Executive Summary / Key Takeaways

• AllianceBernstein (AB) is strategically leveraging its deep expertise in private markets and insurance asset management, driven by a powerful partnership with Equitable Holdings (EQH), to accelerate AUM growth and enhance profitability.
• The firm reported robust Q3 2025 adjusted net income per Unit of $0.86, a 12% year-over-year increase, with firmwide assets under management reaching a new milestone of $860 billion.
• AB's differentiated technology, including proprietary quantitative tools and customized lifetime income solutions, provides a significant competitive edge, particularly in tax-exempt municipal SMAs and custom target-date funds, where it holds a leading market position.
• Management has raised its full-year 2025 performance fee guidance to $130 million-$155 million and reaffirmed its 33% adjusted operating margin target, demonstrating strong operational efficiency and a disciplined expense approach.
• While market volatility and fee sensitivity in certain segments pose ongoing risks, AB's diversified business mix and strategic investments in high-growth areas position it for sustainable long-term value creation.

A Diversified Powerhouse Forging a New Era in Asset Management

AllianceBernstein Holding L.P. (AB) stands as a global investment management firm, deeply rooted in a history spanning over five decades since its founding in 1967. The company has evolved from its origins to become a diversified powerhouse, offering a broad spectrum of investment services across institutional, retail, and private wealth channels. This evolution is marked by the establishment of key platforms such as AB CarVal, a global asset-based credit platform with a 38-year track record, and AB Private Credit Investors (ABPCI), a middle-market direct lending platform with 17 years of experience. AB's strategic journey has consistently focused on adapting to market dynamics and client needs, culminating in a significant pivot towards scalable, long-duration assets, particularly within private markets and insurance.

The broader industry landscape is characterized by a profound shift in retirement planning, with fewer younger workers supporting an aging population and a transition from defined benefit to defined contribution plans. This places a greater burden on individuals to manage their own savings and investments, creating a demand for innovative solutions. Furthermore, the investment management sector is witnessing increased demand for alternative investments and a growing emphasis on technological differentiation to deliver superior client outcomes and operational efficiency. The rise of AI and data centers, for instance, is driving significant investment opportunities in energy and tech infrastructure, a trend AB is actively positioning itself to capture.

AB's overarching strategy is built on diversification, deep investment expertise, and leveraging strategic partnerships to capture profitable growth. The firm's commitment to providing better outcomes for clients is underpinned by its ability to harness a diversified asset mix, enhance operational efficiency, and maintain a durable fee structure. This strategic framework is designed to mitigate concentration risks across geographies and asset classes, fortifying the business against market downturns while maximizing upside potential.

Technological Edge: Precision, Customization, and Scale

AllianceBernstein's competitive advantage is significantly bolstered by its differentiated technology and innovative solutions, which are deeply embedded across its investment and distribution platforms. The firm's high-quality, in-depth research, spanning economic, fundamental equity, fixed income, and quantitative disciplines, forms the bedrock of its asset management and private wealth businesses. This robust research capability is not merely academic; it translates into tangible, quantifiable benefits for clients and the firm.

In the municipal bond space, AB leverages "proprietary technology, and tailored solutions to deliver differentiated insights for our clients." This combination of active management and advanced technology has propelled AllianceBernstein Holding L.P. to become the number one retail muni SMA manager, achieving an impressive 26% annualized organic growth rate in Q3 2025 for its tax-exempt retail inflows. The firm's ETF platform, another area of technological and product innovation, has exceeded $10 billion in AUM by October 2025, with monthly run rate flows typically exceeding $250 million. This platform offers diverse investment areas, including fixed income and equities, and is expanding into emerging markets.

A prime example of AB's technological differentiation is its industry-leading Lifetime Income Strategy (LIS), launched in 2020. LIS, which manages $13.5 billion in assets (with $5 billion guaranteed by five insurance companies), provides DC plan participants with a personalized target date portfolio and a flexible guaranteed income option. Its innovative design allows for higher equity exposure while delivering returns that have effectively offset the cost of insurance. The recent DOL advisory opinion affirming ERISA's fiduciary safe harbor for LIS further validates AB's approach, significantly reducing regulatory uncertainty for plan sponsors. Furthermore, AB's Wealth Forecasting System and sophisticated modeling tools within Bernstein Private Wealth Management offer cutting-edge investment solutions and holistic financial planning for ultra-high-net-worth clients. These technological advancements, coupled with AB's own custody and clearing capabilities, enhance operational efficiency, improve client outcomes, and contribute directly to the firm's competitive moat, market positioning, and long-term growth strategy.

