they had
12:15
Speaker 1: nothing to sell. They did it. They did a very
12:18
Speaker 1: good job at it. And I began to focus on distribution,
12:22
Speaker 1: whether it's in private wealth and institutional and most importantly
12:25
Speaker 1: in retail. And we decided to go full focus on
12:30
Speaker 1: the insurance business because we saw that as a really
12:33
Speaker 1: important source growth both for our private credit business but
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Speaker 1: also our fixed income business.
12:38
Speaker 2: What do you think big institutions get wrong? Like it
12:41
Speaker 2: sounds like post-GFC, Alliance Bernstein before your predecessor really took
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Speaker 2: the reins kind of was stumbling. Yeah, it's a little
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Speaker 2: bit of hindsight that we know all the things that
12:57
Speaker 2: were going wrong with large active managers but generally speaking
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Speaker 2: What is it about big institutions that sometimes just don't
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Speaker 2: see these things coming and stumble into the dark on
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Speaker 2: these issues that clearly you identified as problematic?
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Speaker 1: Look, I think when the good Lord created business models,
13:21
Speaker 1: asset management was really blessed, right? You have... You have
13:27
Speaker 1: no need for capital or de minimis need for capital,
13:30
Speaker 1: working capital in the business. Your whole revenue stream is
13:34
Speaker 1: structured on ad valorem pricing. So even when you destroy
13:38
Speaker 1: value and markets go up, you make more money, kind
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Speaker 1: of a wonderful thing.
13:42
Speaker 2: Right. 10% tailwind never hurts, right?
13:44
Speaker 1: Never hurts. And we've certainly benefited as the industry as
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Speaker 1: a whole from that consequence. Thirdly, you get to work
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Speaker 1: with some of the most interesting, if weirdest people in
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Speaker 1: the world.
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Speaker 2: Absolutely true.
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Speaker 1: And frankly, particularly when you have an RIA and you
13:59
Speaker 1: have to be focused on wealth management, you better become
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Speaker 1: a really good fiduciary because if you're not putting your
14:05
Speaker 1: client's interests first, you're going to lose them because all
14:08
Speaker 1: you have is their confidence in you because your business, Barry,
14:12
Speaker 1: is a word-of-mouth business. People don't come to you, I suspect,
14:16
Speaker 1: not because they've heard you on your show. They come
14:19
Speaker 1: to you because you have clients who say, this guy
14:21
Speaker 1: protected us.
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Speaker 2: Yeah, there's an aspect of being a fiduciary that it
14:27
Speaker 2: seems so obvious today but you know fifteen years ago
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Speaker 2: with the fiduciaries were small minority it took a lot
14:36
Speaker 2: and i've been saying this for thirty years and uh...
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Speaker 2: it it's taken me uh... being wrong for decades before
14:41
Speaker 2: the industry caught.
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Speaker 1: Up i'm not sure the industry's there yet you look
14:45
Speaker 1: at the big brokerage firms at the very least they've
14:48
Speaker 1: all become hybrid r-i-a-b-d's.
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Speaker 2: And dominant fee structure is no longer transactional commission. It's
14:57
Speaker 2: pretty much fee-based. But when I discovered this in the 1990s,
15:01
Speaker 2: I'm like, oh, this can't, this has to change right away.
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Speaker 2: I don't see how this... And it took literally 25
15:07
Speaker 2: years before the industry and the financial crisis certainly helped.
15:12
Speaker 1: Well, but the industry hasn't done itself any favors about
15:16
Speaker 1: it either. I mean, while I don't particularly care for
15:20
Speaker 1: it for... abusive and overly law legislation, the changes that
15:29
Speaker 1: they were trying to make with regard to forcing a
15:32
Speaker 1: higher fiduciary orientation was not a bad idea in concept.
15:36
Speaker 2: No, it was a great idea.
15:37
Speaker 1: But the industry fought it pretty hard.
15:39
Speaker 2: Well, because it meant they couldn't spin these accounts around
15:43
Speaker 2: and generate much higher fees. I mean... Look, either it's
15:47
Speaker 2: a fiduciary standard or it's not.
15:50
Speaker 1: It is that black and white. Right.
15:51
Speaker 2: You could play with suitable suitability. You know, I used
15:56
Speaker 2: to say, what does suitable mean? Don't sell IPOs to grandma.
16:01
Speaker 2: That's suitability. But that isn't the same as being legally
16:06
Speaker 2: obligated to put the client's interest first. That's a very...
16:09
Speaker 2: And the crazy thing is, and I don't want to
16:11
Speaker 2: go on a rant on this here because this is
16:13
Speaker 2: about you, not me, but shouldn't Your relationship with the
16:18
Speaker 2: person handling your finance, be more like your doctor, lawyer, accountant,
16:22
Speaker 2: and less like the guy selling you a used Honda
16:26
Speaker 2: or BMW. That just doesn't make any.
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Speaker 1: Sense to me. You see, to me, that's the key
16:29
Speaker 1: issue that I think the industry has gotten wrong. Because
16:31
Speaker 1: I would dismiss the accountant and the attorney. There is
16:36
Speaker 1: no one you put more trust in than your healthcare advisor. Uh-huh.
16:40
Speaker 1: After that. Who's the next?
16:42
Speaker 2: You would think it would be the person handling your money.
16:45
Speaker 1: It's your future. It's your kid's education. It's your charitable intent.
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Speaker 2: Your retirement.
16:50
Speaker 1: It's your retirement. Yeah, I think it's really important. And
16:53
Speaker 1: I think we ignore that to our detriment.
16:57
Speaker 2: Coming up, we continue our conversation with Seth Bernstein discussing
17:01
Speaker 2: the turnaround at Alliance Bernstein since he's become CEO. I'm
17:05
Speaker 2: Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.
17:11
Speaker 2: I'm Barry Ritholtz. You're listening to Masters in Business on
17:14
Speaker 2: Bloomberg Radio. My extra special guest this week is Seth Bernstein.
17:19
Speaker 2: He is the CEO of Alliance Bernstein, a firm which
17:23
Speaker 2: is managing over $ 905 billion and is majority owned by
17:29
Speaker 2: Equitable Holdings. About 31% is publicly traded.
17:33
Speaker 1: Is that right?
17:34
Speaker 2: So let's talk a little bit about what was going
17:37
Speaker 2: on when you took over and just how this turnaround...
17:41
Speaker 2: came to pass persistent outflows an active management model a
17:47
Speaker 2: lot of written off research department like so many other
17:51
Speaker 2: research departments were having difficulty justifying a lot of the
17:56
Speaker 2: expenses what was the immediate short-term plan what were your
18:01
Speaker 2: first few months on the.
