Finding Stability in Investing: Masters in Business with Seth Bernstein

29:18Induciary culture. Really, really putting clients first, whether it's in our private wealth business or our investment teams. I think both Alliance and Bernstein did that beautifully. And I think that continues to thrive, I hope. That's one of the most important things for me about the institution. We had, as you pointed out, a very well-regarded sell-side research business, which I decided to see if we could reduce our exposure to for exactly the reasons you said. It is an accident of history why a buy-side firm had a sell-side research business to start with. But almost everyone cross-subsidizes those businesses.

30:00So if they're equity capital markets business or prime brokerage business, we didn't have any of those cross-subsidies to provide to them. And so we entered into a joint venture with SOCGEN, Societe Generale, which has proven to be pretty successful. and their quality of the research remains very strong and they have a much stronger partner with deep markets capabilities that they are really, I think, doing a good job commercializing. And all those other banking relationships that make sense to have a research department with, eventually they take over the research group or is it always going to be a joint venture?

30:40No, ultimately it will transition to them and that was always the intention. and we were quite clear about it. They were very concerned about the culture and not damaging it. It's a large French institution, and these were a bunch of Americans and Brits. And so we needed to make sure we took stuff very mindfully, step by step. We're still midway through that period. We have five years from the anniversary, we have an arrangement, which we talk about from time to time, but that's the plan. And in 2022, AB buys Carval, which is a specialist in private market credit and debt issuance. The combined private market platform between Bernstein and Carval is$91, almost$100 billion.

31:29Right. It was roughly$35 before we bought them. So 3x. Right. But they were another$16 billion. So call it$50. So we're nearly double what we were when we acquired them. So I'm really curious, how does what's essentially an equity and fixed income shop like Alliance Bernstein, how do you go about kicking the tires of alternatives business? There has to be a ton of challenges there. How do you how do you conceptualize those risks? Look, I grew up lending. I ran the leverage finance business at J.P. Morgan. It's a business I knew. I'm certainly no current expert on on the intricacies of it today.

32:11But we had built, prior to me arriving, AB had built quite a successful private credit business. When Lehman collapsed, we took a team out of Lehman to build a middle market lending business. They're with us today, based in Austin, had been remarkably successful, private real estate debt business. And we had a natural client base. We have, in addition to Equitable and now Corbridge, when that merger occurs, we have 60 insurance companies as clients who we manage money for. So you guys are uniquely situated to sell into the insurance market. Obviously, having a majority owner that's an insurer provides one aspect.

32:54But given that history, what has it been like looking into that market, which I don't hear a lot of other large shops being aggressive sellers into the world of insurance? Sellers or buyers into the world of insurance? Either or both. Well, you're selling your product to them and taking their assets in, as well as the parent company. Now, we'll talk about that merger later, but you're on, I don't want to say both sides of the trade, but you're selling into that marketplace and have a deep understanding of what the insurance business is. We've been managing insurance money forever. I mean, Alliance was started by Alliance, for sure, effectively.

33:35And the skills are very different. The client service model is totally different, highly customized, very relationship dependent. The expertise around subject matters, whether it's regulatory accounting, whether it's asset liability matching, really are critical parts of that sale. We do that very well, and we continue to invest in it. And frankly, it's the largest pool of institutional capital there is in fixed income. And it's growing. It's growing at a pretty rapid rate. Yeah, you guys and this other kid named Warren Buffett at Berkshire figured out, hey, there's a tremendous amount of stable assets.

34:22What a great funding source. Right? I mean, how is it that nobody else really seems to be able to do that? Other people have thought about that. Mark Rowan thought about it. I think he's done pretty well. Apollo. Apollo's done very well. KKR has figured that out. Guggenheim figured that out. A lot of firms have figured it out. Really interesting. Prudential being a good example. Well, right. They started, but they started on the insurance side, not on the asset management side, but very fair examples. I have to ask about the ETF business. It was effectively nonexistent when you joined. Is that a fair statement?

35:00That's correct. 31 strategies,$21 billion. Pretty rapidly. All active. Actively managed. Almost all, yes. Very, very little in terms of just passive indexing. Very little in terms. And more importantly, almost all of them are new strategies. So they aren't cannibalizing existing strategies. It's not a new wrapper for the vast majority of that. So what led you to the ETF business and how did this ramp up? I hired an incredibly talented guy named owner Erzan from McKinsey, who is now president of Alliance Bernstein. And he absolutely banged the table, pounded the table that we got to ramp up our active ETF business.

