Hello, everyone. Thank you for joining us, and welcome to the AllianceBernstein Third Quarter 2026 Earnings Review. At this time, all participants are in a listen-only mode. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. As a reminder, this conference is being recorded and will be available for replay on our website shortly after the conclusion of this call. I would now like to turn the conference over to the host for this call, Head of Investor Relations for AB, Mr. Ioanis Jorgali. Please go ahead.
Good morning, everyone, and welcome to our Third Quarter 2026 Earnings Review. Today's conference call is being webcast and is accompanied by a slide presentation available in the investor relations section of our website at www.alliancebernstein.com. Joining us today to discuss the company's quarterly results are Seth Bernstein, our Chief Executive Officer, and Tom Simeone, our Chief Financial Officer. Onur Erzan, our President, will join us for the question-and-answer session following our prepared remarks. Some of the information we'll present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. I would like to point out the safe harbor language on slide two of our presentation. You can also find our safe harbor language in the MD&A of our 10-Q, which we'll file later this week.
We base our distribution to unitholders on our adjusted results, which we provide in addition to, and not as a substitute for, our GAAP results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted are in our presentation appendix, press release, and our 10-Q. Under Regulation FD, management may only address questions of material nature from the investment community in a public forum. Please ask all such questions during this call. Now, I'll turn it over to Seth.
Good morning, and thank you for joining us today. Before reviewing our results, I want to briefly address our leadership transition that was announced in September. For nearly a decade, I've been privileged to lead AllianceBernstein, working alongside an exceptional group of colleagues whose dedication to our clients, our culture, and one another empowered the firm to grow through a period of profound industry evolution. Together, we transformed our private markets platform from a niche capability into a scaled global franchise. We built leading positions in insurance asset management, municipals, retirement solutions, thematic investing, and private wealth. We relocated our corporate headquarters to Nashville and continued investing in talent and capabilities that will position AB for long-term success. While I'm proud of what we've accomplished, these achievements are not an endpoint. They are a foundation upon which AB's next chapter of growth will be built.
Few people have contributed more to that foundation than Onur Erzan, who, in addition to being President, will become AB's Chief Executive Officer on April 1, 2027. Onur has been a driving force behind many of AB's most important strategic initiatives, and I believe he is uniquely positioned to lead the firm forward. His vision, leadership, and track record of execution give me tremendous confidence in AB's future, a future I look forward to supporting as a board member after my retirement. Now, moving on to slide three, I will review the key business highlights of our third quarter. First, we ended the quarter with approximately $900 billion in assets under management. As we onboard $100 billion of Corebridge assets over time, we see a clear path to reaching $1 trillion in AUM.
I am pleased with the progress we are making, not only on the operational groundwork to onboard these assets, but more importantly, in deepening our strategic partnership with Corebridge. The opportunity extends well beyond managing the company's existing assets, as the combined Corebridge and Equitable are expected to generate sizable ongoing net flows. We are also focused on identifying paths to further commercialize Corebridge's existing private asset capabilities in private placements, mortgage loans, and real estate equity. As the insurance marketplace continues to evolve, traditional asset liability management is giving way to more strategic balance sheet construction. Public and private markets are increasingly converging, and insurers are seeking integrated solutions that optimize risk, capital, and return. These trends align directly with AB's differentiated capabilities and position us for further growth in asset management and in derivatives transaction execution.
We manage $226 billion in net insurance assets, including $58 billion of third-party insurance AUM across more than 100 clients. General accounts total $139 billion, up 18% year-over-year. Bernstein Private Wealth ended the quarter with $165 billion in client assets, representing 18% of firm-wide AUM while contributing more than one-third of firm-wide revenues. We are expanding relationships with ultra net worth clients, family offices, entrepreneurs, and business owners, client segments whose complex needs require a high degree of customization and service that is difficult to replicate. Our platform enables advisors to focus on advice and relationship development while leveraging specialized expertise across financial and tax planning, trust and estate services, and family governance. We believe Bernstein is a compelling platform for recruiting and retaining top advisor talent with a differentiated value proposition that empowers industry-leading productivity while strengthening client outcomes.