Strategic Pillars: Private Markets, Insurance, and Wealth

AB's growth narrative is intricately woven around its strategic focus on three key pillars: private markets, insurance asset management, and private wealth management. These segments are not only driving current performance but are also central to the firm's future expansion.

The Private Markets Platform is a cornerstone of AB's strategy, expanding to nearly $80 billion in fee-paying and fee-eligible AUM by Q3 2025, representing a 17% year-over-year growth. This platform focuses on credit-oriented strategies, including the $22 billion AB Private Credit Investors (ABPCI) middle-market direct lending platform and the $20 billion AB CarVal global asset-based credit platform. The firm is confident in achieving its target of $90 billion to $100 billion in private markets AUM by 2027. This growth is significantly bolstered by its strategic alliance with Equitable Holdings, which provides a "competitive advantage" by leveraging permanent capital commitments. Approximately $17 billion of EQH's $20 billion capital commitment has already been deployed into AB's private markets strategies, seeding and scaling higher-fee, longer-dated alternative investments.

In Insurance Asset Management, AB is rapidly expanding its leadership. The firm's new partnership with Fortitude and strategic investment in FCA Re, announced in October 2025, represent another major milestone, particularly in the attractive Asian insurance markets. This builds on the success of the Ruby Re sidecar, which is performing "in line with our IRR expectations." AB has onboarded seven new insurance General Account (GA) relationships across eight strategies year-to-date, demonstrating its "prominent competitive position in the Asia Pacific market." These partnerships require a high-touch client service approach, unlocking additional revenue streams beyond traditional management fees.

Bernstein Private Wealth Management has emerged as a significant growth engine, reaching a record high of $153 billion in AUM by Q3 2025 and generating approximately 36% of firmwide revenues. The channel delivered its highest inflows in ten quarters, reflecting strong advisor productivity and cross-asset client allocations. AB is actively focused on growing its advisor sales force, targeting mid-single-digit headcount growth annually, and is open to strategic M&A in the "small to midsized RIA space" to expand its geographical reach and specialized capabilities. The business exhibits "very little sensitivity to rates... when it comes to cash economics," providing a stable revenue stream.

Operational Excellence and Financial Strength

AllianceBernstein's financial performance in Q3 2025 underscores its operational effectiveness and strategic focus. The firm reported adjusted net income per Unit of $0.86, a 12% increase compared to the prior year. For the nine months ended September 30, 2025, adjusted net income per Unit stood at $2.40, up from $2.21 in the same period of 2024. Firmwide assets under management reached an impressive $860 billion as of September 30, 2025. Excluding $4 billion in outflows related to the Equitable RGA reinsurance deal, firmwide net flows were positive at $1.7 billion in Q3 2025.

Net revenues for Q3 2025 grew 5% year-over-year to $885 million, with base fees also increasing by 5%. While total performance fees in Q3 2025 were approximately $20 million, a $6 million decrease from the prior year, management has raised its full-year 2025 performance fee guidance to $130 million-$155 million, reflecting strong private market performance and potential public market upside. Total adjusted operating expenses remained relatively flat at $582 million in Q3 2025. The compensation ratio stood at 48.5% of adjusted net revenues, slightly higher than the prior year's 48%. Notably, general and administrative expenses decreased by 17% year-over-year, primarily due to lower professional fees and the absence of a one-time accelerated lease expense from 2024.

This disciplined expense management, coupled with revenue growth, led to a 15% year-over-year increase in operating income to $303 million in Q3 2025, and a significant 209 basis point margin expansion to 34.2%. Over the last three years, operating income has grown at a 13% CAGR, with revenues (excluding Bernstein Research) growing at 7%.

The firmwide base fee rate, net of distribution expenses, increased to 38.9 basis points in Q3 2025, demonstrating a "relatively durable fee rate" that has fluctuated between 39 and 40 basis points over the past five years. AB Holding's liquidity is robust, with net cash provided by operating activities for the nine months ended September 30, 2025, at $275.10 million. The company's structure mandates the distribution of all available cash flow to unitholders, ensuring a consistent return of capital.

Competitive Landscape: A Niche Leader in a Giant's World

AllianceBernstein operates in a highly competitive global investment management industry, vying with larger, more diversified players like BlackRock (BLK), State Street (STT), Invesco (IVZ), and Franklin Templeton (BEN). While these competitors often boast greater scale and broader technological platforms, AB carves out its niche through specialized expertise, research-driven strategies, and strategic partnerships.