35:37And I think he was right. And we backed it. And it's been a big story for us here. It's a growing story for us in Asia where we really punch above our weight. And we're excited to see what we can do in Europe. Where do you think the ETF business can go for AB? How big can this get? I'm pretty confident, absent some weird regulatory or legal reason, for example, 401k plans have a difficult time owning ETS. Department of Labor can change that. But we're not going to launch another mutual fund in the U.S. Really? I think it'll all be ETS, unless the asset class doesn't suit the liquidity constituency of it.

36:21But I think it will be the vehicle of choice along with separately managed accounts. I think those will be the two wrappers we really focus on. For an individual who's a client of yours, if you can deliver most of that in SMA form, he or she is paying a lot less tax because you can tax manage it much more effectively. You can avoid wash sales. You can have a less overly diversified portfolio because remember, you have lots of unintended bets when you have a multi-manager portfolio. All right. Really interesting. Coming up, we continue our conversation with Seth Bernstein, CEO of Alliance Bernstein, discussing the current environment for asset management.

37:03I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful.

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39:00Wasabi's flat pricing eliminates all of it. One rate, no surprises. With global scale, enterprise performance, and predictable pricing, Wasabi helps organizations focus on innovation instead of cloud bills. Companies that are paying more in fees than in actual storage costs can fall behind. Don't let it happen. When your AI needs your data and you have a budget to meet, get Wasabi. Learn more and try now for free at wasabi.com. Wasabi, the AI storage cloud. Proud partner of the iHeart Podcast Network. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest is Seth Bernstein.

39:35He is the CEO of Alliant Bernstein and head of asset management at Equitable Holdings. Alliant Bernstein manages over$900 billion in client assets. I have to ask you a funny question. Many years ago, I worked with a guy who, by dumb coincidence, had the same last name as one of the names on the door of the firm. Alliant? No, no, no. Totally different company, but similar concept to you. And whenever a prospective client would ask, he had this terribly amusing non-answer, something along the lines of, look, I'm trying to create my own reputation and brand separate from the family wealth. and I just wish you would treat me as an independent.

40:29Never saying, no, I'm completely unrelated to the family. I called it the non-denial denial. I'm curious, your last name is Bernstein of Alliance Bernstein. Does anyone ever say to you, hey, are you the... All the time. All the time. Not just a, obviously, you haven't been there since the beginning. The more insulting question is, are you the founder? And I said, no, I'd be over 100 years old. Right, 1960? When was it founded? 1967. Okay. So when you were done playing with blocks, you didn't have to go into the office that morning? No, not that day. Not that day. But this really legitimately comes up?

41:13Regularly, particularly in the private wealth business, but where it's really important to make it clear is in Asia. Because they just assume. Everyone assumes because most of their businesses are family oriented. But just so you know, in the final moments of whether I was going to get this job or not, I did offer to change my first name to Alliance. That's really amazing. And the fascinating thing about that is if there's any industry that's a meritocracy, it feels like Wall Street has evolved. You live and die on your, forget annual performance. Like what your numbers last quarter, last month, last week, it really is performance driven and not necessarily your last name.

42:00I had to ask if that came up. That's really fascinating. So let's talk a little bit about the current environment. There is a merger that was approved by shareholders of Equitable and Corbridge. I know the deal hasn't closed, and so you probably can't really say a whole lot about it. But this is going to create about$100 billion of Corbridge assets that are going to ultimately end up, I assume, move over to AB. Does anything change for you guys with the soon merger of Equitable and Corbridge? Other than the assets, I'm not aware of anything changing. And they very much value the identity that AB has.

42:50And, you know, we are thrilled by the merger and the opportunities that will bring. But no, no change is anticipated. So let's talk a little bit about some of the assets that you guys have been growing. Private credit, at least up until this year, has been a house of fire. What do you think about the future of private credit? What's going on there? Banks are constrained in their ability to continue to service through loans their clients. They've been that way structurally, certainly since the financial crisis. And even before that, it was hard to hold these assets on balance sheet. J.P. Morgan spent an enormous amount of time and money trying to securitize their loan book.

43:40In fact, that's where credit derivatives started. And I worked in the groups that helped formulate that, although I certainly was in no way the father of the engineer around that. But it was critically important to reduce that exposure on most bank balance sheets. I believe that trend continues. Banks are levered players. They're funded short. They're not natural holders of long-lived, particularly fixed-rate assets. Insurers are a much better home for that. And frankly, so are funds because funds don't offer true liquidity options for you. There's no run on a fund. Now, what we've seen recently, and one of the reasons private credit has been in the news is vehicles structured for wealthier clients did have some very limited liquidity options.