Our customized retirement platform accounts for nearly $117 billion in assets. As plan sponsors increasingly seek personalized retirement solutions, lifetime income capabilities, and broader access to public and private markets, we believe AB could be ideally positioned to help improve participant outcomes. Taken together, our insurance, wealth, and retirement businesses provide direct access to large and growing pools of long-duration capital. These channels now represent approximately half of firm-wide AUM and enhance the resiliency, visibility, and long-term growth profile of our business across market environments. Second, we continue to expand our investment and distribution footprint through strategic partnerships, greater customization, and vehicle innovation. Customization is reaching an inflection point across retail asset management. Increasingly, clients are seeking investment capabilities in vehicles and formats that best fit their unique financial objectives.
A core element of our strategy is ensuring that AB's investment expertise can be delivered through the wrappers, channels, and solutions our clients prefer. One example is our active ETF franchise, which we continue to globalize. Today, the platform spans 34 products and $21 billion of AUM, with assets growing 31% organically during the third quarter and 68% over the last 12 months. From a near standing start less than four years ago, the business has scaled to generate annualized management fees of roughly $100 million. This growth reflects both increasing demand for active investment strategies and more efficient wrappers, and our ability to extend successful investment capabilities across geographies, channels, and client segments. We are seeing a similar trend in separately managed accounts. Our retail SMA platform stands at $68 billion of AUM and generated 15% annualized organic growth during the quarter and 17% over the last 12 months.
While municipals are still the foundation of the platform, we are encouraged by the early momentum we are seeing as we extend these capabilities into taxable fixed income. Over time, we believe SMAs will be a significant growth opportunity as personalization, technology, and advisor demand continue to converge, creating a larger addressable market for customized investment solutions. Third, firm-wide net inflows approached $7 billion in the third quarter, growing organically for the second straight quarter at a 3% annualized rate. Alternatives in multi-asset solutions led the way, generating $15 billion of net inflows, reflecting the onboarding of approximately $12 billion of commercial mortgage loans from Equitable. Importantly, the segment generated positive net inflows, even excluding the CML mandate, marking seven consecutive quarters of positive organic growth. In municipals, AB delivered positive net inflows for the 15th consecutive quarter, despite one of the most challenging markets for fixed income in decades.
While rising rates created significant volatility, our investment performance, distribution strength, and market leadership allowed us to continue gaining share in tax-exempt with nearly $2 billion net inflows. Within taxable fixed income, demand varied by client channel. Institutional clients contributed nearly $4 billion of net inflows, primarily to our investment-grade strategies. These gains were largely offset by more than $3 billion of retail net outflows, as heightened rate volatility continued to weigh on demand for our income franchise. In equities, passive strategies generated over $2 billion of net inflows, driven largely by institutional demand. Active equities remain under pressure, with more than $12 billion of net outflows concentrated across our largest mutual funds, partially offset by continued growth in active ETFs and thematic portfolios. Slide four provides an overview of our financial results, which Tom will discuss in greater detail shortly.
Skipping to slide five, I will review our investment performance, starting with fixed income. Bond markets faced particularly challenging third quarter as inflation concerns intensified on the back of higher energy prices and structurally growing debt issuance, pushing rate expectations higher. Against the backdrop of resilient growth and healthy labor markets, global central banks turned hawkish, with the Fed raising rates for the first time since 2023. Higher rates pushed total returns into negative territory across fixed income, with high yield outperforming investment grade, given its higher income and lower duration. Municipals posted the weakest quarterly performance for the asset class in more than 30 years. During the quarter, the Bloomberg U.S. Aggregate Index returned negative 3.5%, the Global High Yield Index returned negative 2%, and the Bloomberg Municipal Index returned negative 6.3%.
49% of our fixed income AUM outperformed over the one-year period, with 72% and 60% outperforming over three and five years. The decline over the one-year performance was primarily driven by our duration exposure as yields moved higher. Our short and intermediate duration portfolios and securitized strategies largely outperformed their respective benchmarks over the shorter-term periods, with mortgage income maintaining a top-decile performance over one, five, and 10 years. While the elevated rates volatility may dampen sentiment and appetite for duration, we believe the long-term value proposition for fixed income is now compelling, and AB has the right strategies to compete for the next wave of the reallocation. Credit is still an area of opportunity, with falling yields presenting an appealing risk-adjusted return profile compared to long-term equity forecasts. Turning to equities, markets posted modest gains, but dispersion between geographies, styles, and industries rose.