18:02
Speaker 1: Job let's talk about it when you run into trouble
18:04
Speaker 1: before the markets turn it is a silver lining and
18:08
Speaker 1: a blessing. And the firm had begun to take actions
18:11
Speaker 1: and was very much focused on costs. And by the
18:13
Speaker 1: time I arrived, the firm was looking at the merits
18:16
Speaker 1: of moving its headquarters out of New York. Because as
18:19
Speaker 1: the industry commoditized, as active sales were declining broadly, the
18:26
Speaker 1: firm's leases were coming up, and they really had a
18:29
Speaker 1: soul-searching discussion of, can we afford to continue in New York,
18:33
Speaker 1: or do we have to diversify our bets? No decisions
18:37
Speaker 1: had been made by the time I had arrived. They
18:40
Speaker 1: briefed me on what was going on, and it seemed
18:42
Speaker 1: pretty clear to me that there was a compelling case
18:44
Speaker 1: to reduce our footprint here in New York and go
18:49
Speaker 1: find a place where we could find really talented people
18:52
Speaker 1: who we wouldn't have otherwise seen because they either couldn't
18:56
Speaker 1: afford to live in New York or, for example, people
18:59
Speaker 1: who were really tech-savvy Were we going to be high
19:02
Speaker 1: enough on the food chain that they'd look for us
19:04
Speaker 1: to hire them here in New York when you had
19:06
Speaker 1: Google at the time searching for everybody north and south?
19:09
Speaker 2: Hoovering everyone up and paying big salaries.
19:12
Speaker 1: Exactly right. We do pretty well finding investors and keeping them.
19:16
Speaker 1: We know how to manage them. They have very fruitful careers.
19:22
Speaker 1: But outside of that, it's a more challenging career development issue.
19:26
Speaker 1: And so we looked around. We looked at a number
19:28
Speaker 1: of cities. Our firm, It's overstocked with former consultants. And
19:33
Speaker 1: so we overanalyzed everything. And we came down to five cities,
19:37
Speaker 1: one of which was Nashville. And we announced later in
19:41
Speaker 1: 2017 that we were going to relocate to Tennessee. And
19:45
Speaker 1: we are now eight years into it.
19:48
Speaker 2: A thousand people moved down there. right?
19:50
Speaker 1: Ultimately, we have 1,100 plus jobs there.
19:54
Speaker 2: So let me guess the other cities you were looking at.
19:56
Speaker 1: Okay. Are you ready? Yes. It was 15 originally, but
19:59
Speaker 1: I'm only expecting the five.
20:00
Speaker 2: I'm going to give you three off the top of
20:03
Speaker 2: my head. Right. Charlotte.
20:05
Speaker 1: That was one of the five.
20:06
Speaker 2: Because there's so many big banks there and there's a
20:08
Speaker 2: lot of talent. Chicago.
20:09
Speaker 1: No.
20:10
Speaker 2: Really? A lot of finance talent, half the price in
20:12
Speaker 2: New York. Tampa.
20:15
Speaker 1: No. Really? Okay. So you're not doing so good.
20:18
Speaker 2: All right. I'm one for three. Dallas. Okay.
20:22
Speaker 1: Austin, where we already have a great operation.
20:24
Speaker 2: Well, Austin was actually number five in my head.
20:26
Speaker 1: Yeah, but it didn't come out there.
20:27
Speaker 2: DFA is there. There's a few other people there.
20:29
Speaker 1: Schwab's there.
20:30
Speaker 2: Mm-hmm. There's still big presence in San Francisco.
20:33
Speaker 1: Yeah, yeah, but they have a big operation. And Denver. Denver.
20:38
Speaker 2: Oh, that's really interesting. Right. So the obvious question, why Nashville?
20:43
Speaker 1: We wanted to be a big fish in a small pond,
20:45
Speaker 1: which we couldn't have been in Charlotte. I mean, Charlotte's
20:48
Speaker 1: a very compelling place.
20:51
Speaker 2: Or Dallas.
20:52
Speaker 1: Or definitely not Dallas, although what a dynamic.
20:55
Speaker 2: A tremendous economy, a ton of hedge funds, a ton
20:57
Speaker 2: of finance.
20:58
Speaker 1: A lot of talent there, a lot of people moving everywhere,
21:00
Speaker 1: good demographics. Austin.
21:03
Speaker 2: And by the way, Dallas is a very livable city.
21:06
Speaker 1: It is, I agree.
21:07
Speaker 2: Without, you know, Houston is just a humid swamp, but
21:12
Speaker 2: it's located near all of the oil markets.
21:15
Speaker 1: But great art scene and really good food.
21:18
Speaker 2: Fantastic food in Houston. Absolutely. You know, people, Texas is
21:22
Speaker 2: filled with all these lovely things. Really fun stuff. Dallas is, Dallas,
21:26
Speaker 2: I haven't been to Dallas in a few months, a
21:28
Speaker 2: few years. I'm going to be there in the fall.
21:30
Speaker 2: It's just a delightful city.
21:32
Speaker 1: Denver's, Austin, sorry, I mentioned Austin, but Austin's tough to
21:36
Speaker 1: get to for our people who are in Asia and
21:39
Speaker 1: in Texas. you know, Europe.
21:41
Speaker 2: There's that nerd bird, they used to call it, back
21:44
Speaker 2: and forth from Silicon Valley to Austin.
21:46
Speaker 1: Right.
21:47
Speaker 2: Decades ago, in the 90s, because even then, the tech
21:51
Speaker 2: companies were moving back office to cheaper taxes, cheaper land, cheaper.
21:56
Speaker 1: Yeah, but it's no longer back office.
21:58
Speaker 2: Well, that's been the big change. Although, post-pandemic, a lot
22:03
Speaker 2: of Wall Street moved to Miami, and then a bunch
22:06
Speaker 2: of them kind of boomeranged back. It's kind of interesting.
22:10
Speaker 2: We are wildly off topic. Let me bring this back
22:14
Speaker 2: to your first six months at Alliance Bernstein.
22:18
Speaker 1: We decided to move to Nashville. That was worth roughly
22:22
Speaker 1: $ 85 million a year to us.
22:24
Speaker 2: Really? Yeah. Oh, my goodness. That's a massive savings.
22:28
Speaker 1: Oh, my goodness. It was a huge savings. Part of
22:30
Speaker 1: it was real estate. Part of it was people. And
22:33
Speaker 1: it's worked real well for us.
22:35
Speaker 2: Wow, almost $ 100 million a year.
22:37
Speaker 1: And here's just another part of it. We didn't force
22:40
Speaker 1: any of our investors to move because we're price takers
22:43
Speaker 1: of that talent.
22:43
Speaker 2: Right.
22:44
Speaker 1: I think now, and I may be wrong, I think
22:46
Speaker 1: we have nearly 100 investors who have elected to move
22:49
Speaker 1: down there.
22:50
Speaker 2: When you say investors.
22:52
Speaker 1: Money managers.
22:53
Speaker 2: Who picked up and left New York and went.