44:33But ultimately, there is no maturity transformation in credit. You got what you got. And frankly, I think there shouldn't be any liquidity other than the payment of interest and repayment of the debt itself. I'm glad you say that because I frequently have this conversation with peers elsewhere. Which part of seven-year lockup did you find confusing? Like the liquidity premium exists because it's illiquid. If you want liquidity, well, here's$100 trillion in the public fixed income markets. Have at it. Am I being too harsh or is that a fair statement? Look, I think people want to get the stuff sold.

45:16And so they try to do what they can. But frankly, I think giving any expectation and frankly, I think the documents were pretty clear that liquidity isn't there. But I think better that we go through this now before there's any significant credit deterioration. I mean, clearly there's some deterioration out there. It's relatively for anyone. It's pretty modest. GFC, this is... It's nothing. So the truth of the matter is, while there will be loans that go bad, I think most of these funds will be pretty fine at the end of the day. And ultimately, there's a role for it to play. But it's really, our focus is much more institutionally focused.

45:55Than what we've seen some of the areas in it. And just so people understand, there's a, depending on the funds, 2%, 3%, 4 % default expectation built into these models. It's not like, oh, my God, something defaulted. That's just what happens in the normal course of the month. That's just the nature of lending money, and that's absolutely true. Now, we have private credit in our private wealth businesses as well. And I think properly structured does a role for you, particularly if you have a tax-advantaged location to put it. So let's talk a little bit about private credit. I think the big issue from earlier this year and hold aside the specific companies that kind of ran into trouble.

46:39But, you know, when you look at what's going on, there's a wide dispersion of underwriting quality. there's some variance in how often and how precisely these marks happen in these non-traded things. And then, again, we come back to the redemptions in non-traded vehicles always kind of shock me. What does this industry need to do to get past the sort of difficult first half of the year we saw in 2026? Post numbers, which show that maybe there's a deterioration, but it's not meaningful yet. Educate clients on what's going on by providing them more transparency in the sense of clarifying how many names are on your watch list, how many have gone non-accrual.

47:31There's no obligation to do that currently. There is, and they do it for accounting and reporting reasons. But ultimately, regular periodic updating of your clients probably makes them more comfortable with what's going on. you should be over communicating during periods like this that that's really uh during periods like this or always well i think always because ultimately they're trusting that you're giving them a balanced view of what's going on and to be fair the headlines are not about the whole industry it's about a small handful of companies that have run into modest issues not you know terribly again we're not in and there's always been fraud i mean and that's what we've seen come out from time to time in a couple of places in a couple of places but the truth of the matter is there's been an enormous amount of money that's focused on this segment and so i think you're absolutely right structuring terms and pricing got out of whack but frankly it's a much better time to be investing today post that event so so let's talk a little bit about where this space is going.

48:38For most of my career, private credit has been pretty much all institutional. Over the past few years, we've seen a big take up from wealth management side, RIAs, etc. And then a lot of conversations about this being available for retirement accounts or 401ks. Tell us your thoughts. What do you think happens with private credit? And how do we do this the right way so we don't run into these problems. I think actually target day funds, 401ks generally might be a perfectly appropriate place for it. Highly predictable needs. You have professional management making those decisions, usually separate from the people managing the money themselves, the sponsors of those 401k plans.

49:29They're pretty sophisticated investors in their own right, private credit, particularly for individuals who need the income that those portfolios will generate, might have a very welcome spot in it. And in fact, we are. We think leaders in working with other private asset managers in developing vehicles to utilize side by side with your target date funds in order to build a highly diversified private credit, private equity, private real estate exposures for the beneficiaries of those plans. To me, that's an institutional purchase because there's someone intermediating that decision. So let's talk about that group.

50:20It's Alliance, Bernstein, Brookfield, and Carlisle working together. How did this come together and where do you think this goes? Well, I think it came together as we were talking to other firms about what we thought. We've been a pioneer in the 401k business and building particularly custom glide paths and target dates for big, sophisticated plan sponsors, state plans, corporate plans. And there was clearly a desire to get a higher return built in over time into these portfolios, given the aging population, the need for diversification and different sources of return. And so we went and pulled a number of different firms and we ended up finding we had really compatible philosophies and capabilities with Carlisle.

51:14We engaged with a number of firms and trying to understand who would be a natural compliment to us. And from a private or real asset side, we thought Brookfield would be a very strong partner. And from a private equity side, we thought Carlisle brought a lot to the table. So we ultimately formed it. And it's very early days. I think the industry has been too enthusiastic about how quickly all of this will be adopted. Plan sponsors tend to be a pretty conservative group of people at the end of the day. And it's going to take years for this really to develop. But 10 years from now, will that be part of most of the large plans?