The S&P 500 returned 2.3%, outperforming the Russell 2000 by nearly 10 percentage points. Against this backdrop, 26%, 27%, and 33% of equity AUM outperformed over the one, three, and five-year periods. The AI build-out is no longer a single-sector story. It now ties together firms, industries, and even asset classes that once moved independently. As a result, traditional diversification provides less protection than it used to. Diversification may be getting harder to find, but that only makes it more valuable. That is exactly where our platform is built to help clients. Quality companies with durable free cash flow, value, and dividend growth strategies that have historically benefited when rates are higher and lower correlation exposures in Europe, Japan, U.S. small cap, and emerging markets beyond AI-linked chips.
We have 25 services with over $40 billion of combined AUM that continue to outperform over three and five years, led by International Strategic Equities, US Select, and various international small cap and value strategies. We believe diversification across fixed income and quality-oriented equities can help clients generate income, stay invested, and broaden their sources of return beyond a handful of market leaders leveraged through the AI build-out. Now, turning to slide seven. Retail activity softened during the quarter as investors remained selective amid higher market volatility. Tax-exempt was a bright spot, with our municipal strategies continuing to gain share against a very challenging macro backdrop for this asset class. While active equity and taxable fixed income redemptions remained elevated, we continued to see encouraging demand for ETFs, SMAs, and thematic strategies, reflecting the benefits of a more diversified retail platform.
As we've discussed before, clients increasingly want access to the same investment capabilities through the vehicles and formats that best fit their financial objectives. Our broad product set positions us well to meet that demand across mutual funds, ETFs, and managed account solutions. Moving to slide seven, I'll cover our institutional channel. Institutional net inflows reached a record of nearly $16 billion in the quarter, making the channel's second consecutive quarter of positive flows. As expected, commercial mortgage loans were the primary contributor, accounting for approximately $12 billion of inflows. Importantly, flows were positive, excluding CML, supported by a broad demand across fixed income, passive equity, and other alternatives and multi-asset solutions. Alternatives and multi-asset generated more than $13 billion of net inflows and remained organically positive for the seventh consecutive quarter. Pipeline conversions continue to accelerate as we gain scale.
During the quarter, we funded nearly $5 billion in previously awarded mandates in addition to the CML mandate. Institutional engagement is still healthy, with $13 billion in pipeline AUM at quarter end, notably excluding the expected $100 billion of corporate opportunity. More broadly, these results reinforce the strategic progress we are making in insurance asset management and private markets. The successful onboarding of CML demonstrates our ability to originate, manage, and service large-scale private assets while further strengthening the flywheel between long-duration insurance capital and AB's alternatives platform. Turning to slide eight, I will cover Bernstein Private Wealth. Private Wealth continued to deliver resilient net new asset growth despite a volatile market backdrop. While third-quarter net flows were negative, we continued to grow net new assets at a 2% annualized rate as of the third quarter and 4% over the last 12 months.
Importantly, approximately $500 million of this quarter's net outflows resulted from rebalancing and are being redeployed back into the platform during the fourth quarter. Client demand continued to favor alternatives and passive equity, with more than $1 billion in net inflows into alternatives and approximately $300 million into direct index equities. At the same time, newly launched alternative strategies gained further traction, raising approximately $600 million during the quarter. Bernstein Private Wealth's value proposition continues to strengthen. Clients are seeking integrated advice spanning public and private markets, tax, estate planning, and charitable solutions, and our platform is uniquely positioned to meet those needs. As a result, we continue to add new relationships at a strong rate in the ultra-high-net-worth global families and family office segments across market cycles. We have generated consistent net inflows for five consecutive years, reflecting the durability of our model.
The fourth quarter is already shaping up to be strong, and we are optimistic about our momentum heading into next year. Beyond flows, Bernstein Private Wealth is one of our most important strategic assets. The business sources more than one-third of firm-wide revenues while representing less than one-fifth of firm-wide assets, highlighting the strength of its advice-led model and our differentiated farm-to-table distribution of asset management capabilities. I will now turn to slide nine, which highlights the continued growth and diversification of our private alternatives platform. I am pleased to report the private market AUM now exceeds $105 billion, surpassing the $90 billion-$100 billion target more than a year ahead of our original 2027 commitment. This milestone reflects years of disciplined execution and the successful build-out of a diversified platform spanning private placements, direct lending, alternative credit, and commercial real estate lending.