22:56
Speaker 1: Or elsewhere. Or wherever. Correct. Uh-huh.
22:58
Speaker 2: I mean, don't get me wrong. Nashville is a spectacular,
23:01
Speaker 2: super fun town.
23:02
Speaker 1: It's a great town.
23:04
Speaker 2: Just not what you think of when you think of
23:05
Speaker 2: as finance.
23:06
Speaker 1: Well, you know, ironically, it was like the financial center
23:09
Speaker 1: for the Upper South for many, many years. Oh, really?
23:13
Speaker 2: I had no idea. That's really interesting.
23:16
Speaker 1: All right.
23:16
Speaker 2: So you have this strategic and financial savings by moving there.
23:24
Speaker 2: What were some of the challenges?
23:26
Speaker 1: What was.
23:27
Speaker 2: oh, gee, we didn't anticipate this happening.
23:30
Speaker 1: You mean in moving? Look, I think the most notable
23:33
Speaker 1: challenge is it's a domestically focused city from a private
23:39
Speaker 1: sector employment perspective. It's the healthcare services capital of the U.S.,
23:42
Speaker 1: but guess what? Hard to find international tax accountants locally,
23:48
Speaker 1: people with those kind of exposures, and people who had
23:51
Speaker 1: you know, more traditional Wall Street-like training, whether from an
23:54
Speaker 1: operations or technology side. What was a delightful surprise is
23:59
Speaker 1: we got over the wall lots of resumes from people
24:04
Speaker 1: in Atlanta, Chicago, New York, Boston, Chicago, and the West Coast.
24:08
Speaker 1: You're saying, hey, you know, I'm from there, or my
24:11
Speaker 1: spouse is from there, or really like the lifestyle, was
24:15
Speaker 1: there for a bachelorette party, dot, dot, dot. You know, so,
24:18
Speaker 1: but it worked. And so it's been pretty good for us.
24:20
Speaker 2: So, As for the international tax accountants, do they have
24:24
Speaker 2: to physically be located in Nashville? If we learned anything
24:28
Speaker 2: during the pandemic, hey, if you have a computer and
24:31
Speaker 2: an internet connection, you can pretty much be anywhere.
24:34
Speaker 1: Ultimately, I'm a big believer in people working together collaboratively
24:38
Speaker 1: within the office. We recognize we've got to be flexible,
24:42
Speaker 1: and we're never going back to five days a week.
24:46
Speaker 1: But we want people as close as we can around.
24:48
Speaker 1: But yes, we have people all over the country. We
24:51
Speaker 1: do all over the world. We have functions which operate
24:55
Speaker 1: in multiple locations simultaneously. So of course we can do it,
24:59
Speaker 1: but we want a critical mass there.
25:02
Speaker 2: So let's stay with that idea of corporate culture, having
25:05
Speaker 2: everybody in the office together when you can. When you
25:07
Speaker 2: arrived at Alliance Bernstein, what really struck you about part
25:12
Speaker 2: of the culture that needed to be preserved?
25:14
Speaker 1: What was.
25:15
Speaker 2: Like, hey, this is really something.
25:17
Speaker 1: Deep fiduciary culture. Really, really putting clients first, whether it's
25:21
Speaker 1: in our private wealth business or our investment teams. I
25:24
Speaker 1: think both Alliance and Bernstein did that beautifully. And I
25:29
Speaker 1: think that continues to thrive, I hope. That's one of
25:31
Speaker 1: the most important things for me about the institution. We had,
25:35
Speaker 1: as you pointed out, a very well-regarded sell-side research business,
25:40
Speaker 1: which I decided to see if we could reduce our
25:44
Speaker 1: exposure to for exactly the reasons you said. It is
25:47
Speaker 1: an accident of history why a buy-side firm had a
25:51
Speaker 1: sell-side money management, I'm sorry, sell-side research business to start with.
25:56
Speaker 1: But almost everyone cross-subsidizes those businesses. So if they're equity
26:00
Speaker 1: capital markets business or prime brokerage business, we didn't have
26:04
Speaker 1: any of those cross-subsidies to provide to them. And so
26:08
Speaker 1: we entered into a joint venture with SOCGEN, Societe Generale,
26:12
Speaker 1: which has proven to be pretty successful. And their quality
26:17
Speaker 1: of the research remains very strong, and they have a
26:21
Speaker 1: much stronger partner with deep markets capabilities that they are really,
26:27
Speaker 1: I think, doing a good job commercializing.
26:29
Speaker 2: And all those other banking relationships that make sense to
26:33
Speaker 2: have a research department with, eventually they take over the
26:37
Speaker 2: research group, or is it always going to be a
26:39
Speaker 2: joint venture?
26:39
Speaker 1: No, ultimately it'll transition to them. And that was always
26:43
Speaker 1: the intention. We were quite clear about it. They were
26:46
Speaker 1: very concerned about the culture and not damaging it. It's
26:48
Speaker 1: a large French institution, and these were a bunch of
26:52
Speaker 1: Americans and Brits. And so we needed to make sure
26:55
Speaker 1: we took stuff very, very mindfully, step by step. We're
27:00
Speaker 1: still midway through that period. We have five years from
27:05
Speaker 1: the anniversary. We have an arrangement, which we talk about
27:10
Speaker 1: from time to time, but that's the plan.
27:12
Speaker 2: And in 2022, AB buys Carval, which is a specialist
27:17
Speaker 2: in private market credit and debt issuance. The combined private
27:23
Speaker 2: market platform between Bernstein and Carval is 91, almost $ 100 billion.
27:28
Speaker 1: Right. It was roughly 35 before we bought them. So 3X. Right.
27:33
Speaker 1: But they were another $ 16 billion, so call it 50.
27:37
Speaker 1: So we're nearly double what we were when we acquired Carval.
27:40
Speaker 2: So I'm really curious, how does what's essentially an equity
27:44
Speaker 2: and fixed income shop like Alliance Bernstein, how do you
27:48
Speaker 2: go about kicking the tires of an alternatives business? There
27:53
Speaker 2: has to be a ton of challenges there. How do
27:55
Speaker 2: you conceptualize those risks?
27:57
Speaker 1: Look, I grew up lending. I ran the leverage finance
28:00
Speaker 1: business at J.P. Morgan. It's a business I knew. I'm
28:05
Speaker 1: certainly no current expert on the intricacies of it today.
28:11
Speaker 1: But we had built, prior to me arriving, AB had
28:14
Speaker 1: built quite a successful private credit business. When Lehman collapsed,
28:21
Speaker 1: we took a team out of Lehman to build a
28:23
Speaker 1: middle market lending business. They're with us today, based in Austin,
28:26
Speaker 1: and been remarkably successful, private real estate debt business. And
28:31
Speaker 1: we had a natural client base. We have, in addition
28:34
Speaker 1: to Equitable and now CoreBridge, When that merger occurs, we
28:38
Speaker 1: have 60 insurance companies as clients who we manage money for.