AB's core competitive advantages lie in its in-house research capabilities and its established client networks, particularly in institutional markets. Its proprietary quantitative tools and sophisticated modeling, such as those used in its custom target date funds and the Wealth Forecasting System, enable AB to offer tailored solutions that differentiate it from more standardized offerings. For instance, AB's "industry-leading lifetime income strategy" and its position as the "number one retail muni SMA manager" highlight its leadership in specific, high-value segments. This research-intensive approach allows AB to compete effectively against BlackRock's broader technological dominance by offering more nuanced strategies and potentially enhancing pricing power in specialized areas.

However, AB faces vulnerabilities in technological integration and global scale compared to some rivals. While AB's operational technology supports its specialized platforms, it may lag behind BlackRock's extensive Aladdin platform in terms of overall efficiency and breadth of digital transformation. Similarly, in terms of servicing scale, State Street's comprehensive back-office operations for institutional clients might offer greater efficiency. AB's financial performance can also be more susceptible to market cycles compared to the more diversified revenue streams of a BlackRock or State Street.

Despite these challenges, AB leverages its strategic alliance with Equitable Holdings as a "competitive advantage," providing permanent capital to seed and scale higher-fee private alternative strategies. This partnership, alongside its focus on small to mid-sized RIA acquisitions for its private wealth business, allows AB to strategically expand its market share without becoming an "asset-heavy or capital-heavy type of entity." AB's ability to provide a range of solutions across the cost of capital spectrum and match investment opportunities to diverse client risk profiles further reinforces its competitive standing.

Outlook and Risks: Sustaining Momentum Amidst Uncertainty

AllianceBernstein's outlook for 2025 is characterized by continued strategic execution and disciplined financial management, even as it acknowledges persistent market uncertainties. Management projects a full-year 2025 adjusted operating margin of 33%, a target already exceeded year-to-date at 33.4%, demonstrating the firm's enhanced operational efficiency. This margin expansion is a direct result of transformative initiatives completed in 2024, including the Bernstein joint venture divestiture and the New York City office relocation, which is expected to generate approximately $50 million in annual occupancy-related savings.

The firm's compensation ratio is expected to remain at 48.5% of adjusted net revenues for Q4 2025, with potential upside if market conditions remain supportive. Non-compensation expenses are projected to fall within a tightened range of $600 million to $610 million for the full year 2025, reflecting ongoing expense discipline. Performance fee guidance for 2025 has been raised to $130 million-$155 million, driven by strong private market contributions and potential upside from public market strategies, assuming stable conditions. The effective tax rate for 2025 is anticipated to be between 6% and 7%.

AB remains steadfast in its target of growing private markets AUM to $90 billion-$100 billion by 2027, leveraging the Equitable partnership and expanding its capabilities in areas like investment-grade private credit. The firm also expects to benefit from the growing interest in lifetime income solutions for defined contribution plans, validated by the recent DOL advisory opinion.

However, the investment thesis is not without its risks. Market volatility, geopolitical tensions, and policy uncertainty continue to pose challenges, potentially impacting asset flows and investment performance. The one-year fixed income performance in Q3 2025 faced headwinds from selection in emerging markets and yield curve positioning. Similarly, equity relative performance has been affected by the concentration of gains in a few mega-cap names. There is also inherent litigation risk in the DC market, and a decline in interest rates could impact the firm's ability to generate performance fees. While AB believes its diversified business mix offers resilience, these external factors necessitate continuous vigilance and strategic adaptability.

Conclusion

AllianceBernstein is strategically positioned for sustained growth, driven by its focused expansion in private markets, insurance asset management, and private wealth. The firm's commitment to innovation, particularly through its differentiated technological solutions and customized client offerings, provides a robust competitive foundation. Strong financial performance in Q3 2025, marked by increased adjusted earnings and margin expansion, underscores the effectiveness of its operational discipline and strategic initiatives. The powerful partnership with Equitable Holdings acts as a significant catalyst, enabling AB to scale high-fee, long-duration alternative strategies and solidify its leadership in key growth areas. While the broader market environment presents inherent volatility and competitive pressures, AB's proactive approach to leveraging its strengths, coupled with a clear roadmap for future expansion and a disciplined capital allocation strategy, positions it favorably to deliver long-term value for its unitholders. Investors should monitor the continued execution of its private markets AUM targets and the ongoing success of its innovative retirement and insurance solutions as key indicators of its enduring investment appeal.