Importantly, the growth is broad-based across institutional, insurance, private wealth, retail clients, reflecting a diversified and growing demand for long-duration assets. We also see significant runway ahead. Commercial real estate lending now exceeds $20 billion following the successful onboarding of nearly $12 billion of commercial mortgage loans from Equitable. 10 years ago, AB managed less than $20 billion of private assets firm-wide. Today, each of our four private markets platforms is larger than our entire private markets business was then. This scale is increasingly a competitive advantage. Larger platforms support stronger origination capabilities, deeper client relationships, and provide access to a wider range of investment opportunities, creating a flywheel that reinforces our sustainable growth over time.
Turning to slide 10, this illustrates what we believe is AB's most important competitive advantages, our ability to source and manage retirement assets through both accumulation and decumulation phases by connecting private and public markets, insurance and wealth management in the single retirement ecosystem. Historically, these markets operated independently. Today, they are increasingly converging, creating opportunities for firms with broad capabilities and multiple distribution channels. Through our Bernstein Private Wealth business retirement platform, SMAs, and active ETFs, we help clients accumulate assets. Lifetime income solutions and insurance products help convert savings into durable retirement income. These long-duration liabilities create demand for differentiated private market assets. Through our relationships with Equitable, Corebridge, and third-party insurers, we can originate and scale investment capabilities across private markets, direct lending, commercial real estate debt, and asset-based finance. Importantly, insurance capital does more than generate assets under management.
It helps seed new investment capabilities, build scale, establish track records, and create investment solutions that can ultimately be delivered across our insurance, institutional retirement, Bernstein Private Wealth, and retail channels. The combination of Equitable and Corebridge will further strengthen this ecosystem. Approximately $100 billion of Corebridge assets will be onboarded over time, providing greater scale to support asset origination, innovation, and the development of new investment capabilities. We believe insurance, retirement, wealth management, and private markets represent some of the largest and fastest-growing pools of capital globally. Increasingly, AB's differentiation arises from being at the intersection of these opportunities, combining investment breadth, customization, direct client relationships, and long-duration capital in ways that are difficult to replicate. Now I'll pass it to Tom to review our financial results. Tom?
Thank you, Seth. Good morning, everyone, and thank you for joining our call. Adjusted earnings for the third quarter of 2026 were $0.88 per unit, representing a 2% increase year-over-year and a 7% sequential increase. Distributions grew uniformly with EPU as we distribute 100% of our adjusted earnings to unitholders. In the third quarter, we continued to execute on our plan, delivering upside to our near-term outlook while advancing our long-term objectives. Results reflect a diversified growth in base and performance fees, disciplined expense management, and continued operating leverage across the platform. On slide 11, we present our adjusted results, which exclude certain items not considered part of our core operating business. For a detailed reconciliation of GAAP and adjusted financials, please refer to our presentation appendix or our 10-Q.
In the third quarter, adjusted net revenues reached $904 million, up 2% versus both year-over-year and sequentially. Base fees grew 3% year-over-year and 2% sequentially to $845 million, reflecting higher average AUM across the platform, partially offset by the impact of changes in product and channel mix. Performance fees totaled approximately $26 million, compared with $20 million in the prior year and $24 million in the prior quarter. Private markets performance fees were $21 million, while public market strategies contributed $5 million in the third quarter. Dividend and interest revenue, along with broker dealer-related interest expense, declined year-over-year, reflecting lower cash and margin balances within Bernstein Private Wealth. Investment gains totaled approximately $2 million, while other revenues totaled $18 million, roughly in line with prior periods.
Turning to expenses, third quarter total operating expenses were $601 million, up 3% year-over-year and 1% sequentially. Total compensation and benefits rose 2% year-over-year, and our compensation ratio of 48.5% of adjusted net revenues was consistent with our guidance. We expect the compensation ratio to remain at 48.5% in the fourth quarter, in line with our year-to-date accrual. We do not anticipate the full-year ratio falling below this level, reflecting our continued investment in talent, distribution, and strategic growth initiatives. Promotion and servicing expenses increased $2 million year-over-year, while G&A increased by $7 million, reflecting normalization in spending and continued investment in technology and strategic capabilities. Sequentially, our non-compensation expenses were roughly flat. Given our continued expense discipline and operating efficiency, we are narrowing our full-year non-compensation expense outlook to $620 million-$635 million, from $620 million-$640 million previously.