51:54I suspect it will be. How do you address some of the criticism? Well, anytime we see a new 401k plan come along or a sponsor come along, I always am raising my eyebrows about how much the industry, and to some degree you can blame BlackRock and Vanguard for this has driven fees down generally but even more so in 401ks. In the old days I would look over a 401k and be aghast at why are you paying 2 % for an S &P 500 fund? This doesn't make any sense. Now I look across some of the 401ks that I see. They're very inexpensive. Can privates find their way into 401ks at a competitive price point? Yes, I think for two reasons.

52:42One, these are institutional investors in their own right, so they're going to negotiate hard to get lower fees. Insurers don't pay huge fees for private credit because the cost of funds matters enormously to them.

52:59Secondly, it's a very small portion of the title portfolio and frankly, the cost of administering the overall plan. So between their competitive power as buyers, institutional buyers, and the small component of the total target date portfolio that they're going to constitute, it's a pretty small part of the fee burden that a client is going to be carrying. And frankly, it should be fairly easy to outperform net of fees. And that's all anyone really cares about. And that's really all that people care about. Especially we've been in a low rate environment for so long. The expectation is maybe it's higher for longer, but not 10 years.

53:40So we'll be back to a lower interest rate, not zero, but lower interest rate environment. And people want some yield. That's really the driving thinking here. I think that's exactly what the thing is. Look, if you look at the supers in Australia, which are really interesting innovations, the super attenuation funds in Australia have been intellectual. leaders and how to think about retirement. And one of the really interesting things they do is they structure glide paths through retirement rather than to retirement. The last thing you need most people at age 65 is to be predominantly in short-term fixed income and cash.

54:20You need to be invested. On the assumption you have another 20, 25 years to go. Even 10 years to go. Yes. You need, you need, most people don't have enough money to retire, right? So a lot of people defer their ultimate retirement and get supplemental income elsewhere. So planning into retirement, I think is a pretty prudent thing to do. Ultimately, if you're able to tie that to purchasing annuities at a pretty low cost, so not purchasing them necessarily upfront, but maybe planning your target dates to end with a pool of liquidity to turn around and buy annuities at age 75, for example, you could really reduce the cost of that and give people income protection for a longer period of their life.

55:02I think the really interesting things that are going to continue to evolve in the target date space. Really, really interesting. Since you mentioned 65, I have to ask, you're coming up on a decade as CEO, do you think about succession planning? Have you thought about who follows you when you decide to take your retirement? You see, I think that's one of my most basic obligations. And we spend a lot of time on succession planning, not just for me, but for all the senior leadership of our firm. And yes, we have plans in place. And And I don't expect to be there forever. So, yes. So, given that you're there in a few months, 10 years, what are you most proud of?

55:57What decisions did you make? Would you wish you could undo? And what of the long-term plan remains unfinished at Alliance Bernstein? Oh, good question. What should I have done that and do? I should have put my own people in quicker.

56:16Just as a learning to me and any new CEO, you need people you really trust can execute a transition and are bought into it. And change is a good thing. It's not necessarily a bad thing. Secondly, I'm particularly proud of what we've done in our private credit space. I'm really proud of what we've done in the insurance space. I think those are winners. We have built a market-leading SMA platform for munis. We are growing really rapidly. We've automated the investment process. We give people choice.

56:57We give people information, and we give people client service that they don't get at other firms. And it's been growing like a weed for a while now. I'm very proud of what our fixed income team has done there I think our private wealth business remains a gem we have incredibly loyal clients and I'd love to grow that business more rapidly than we have we are growing at a good rate but we grow organically we haven't grown inorganically frankly because valuations for our AAs are hard to justify Also, we're very sensitive to cultural implications of big mergers. They just don't have a great track record of working, either in the wealth management space or the investment management space.

57:46So last question, which I have to – before I get to my favorites, which I have to ask you as both the current CEO and former CFO, the AB stock price has been fairly stable. your dividends are pretty beefy, something like 9 % or 10%. Is that something that is by design, or is it just the nature of you guys throw off a lot of free cash flow? The industry throws off an enormous amount of free cash flow, and in a mature business, you should probably be distributing it. In our case, it's by design. We're about the last publicly traded partnership. Which is an unusual structure in itself. Very unusual.