28:42
Speaker 2: So you guys are uniquely situated to sell into the
28:46
Speaker 2: insurance market. Obviously, having a majority owner that's an insurer
28:51
Speaker 2: provides one aspect. But given that history, what has it
28:55
Speaker 2: been like looking into that market, which I don't hear
28:59
Speaker 2: a lot of other large shops being aggressive sellers into
29:04
Speaker 2: the world of insurance?
29:06
Speaker 1: Sellers or buyers into the world?
29:08
Speaker 2: Either or both. Well, you're selling your product to them
29:13
Speaker 2: and taking their assets in, as well as the parent company. Now,
29:18
Speaker 2: we'll talk about that merger later, but you're on, I
29:21
Speaker 2: don't want to say both sides of the trade, but
29:23
Speaker 2: you're selling into that marketplace and have a deep understanding
29:27
Speaker 2: of what the insurance business is.
29:29
Speaker 1: We've been managing insurance money forever. I mean, Alliance was
29:32
Speaker 1: started by a life insurer, effectively. And the skills are
29:37
Speaker 1: very different. The client service model is totally different, highly customized,
29:44
Speaker 1: very relationship dependent. The expertise around subject matters, whether it's
29:49
Speaker 1: regulatory accounting, whether it's asset liability matching, really are critical
29:56
Speaker 1: parts of that sale. We do that very well and
29:58
Speaker 1: we continue to invest in it. And, frankly, it's the
30:04
Speaker 1: largest pool of institutional capital there is in fixed income,
30:09
Speaker 1: and it's growing. It's growing at a pretty rapid rate.
30:12
Speaker 2: Yeah, you guys and this other kid named Warren Buffett
30:15
Speaker 2: at Berkshire figured out, hey, there's a tremendous amount of
30:20
Speaker 2: stable assets.
30:21
Speaker 1: What a great funding source. Right?
30:24
Speaker 2: How is it that nobody else really seems.
30:26
Speaker 1: To figure this out? Other people have thought about that.
30:28
Speaker 1: Mark Rowan thought about it. I think he's done pretty well.
30:31
Speaker 1: Apollo's done very well. KKR has figured that out. Guggenheim
30:36
Speaker 1: figured that out. A lot of firms have figured it out.
30:39
Speaker 2: Really interesting.
30:40
Speaker 1: Prudential being a good example.
30:42
Speaker 2: Right. They started, but they started on the insurance side,
30:46
Speaker 2: not on the asset management side. Very fair examples. I
30:51
Speaker 2: have to ask about the ETF business. It was effectively
30:56
Speaker 2: non-existent when you joined. Is that a fair statement? That's correct.
31:00
Speaker 2: 31 strategies, $ 21 billion, pretty rapidly.
31:03
Speaker 1: All active.
31:04
Speaker 2: Actively managed.
31:04
Speaker 1: Almost all.
31:05
Speaker 2: Very, very little in terms of just passive indexing.
31:08
Speaker 1: Very little in terms. And more importantly, almost all of
31:11
Speaker 1: them are new strategies. So they aren't cannibalizing existing strategies.
31:15
Speaker 1: It's not a new wrapper for the vast majority of that.
31:19
Speaker 2: So what led you to the ETF business and how
31:21
Speaker 2: did this ramp up?
31:22
Speaker 1: I hired an incredibly talented guy named Onur Erzan from McKinsey,
31:26
Speaker 1: who is now president of Alliance Bernstein. And he absolutely
31:31
Speaker 1: banged the table, pounded the table that we got to
31:34
Speaker 1: ramp up our active ETF business. And I think he
31:37
Speaker 1: was right, and we backed it. And it's been a
31:40
Speaker 1: big story for us here. It's a growing story for
31:43
Speaker 1: us in Asia, where we really punch above our weight.
31:46
Speaker 1: And we're excited to see what we can do in Europe.
31:49
Speaker 2: Where do you think the ETF business can go for AB?
31:53
Speaker 2: How big can this get?
31:55
Speaker 1: I'm pretty confident, absent some weird regulatory or legal reason.
32:02
Speaker 1: You know, for example... 401K plans have a difficult time
32:06
Speaker 1: owning ETS. Department of Labor can change that. But we're
32:10
Speaker 1: not going to launch another mutual fund in the U.S.
32:13
Speaker 2: Really?
32:14
Speaker 1: I think it'll all be ETS, unless the asset class
32:16
Speaker 1: doesn't suit it for the liquidity constituency of it. But
32:21
Speaker 1: I think it will be the vehicle of choice along
32:24
Speaker 1: with separately managed accounts. I think those will be the
32:26
Speaker 1: two wrappers we really focus on. For an individual who's
32:30
Speaker 1: a client of yours... If you can deliver most of
32:33
Speaker 1: that in SMA form, he or she is paying a
32:37
Speaker 1: lot less tax because you can tax manage it much
32:40
Speaker 1: more effectively. You can avoid wash sales. You can have
32:43
Speaker 1: a less overly diversified portfolio because, remember, you have lots
32:48
Speaker 1: of unintended bets when you have a multi-manager portfolio. Right.
32:52
Speaker 2: Really interesting. Coming up, we continue our conversation with Seth Bernstein,
32:56
Speaker 2: CEO of Alliance Bernstein. discussing the current environment for asset management.
33:02
Speaker 2: I'm Barry Ritholtz. You're listening to Masters in Business on
33:06
Speaker 2: Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in
33:10
Speaker 2: Business on Bloomberg Radio. My extra special guest is Seth Bernstein.
33:14
Speaker 2: He is the CEO of Alliant Bernstein and head of
33:17
Speaker 2: asset management at Equitable Holdings. Alliant Bernstein manages over $ 900
33:22
Speaker 2: billion in client assets and I have to ask you
33:27
Speaker 2: a funny question. Many years ago, I worked with a
33:32
Speaker 2: guy who, by dumb coincidence, had the same last name
33:37
Speaker 2: as one of the names on the door of the firm.
33:40
Speaker 1: Alliance? No, no, no.
33:41
Speaker 2: Totally different company, but similar concept to you. And whenever
33:46
Speaker 2: a prospective client would ask, he had this terribly amusing non...
33:53
Speaker 2: answer something along the lines of, look, I'm trying to
33:58
Speaker 2: create my own reputation and brand separate from the family wealth,
34:03
Speaker 2: and I just wish you would treat me as an independent.
34:09
Speaker 2: Never saying, no, I'm completely unrelated to the family. I
34:13
Speaker 2: called it the non-denial denial. I'm curious if Your last
34:17
Speaker 2: name is Bernstein of Alliance Bernstein. Does anyone ever say
34:21
Speaker 2: to you, hey, are you the.
34:23
Speaker 1: All the time.
34:23
Speaker 2: All the time. Not just a, obviously, you haven't been there.
34:27
Speaker 1: Since the beginning. The more insulting question is, are you
34:30
Speaker 1: the founder? And I said, no, I'd be over 100
34:33
Speaker 1: years old.
34:34
Speaker 2: Right.
34:34
Speaker 1: 1960, when was it founded?
34:34
Speaker 2: 1967.
34:34
Speaker 1: Okay, good.
34:42
Speaker 2: So when you were done playing with blocks, you didn't
34:46
Speaker 2: have to go into the office that morning?
34:48
Speaker 1: No, not that day.
34:49
Speaker 2: Not that day. But this really legitimately comes up?
34:53
Speaker 1: Regularly, particularly in the private wealth business, but where it's
34:57
Speaker 1: really important to make it clear is in Asia. Because
34:59
Speaker 1: they just assume? Everyone assumes because most of their businesses
35:03
Speaker 1: are family-oriented. But just so you know, in the... final
35:08
Speaker 1: moments of whether I was going to get this job
35:10
Speaker 1: or not, I did offer to change my first name
35:12
Speaker 1: to Alliance.
35:15
Speaker 2: That's really amazing. And the fascinating thing about that is
35:20
Speaker 2: if there's any industry that's a meritocracy, it feels like
35:24
Speaker 2: Wall Street has evolved. You live and die on your,
35:27
Speaker 2: forget annual performance, like what your numbers last quarter, last month,
35:32
Speaker 2: last week, it really is performance driven and not you
35:37
Speaker 2: know necessarily your last name uh.
35:39
Speaker 1: uh.
35:40
Speaker 2: i had to ask if if that came up that's
35:42
Speaker 2: really fascinating uh... so let's talk a little bit about
35:45
Speaker 2: the current environment uh... there is a merger that was
35:50
Speaker 2: approved by shareholders of equitable and core bridge uh... i
35:55
Speaker 2: know the deal has enclosed and so you probably can't
35:57
Speaker 2: really say a whole lot about it this is going
36:01
Speaker 2: to create about a hundred billion dollars of core bridge
36:05
Speaker 2: assets that are going to ultimately end up, I assume,
36:08
Speaker 2: move over to AB. Does anything change for you guys
36:14
Speaker 2: with the soon merger of Equitable and Corbridge?
36:19
Speaker 1: Other than the assets, I'm not aware of anything changing.
36:24
Speaker 1: And they very much value the identity that AB has.
36:30
Speaker 1: And we are thrilled by the merger and the opportunities
36:34
Speaker 1: that will bring. uh... but known no changes anticipated.
36:39
Speaker 2: So so let's talk a little bit about about some
36:42
Speaker 2: of the assets that that you guys have been growing
36:45
Speaker 2: private credit at least up until this year has been
36:49
Speaker 2: a house of fire uh... what do you think about
36:52
Speaker 2: the future of private credit what what's going on there.
36:56
Speaker 1: Banks are constrained in their ability to continue to service
37:03
Speaker 1: through loans their clients. They've been that way structurally certainly
37:08
Speaker 1: since the financial crisis and even before that. It was
37:11
Speaker 1: hard to hold these assets on balance sheet. JP Morgan
37:15
Speaker 1: spent enormous amount of time and money trying to securitize
37:19
Speaker 1: their loan book. In fact, that's where Credit Derivatives started
37:21
Speaker 1: and I worked in the groups that helped formulate that,
37:24
Speaker 1: although I certainly was in no way the father of
37:27
Speaker 1: the engineer around that. it was critically important to reduce
37:32
Speaker 1: that exposure on most bank balance sheets. I believe that
37:36
Speaker 1: trend continues. Banks are levered players. They're funded short. They're
37:43
Speaker 1: not natural holders of long-lived, particularly fixed-rate assets. Insurers are
37:49
Speaker 1: a much better home for that. And frankly, so are funds,
37:52
Speaker 1: because funds don't offer true liquidity options for you. There's
37:56
Speaker 1: no run Now, what we've seen recently, and one of
38:01
Speaker 1: the reasons private credit has been in the news is
38:05
Speaker 1: vehicles structured for wealthier clients did have some very limited
38:11
Speaker 1: liquidity options. But ultimately, there is no maturity transformation in credit.
38:17
Speaker 1: You got what you got. And frankly, I think there
38:19
Speaker 1: shouldn't be any liquidity other than the payment of interest
38:23
Speaker 1: and credit. repayment of the debt itself.
38:27
Speaker 2: I'm glad you say that because I frequently have this
38:30
Speaker 2: conversation with peers elsewhere. Which part of seven-year lockup did
38:35
Speaker 2: you find confusing? Like the illiquidity premium exists because it's illiquid.
38:40
Speaker 2: If you want liquidity, well, here's a hundred trillion dollars
38:44
Speaker 2: in the public fixed income markets. Have at it. Am
38:48
Speaker 2: I being too harsh or is that a fair statement?
38:51
Speaker 1: Look, I think People want to get the stuff sold,
38:55
Speaker 1: and so they try to do what they can. But frankly,
38:58
Speaker 1: I think giving any expectation, and frankly, I think the
39:02
Speaker 1: documents were pretty clear that liquidity isn't there. But I
39:07
Speaker 1: think better that we go through this now before there's
39:09
Speaker 1: any significant credit deterioration. I mean, clearly, there's some deterioration
39:13
Speaker 1: out there.
39:14
Speaker 2: It's relatively, for anyone who lives through GFC, this is.
39:18
Speaker 1: Nothing. So the truth of the matter is, while there
39:21
Speaker 1: will be loans that go bad, I think most of
39:23
Speaker 1: these funds will be pretty fine at the end of
39:26
Speaker 1: the day. And ultimately, there's a role for it to play.
39:30
Speaker 1: But it's really, our focus is much more institutionally focused.
39:35
Speaker 2: Than what we've seen some of the areas in it.
39:39
Speaker 2: And just so people understand, there's a, depending on the funds, 2%, 3%, 4%
39:45
Speaker 2: default expectation built into these models. It's not like oh
39:50
Speaker 2: my God, something defaulted, that's just what happens in the normal.
39:53
Speaker 1: Course of events. That's just the nature of lending money,
39:55
Speaker 1: and that's absolutely true. Now, we have private credit in
39:58
Speaker 1: our private wealth businesses as well, and I think properly
40:02
Speaker 1: structured does a role for you, particularly if you have
40:04
Speaker 1: an tax-advantaged location to put it.
40:08
Speaker 2: So let's talk a little bit about private credit. I
40:11
Speaker 2: think the big issue from earlier this year, and hold
40:14
Speaker 2: aside the specific companies that kind of ran into trouble,
40:19
Speaker 2: but You know, when you look at what's going on,
40:22
Speaker 2: there's a wide dispersion of underwriting quality. There's some variance
40:27
Speaker 2: in how often and how precisely these marks happen in
40:32
Speaker 2: these non-traded things. And then, again, we come back to
40:36
Speaker 2: the redemptions in non-traded vehicles always kind of shocked me.