58:28The only place people used to see them were really in MLPs and stuff, you know, in the energy sector in particular. And the dreaded K-1s. And we issue K-1s. So that's a hassle, which limits institutional interest in the stock. But that's who we are. That's what we have. And I find that such a fascinating, quirky thing. and yet I guess it's the institutional allergy to K-1s. Otherwise, I would imagine there'd be broader ownership of a coupon like that. It's essentially a high-yielding bond with an equity kicker. That's essential. It's a convert. That's what it looks like. And, I mean, the truth of the matter is that if I really believed, if the board really believed the stock price would really pop, If our majority owner didn't have a negative tax implication of doing it, I think you're obliged to look at it.

59:32But the honest answer is if you do it and you don't get that pop, you've got a lot of people who are not so happy with you. To say the very least. All right. I only have you for a few more minutes. So let's jump to our favorite questions that we ask all of our guests, starting with who are your mentors who helped shape your career? Oh, I had a number of mentors. I guess my most influential mentor was my mother. She was a very successful advertising executive, and she was no nonsense always. But when I go beyond that, at J.P. Morgan, the guy who ran equity capital markets and believed in me, a guy named Brian Watson, who ended up running the private equity, I'm sorry, the venture capital and private equity business of J.P.

1:00:20Morgan before the merger, He was a really instrumental mentor to me. I think that the guy who runs Equitable, Mark Pearson, has been an unbelievable mentor and partner in running it because the relationship between those two firms was rocky for time. And I think we've run it as one larger business while maintaining the individuality of the individual business unit. Those are three people that come to mind. Really interesting. Let's talk about books. What are some of your favorites? What are you reading currently? I am reading the new book on the Trump administration that came out that Maggie wrote.

1:01:07She's always a fun, fiery writer. She sure is. And it brings it home and it brings it live. During COVID, a bunch of friends and I got together and created a book club. And so we were reading, we never read fiction. And so for a while, the book club was operating, we read a ton of fiction, which was... Give us a few names. We read Razor's Edge. We read Kim by Rudyard Kipling. uh we've we read um the um we were god i'm having a senior moment um which come more and more frequently um it only trends in one direction as an older man it gets worse as an older man i can tell you it only right i'm a day older than you and let me just share my experience it only gets right that one of the books we read which we i love was james which is kind of a retelling

1:02:10of the Huckleberry Finn story. Oh, really? It's a fantastic song. James, I'm going to definitely put that on my list. Since you mentioned what you were doing... Tom Sawyer, yeah. Yeah. Since you mentioned what you were doing during the pandemic, what about streaming? Are you watching or listening to anything? No, my wife hates me because I don't watch stuff with her. Oh, really? I mean, we did. We watch a lot of things like Shrinking. We love Shrinking. I was a big Game of Thrones fan and stuff like that. But no, I read a lot. Yeah, so I'm not great at that. Final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing, wealth management, fixed income trading, anything along those lines?

1:02:59Sure. my advice to them is never act like you know the answer if you don't people aren't going to trust you because of your experience so if you lose that trust early it's really hard to regain wait don't fake it till you make it? I think you're out of your mind I heard that year after year after year and always hated it the second thing I would say to you is the other side of that coin which is ask lots of questions. It's okay. I mean, you can get totally irritating and I'm going to throw you out of my office eventually, but I don't expect you to know the answer. And our final question, what do you know about the world of investing today might have been useful 30, 40 years ago when you were first getting started?

1:03:50People who think they can time the market and actually can prove out that they really do it well, you can count on one hand. diversification. No one diversifies to get rich. You diversify to stay rich. And those are two very different skill sets, aren't they? Really fascinating. Seth, thank you so much for being so generous with your time. This has been absolutely delightful. We have been speaking with Seth Bernstein. He is the CEO of Alliance Bernstein and the head of asset management at Equitable Holdings. If you enjoy this conversation, Well, check out any of the 659 we've done over the past 12 years.

1:04:32You can find those at Bloomberg, iTunes, Spotify, YouTube, or wherever you find your favorite podcasts. I would be remiss if I didn't thank the craft staff that helps put these conversations together each and every week. Sean Russo is my head of research. Anna Luke is my producer. and today is the last episode of Alexis Noriega, my video producer who helped bring Masters in Business to the video world over the past year. I just want to say an extra special thank you to Alexis for everything she's done for us. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

1:05:20This is Jacob Goldstein from What's Your Problem. Running a business is hard enough. Don't make it harder with a dozen apps that don't talk to each other. One for sales, another for inventory, a separate one for accounting. That's software overload. Odoo is the all-in-one platform that replaces them all. CRM, accounting, inventory, e-commerce, HR. Fully integrated, easy to use, and built to grow with your business. Thousands have already made the switch. Why not you? Try Odoo for free at odoo.com. That's odoo.com.

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