40:41
Speaker 2: What does this industry need to do to get past
40:45
Speaker 2: the sort of difficult first half of the year We
40:49
Speaker 2: saw in 2026.
40:50
Speaker 1: Post numbers would show that maybe there's a deterioration, but
40:55
Speaker 1: it's not meaningful yet. Educate clients on what's going on
41:00
Speaker 1: by providing them more transparency and the ascent of clarifying
41:05
Speaker 1: how many names are on your watch list, how many
41:08
Speaker 1: have gone non-accrual.
41:11
Speaker 2: There's no obligation to do that currently.
41:14
Speaker 1: There is, and they do it for accounting and reporting reasons,
41:17
Speaker 1: but ultimately regular periodic updating of your clients probably makes
41:22
Speaker 1: them more comfortable with what's going on. You should be
41:25
Speaker 1: over-communicating during periods like this.
41:27
Speaker 2: That's really... During periods like this or always?
41:31
Speaker 1: Well, I think always, because ultimately they're trusting that you're
41:34
Speaker 1: giving them a balanced view of what's going on.
41:38
Speaker 2: And to be fair... The headlines are not about the
41:42
Speaker 2: whole industry. It's about a small handful of companies that
41:46
Speaker 2: have run into modest issues, not terribly... Again, we're not in.
41:51
Speaker 1: And there's always been fraud. And that's what we've seen
41:54
Speaker 1: come out from time to time.
41:55
Speaker 2: In a couple of places.
41:56
Speaker 1: In a couple of places. But the truth of the
41:58
Speaker 1: matter is there's been an enormous amount of money that's
42:00
Speaker 1: focused on this segment. And so I think you're absolutely right.
42:06
Speaker 1: Structuring terms and pricing... got out of whack. But frankly,
42:10
Speaker 1: it's a much better time to be investing today post
42:13
Speaker 1: that event.
42:14
Speaker 2: So let's talk a little bit about where this space
42:17
Speaker 2: is going. For most of my career, private credit has
42:20
Speaker 2: been pretty much all institutional. Over the past few years,
42:24
Speaker 2: we've seen a big take up from wealth management side, RIAs, etc.
42:32
Speaker 2: And then a lot of conversations about this being available
42:35
Speaker 2: for retirement accounts or 401ks. Tell us your thoughts. What
42:39
Speaker 2: do you think happens with private credit? And how do
42:42
Speaker 2: we do this the right way so we don't run
42:44
Speaker 2: into these problems?
42:45
Speaker 1: I think actually, target date funds, 401ks generally might be
42:51
Speaker 1: a perfectly appropriate place for it. Highly predictable needs. You
42:58
Speaker 1: have professional management making those decisions, usually separate from the
43:04
Speaker 1: people managing the money themselves, the sponsors of those 401k plans.
43:10
Speaker 1: They're pretty sophisticated investors in their own right. Private credit,
43:14
Speaker 1: particularly for individuals who need the income that those portfolios
43:21
Speaker 1: will generate, might have a very welcome spot in it.
43:25
Speaker 1: And in fact, we are. We think leaders in working
43:29
Speaker 1: with other private asset managers in developing vehicles to utilize
43:39
Speaker 1: side by side with your target date funds in order
43:42
Speaker 1: to build a highly diversified private credit, private equity, private
43:47
Speaker 1: real estate exposures for the beneficiaries of those plans. To me,
43:52
Speaker 1: that's an institutional purchase because there's someone intermediating that decision.
43:57
Speaker 2: So let's talk about that group. It's Alliance, Bernstein, Brookfield,
44:02
Speaker 2: and Carlisle working together. How did this come together, and
44:06
Speaker 2: where do you think this goes?
44:08
Speaker 1: Well, I think it came together as we were talking
44:11
Speaker 1: to other firms about what we thought. We've been a
44:15
Speaker 1: pioneer in the 401k business and building particularly custom glide
44:20
Speaker 1: paths and target dates for big, sophisticated plan sponsors, state plans,
44:26
Speaker 1: corporate plans, and There was clearly a desire to get
44:32
Speaker 1: a higher return built in over time into these portfolios,
44:35
Speaker 1: given the aging population, the need for diversification and different
44:40
Speaker 1: sources of return. And so we went and polled a
44:45
Speaker 1: number of different firms, and we ended up finding we
44:48
Speaker 1: had really compatible philosophies and capabilities with Carlisle. We engaged
44:55
Speaker 1: with a number of firms and tried to understand who
44:57
Speaker 1: would be a a natural compliment to us. And from
45:01
Speaker 1: a private or real asset side, we thought Brookfield would
45:04
Speaker 1: be a very strong partner. And from a private equity side,
45:07
Speaker 1: we thought Carlisle brought a lot to the table. So
45:11
Speaker 1: we ultimately formed it. And it's very early days. I
45:15
Speaker 1: think the industry has been too enthusiastic about how quickly
45:20
Speaker 1: all of this will be adopted. Plan sponsors tend to
45:23
Speaker 1: be a pretty conservative group of people. at the end
45:26
Speaker 1: of the day. And it's going to take years for
45:28
Speaker 1: this really to develop. But 10 years from now, will
45:31
Speaker 1: that be part of most of the large plans? I
45:34
Speaker 1: suspect it will be.
45:35
Speaker 2: How do you address some of the criticism? Anytime we
45:39
Speaker 2: see a new 401k plan come along or a sponsor
45:42
Speaker 2: come along, I always am raising my eyebrows about how
45:48
Speaker 2: much the industry, and to some degree you can blame
45:52
Speaker 2: BlackRock and Vanguard for this, has driven fees down generally
45:56
Speaker 2: but even more so in for one case it in
45:59
Speaker 2: the old days i look over for one k indy
46:02
Speaker 2: aghast that why you paying two percent for an s &
46:05
Speaker 2: p five hundred fund this doesn't make any sense now
46:09
Speaker 2: i look across uh... some of the for one case
46:11
Speaker 2: that i see they're very inexpensive can can privates find
46:17
Speaker 2: their way into for one case at a competitive price.
46:20
Speaker 1: Point yes i think for two reasons one These are
46:23
Speaker 1: institutional investors in their own right, so they're going to
46:26
Speaker 1: negotiate hard to get lower fees. Insurers don't pay huge
46:30
Speaker 1: fees for private credit because the cost of funds matters
46:34
Speaker 1: enormously to them. Secondly, it's a very small portion of
46:42
Speaker 1: the title portfolio, and frankly, the cost of administering the
46:46
Speaker 1: overall plan. So between their competitive power as buyers, institutional buyers,
46:52
Speaker 1: and the small component of the total target date portfolio
46:56
Speaker 1: that they're going to constitute it's a pretty small part
46:59
Speaker 1: of the of the fee burden that a client is
47:02
Speaker 1: going to be carrying and frankly it should be fairly
47:05
Speaker 1: easy to outperform net of fees and that's all anyone
47:09
Speaker 1: really cares and that's really all that right.
47:11
Speaker 2: Especially we've been in a low rate environment for so
47:14
Speaker 2: long the expectation is maybe it's higher for longer but
47:18
Speaker 2: not ten years So we'll be back to a lower
47:21
Speaker 2: interest rate, not zero, but lower interest rate environment. And
47:25
Speaker 2: people want some yield. That's really the driving thinking here.
47:29
Speaker 1: I think that's exactly what the thing is. Look, if
47:32
Speaker 1: you look at the supers in Australia, which are really
47:35
Speaker 1: interesting innovations, the super attenuation funds in Australia have been
47:41
Speaker 1: intellectual leaders in how to think about retirement. And one
47:44
Speaker 1: of the really interesting things they do is they structure
47:48
Speaker 1: glide paths through retirement. rather than to retirement. The last
47:53
Speaker 1: thing you need most people at age 65 is to
47:56
Speaker 1: be predominantly in short-term fixed income and cash. You need
48:00
Speaker 1: to be invested.
48:02
Speaker 2: On the assumption you have another 20, 25 years to go.
48:05
Speaker 1: Even 10 years to go.
48:07
Speaker 2: Yes.
48:08
Speaker 1: Most people don't have enough money to retire. So a
48:12
Speaker 1: lot of people defer their ultimate retirement and get supplemental
48:16
Speaker 1: income elsewhere. So planning into retirement, I think, is a
48:19
Speaker 1: pretty prudent thing to do. Ultimately, if you're able to
48:22
Speaker 1: tie that to purchasing annuities at a pretty low cost,
48:25
Speaker 1: so not purchasing them necessarily up front, but maybe planning
48:29
Speaker 1: your target dates to end with a pool of liquidity
48:32
Speaker 1: to turn around and buy annuities at age 75, for example,
48:36
Speaker 1: you could really reduce the cost of that and give
48:39
Speaker 1: people income protection for a longer period of their life.
48:42
Speaker 1: I think the really interesting things that are going to
48:44
Speaker 1: continue to evolve in the target date space.
48:48
Speaker 2: Really, really interesting. Since you mentioned 65, I have to ask,
48:56
Speaker 2: you're coming up on a decade as CEO. Do you
49:00
Speaker 2: think about succession planning? Have you thought about who follows
49:04
Speaker 2: you when you decide to take your retirement?
49:07
Speaker 1: You see, I think that's one of my most basic obligations.
49:11
Speaker 1: And we spend a lot of time on succession planning,
49:13
Speaker 1: not just for me. but for all the senior leadership
49:17
Speaker 1: of our firm. And yes, we... we have plans in place.
49:22
Speaker 1: And I don't expect to be there forever. So yes.
49:30
Speaker 2: So given that you're there in a few months, 10 years,
49:35
Speaker 2: what are you most proud of? What decisions did you make?
49:39
Speaker 2: Would you wish you could undo, and what of the
49:43
Speaker 2: long-term plan remains unfinished at Alliance Bernstein?
49:47
Speaker 1: Oh, good question. What should I have done that I
49:50
Speaker 1: didn't do? I should have put my own people in quicker.
49:56
Speaker 1: Just as a learning to me and any new CEO,
50:00
Speaker 1: you need people you really trust can execute a transition
50:05
Speaker 1: and are bought into it, and change is a good thing.
50:10
Speaker 1: It's not necessarily a bad thing. Secondly, I'm particularly proud
50:15
Speaker 1: of what we've done in our private credit space. I'm
50:19
Speaker 1: really proud of what we've done in the insurance space.
50:21
Speaker 1: I think those are winners. We have built a market-leading
50:26
Speaker 1: SMA platform for munis. We are growing really rapidly. We've
50:29
Speaker 1: automated the investment process. We give people choice. We give people...
50:37
Speaker 1: We give people information and we give people client service
50:41
Speaker 1: that they don't get at other firms. And it's been
50:44
Speaker 1: growing like a weed for a while now. I'm very
50:49
Speaker 1: proud of what our fixed income team has done there.
50:51
Speaker 1: I think our private wealth business remains a gem. We
50:55
Speaker 1: have incredibly loyal clients and I'd love to grow that
50:59
Speaker 1: business more rapidly than we have. We are growing at
51:03
Speaker 1: a good rate, but we don't... We grow organically. We
51:08
Speaker 1: haven't grown inorganically, frankly, because valuations for our IAs are
51:12
Speaker 1: hard to justify. Also, we're very sensitive to cultural implications
51:17
Speaker 1: of big mergers. They just don't have a great track
51:20
Speaker 1: record of working, either in the wealth management space or
51:24
Speaker 1: the investment management space.
51:26
Speaker 2: So last question, which I have to, before I get
51:28
Speaker 2: to my favorites, which I have to ask you as
51:31
Speaker 2: both the current CEO and former CFO, uh... the the
51:35
Speaker 2: a b stock price has been fairly stable your dividends
51:41
Speaker 2: are pretty beefy something like nine or ten percent it
51:44
Speaker 2: is that something that is by design or is it
51:48
Speaker 2: just the nature of you guys throw off a lot
51:50
Speaker 2: of free cash.
51:51
Speaker 1: Flow the industry throws off an enormous amount of free
51:54
Speaker 1: cash flow and in a mature business you should probably
51:57
Speaker 1: be distributing in our case it's by design were about
52:01
Speaker 1: the last publicly traded partnership.
52:05
Speaker 2: Which is an unusual structure in itself.
52:06
Speaker 1: Very unusual. The only place people used to see them
52:10
Speaker 1: were really in MLPs and stuff, in the energy sector
52:15
Speaker 1: in particular.
52:15
Speaker 2: And the dreaded K-1s.
52:17
Speaker 1: And we issued K-1s. So that's a hassle, which limits
52:23
Speaker 1: institutional interest in the stock. But that's who we are.
52:28
Speaker 1: That's what we have.
52:30
Speaker 2: And I find that such a fascinating, quirky thing, and
52:36
Speaker 2: yet I guess it's the institutional allergy to K1s. Otherwise,
52:43
Speaker 2: I would imagine there'd be broader ownership of a coupon
52:48
Speaker 2: like that. It's essentially a high-yielding bond with an equity kicker.
52:53
Speaker 1: That's essential. It's a convert.
52:55
Speaker 2: That's what it looks like.
52:56
Speaker 1: And, I mean, the truth of the matter is that
52:59
Speaker 1: if I really believed, if the board really believed the
53:03
Speaker 1: stock price would really pop, if our majority owner didn't
53:07
Speaker 1: have a negative tax implication of doing it, I think
53:11
Speaker 1: you're obliged to look at it. But the honest answer is,
53:14
Speaker 1: if you do it and you don't get that pop,
53:17
Speaker 1: you've got a lot of people who are not so
53:19
Speaker 1: happy with you.
53:20
Speaker 2: To say the very least. All right, I only have
53:22
Speaker 2: you for a few more minutes, so let's jump to
53:24
Speaker 2: our favorite questions that we ask all of our guests,
53:28
Speaker 2: starting with, Who are your mentors who helped shape your career?
53:33
Speaker 1: Oh, I had a number of mentors. I guess my
53:36
Speaker 1: most influential mentor was my mother. She was a very
53:39
Speaker 1: successful advertising executive. And she was no nonsense, always. But
53:45
Speaker 1: when I go beyond that, at J.P. Morgan, the guy
53:50
Speaker 1: who ran equity capital markets and believed in me, a
53:53
Speaker 1: guy named Brian Watson, who ended up running the private equity,
53:56
Speaker 1: I'm sorry, the venture capital and private equity business of
53:59
Speaker 1: JP Morgan before the merger. He was a really instrumental
54:04
Speaker 1: mentor to me. I think that the guy who runs Equitable,
54:12
Speaker 1: Mark Pearson, has been an unbelievable mentor and partner in
54:18
Speaker 1: running it because the relationship between those two firms was
54:21
Speaker 1: rocky for time. And I think we've run it as well.
54:25
Speaker 1: one larger business while maintaining the individuality of the individual
54:29
Speaker 1: business units. Those are three people that come to mind.
54:33
Speaker 2: Really interesting. Let's talk about books. What are some of
54:36
Speaker 2: your favorites? What are you reading currently?
54:39
Speaker 1: I am reading the new book on the Trump administration
54:44
Speaker 1: that came out that Maggie Harrison wrote.
54:46
Speaker 2: She's always a fun, fiery writer.
54:49
Speaker 1: She sure is. And it brings it home and it
54:51
Speaker 1: brings it live. During During COVID, a bunch of friends
54:56
Speaker 1: and I got together and created a book club. And
54:59
Speaker 1: so we were leading... We never read fiction. And so for...
55:05
Speaker 1: While the book club was operating, we read a ton
55:07
Speaker 1: of fiction, which was.
55:08
Speaker 2: Give us a few names.
55:11
Speaker 1: We read Razor's Edge. We read Kim by Roger Kipling.
55:20
Speaker 1: We read the.
55:24
Speaker 1: Um, we were kind of having a senior moment, um,
55:29
Speaker 1: which come more and more frequently.
55:31
Speaker 2: Um, it only trends James direction as an older man.
55:34
Speaker 1: It gets worse as an older man. I can tell
55:36
Speaker 1: you it only, right.
55:37
Speaker 2: I'm a day older than you. And let me just
55:39
Speaker 2: share my experience. It only gets worse.
55:42
Speaker 1: One of the books we read, which we, I love
55:43
Speaker 1: was James, which is kind of a retelling of, of,
55:50
Speaker 1: of the, um, Huckleberry Finn.
55:54
Speaker 2: Oh, really?
55:54
Speaker 1: It's a fantastic film.
55:55
Speaker 2: James, I'm going to definitely put that on my list.
55:59
Speaker 2: Since you mentioned what you were doing.
56:00
Speaker 1: Tom Sawyer, yeah.
56:02
Speaker 2: Since you mentioned what you were doing during the pandemic,
56:06
Speaker 2: what about streaming? Are you watching or listening to anything?
56:10
Speaker 1: No, my wife hates me because I don't watch stuff
56:12
Speaker 1: with her. Oh, really? I mean, we did. We watched
56:15
Speaker 1: a lot of things like Shrinking. We love Shrinking. I
56:19
Speaker 1: was a big Game of Thrones fan and stuff like that.
56:22
Speaker 1: But no, I don't I read a lot, yeah, so
56:25
Speaker 1: I'm not great at that.
56:26
Speaker 2: Final two questions. What sort of advice would you give
56:29
Speaker 2: to a recent college grad interested in a career in
56:33
Speaker 2: either investing, wealth management, fixed income trading, anything along those lines? Sure.
56:40
Speaker 1: My advice to them is never act like you know
56:43
Speaker 1: the answer if you don't because you don't People aren't
56:47
Speaker 1: going to trust you because of your experience. So if
56:50
Speaker 1: you lose that trust early, it's really hard to regain.
56:55
Speaker 2: Wait, don't fake it until you make it?
56:57
Speaker 1: I think you're out of your mind.
56:59
Speaker 2: I heard that year after year after year and always
57:02
Speaker 2: hated it.
57:03
Speaker 1: The second thing I would say to you is the
57:07
Speaker 1: other side of that coin, which is ask lots of questions.
57:10
Speaker 1: It's okay. I mean, you can get totally irritating, and
57:13
Speaker 1: I'm going to throw you out of my office eventually.
57:15
Speaker 1: But I don't expect you to know. The answer.
57:18
Speaker 2: And our final question, what do you know about the
57:21
Speaker 2: world of investing today might have been useful 30, 40
57:25
Speaker 2: years ago when you were first getting started?
57:30
Speaker 1: People who think they can time the market and actually
57:34
Speaker 1: can prove out that they really do it well, you
57:36
Speaker 1: can count on one hand. Diversification, no one diversifies to
57:41
Speaker 1: get rich. You diversify to stay rich.
57:44
Speaker 2: And those are two very different skill sets, aren't they? Exactly.
57:47
Speaker 2: Really fascinating. Seth, thank you so much for being so
57:50
Speaker 2: generous with your time. This has been absolutely delightful. We
57:55
Speaker 2: have been speaking with Seth Bernstein. He is the CEO
57:59
Speaker 2: of Alliance Bernstein and the head of asset management at
58:02
Speaker 2: Equitable Holdings. If you enjoy this conversation, well, check out
58:07
Speaker 2: any of the 659 we've done over the past 12 years.
58:12
Speaker 2: You can find those at Bloomberg, iTunes, Spotify, YouTube, or
58:17
Speaker 2: wherever you find your favorite podcasts. I would be remiss
58:20
Speaker 2: if I didn't thank the craft staff that helps put
58:22
Speaker 2: these conversations together each and every week. Sean Russo is
58:27
Speaker 2: my head of research. Anna Luke is my producer. And
58:30
Speaker 2: today is the last episode of Alexis Noriega, my video producer,
58:37
Speaker 2: who helped bring Masters in Business to the video world
58:41
Speaker 2: over the past year. I just want to say an
58:44
Speaker 2: extra special thank you to Alexis for everything she's done
58:47
Speaker 2: for us. I'm Barry Ritholtz. You've been listening to Masters
58:51
Speaker 2: in Business on Bloomberg Radio.