We expect promotion and servicing to represent approximately 20%-25% of non-compensation expenses, with G&A comprising the remaining 75%-80%. Interest expense declined $2 million from the prior year period. Looking ahead, we expect interest expense to increase modestly, reflecting the funding of our $100 million commitment to the Ruby Re sidecar, slightly higher interest rates, and temporary seasonal increase in fourth quarter borrowings. ABLP's effective tax rate was 4.5% during the quarter, reflecting favorable earnings mix. We continue to expect the full year ABLP tax rate to be between 5%-6%. Operating income of $303 million was flat versus the prior year and 3% higher versus the prior quarter. Adjusted operating margin was 33.5%, up from 33% in the second quarter.
The year-to-date margin of 33.3% is in line with the prior year, despite ongoing investments to enhance our investment and distribution capabilities, along with the necessary infrastructure and some revenue timing impacts associated with onboarding the CML assets. Importantly, our margin remains above the midpoint of our 30%-35% investor day target range, which we originally expected to achieve by 2027. We remain focused on balancing near-term profitability with disciplined investment and capabilities that expand the firm's long-term earnings power. In the third quarter, our firm-wide base fee rate net of distribution expense was 37.1 basis points. The sequential decline primarily reflected the full quarter impact from the low-fee Passive Fixed Income index mandate that funded on June 30th and the onboarding of the commercial mortgage loan portfolio in July. In the third quarter, our firm-wide base fee rate net of distribution expense was 37.1 basis points.
The sequential decline primarily reflected the full quarter impact from the low-fee Passive Fixed Income index mandate that funded on June 30th, and the onboarding of the commercial mortgage loan portfolio in July. Excluding the impact from these two large mandates, the firm-wide fee rate would have been roughly flat sequentially. As we mentioned previously, the commercial mortgage loan portfolio onboarded in July did not generate management fees until the fourth quarter. Looking forward, we continue to see attractive growth opportunities across insurance asset management, retirement, SMAs, institutional solutions, and private markets. While several of these businesses carry fee rates below the firm-wide average, they provide scalable, long-duration capital that will produce attractive incremental margins as they scale. Consistent with our strategy, we remain focused on building scale in areas that enhance the durability of our business, support sustainable organic growth, and drive long-term profitability.
In our view, this is more valuable than optimizing solely for near-term fee rate outcomes. Finally, turning to slide 12 and our outlook, we now expect total fiscal 2026 performance fees of $135 million- $150 million, up from our prior outlook of $115 million- $135 million. This assumes roughly flat markets for the remainder of the year. The increase reflects improved expectations across both private and public markets. In private markets, we now expect $60 million- $65 million of performance fees, driven primarily by ABPCI and a more normalized middle market lending environment. In public markets, we now expect $75 million- $85 million of performance fees, with the upside largely attributable to continued strong performance of our alpha-generating financial services opportunities fund.
As mentioned earlier, we are also lowering our full year non-compensation expense outlook to $620 million- $635 million, and our expected ABLP tax rate remains between 5%-6%. Let me conclude by summarizing some of the key themes from this call. We were able to improve our financial outlook while continuing to build momentum across several strategic growth areas, including insurance, wealth, private markets, SMAs, and active ETFs. Private markets AUMs surpassed our original investor day target more than a year ahead of schedule, and we continue to see strong client demand and a healthy pipeline across credit, real estate, and alternatives. Looking ahead, the addition of approximately $100 billion of Corebridge assets represent the next step in scaling our insurance platform.
Similar to the themes discussed throughout today's call, these assets enhance the firm's base of long-duration capital, can be onboarded with limited incremental expense, and should support attractive earnings growth over time. The Corebridge assets will be onboarded onto our existing infrastructure with relatively limited incremental operational expense. As a result, while they may have a lower average fee rate, they have high incremental margins and will be accretive to earnings. Finally, we will continue to be disciplined in investing to build new sources of growth, recognizing that it may take time for platforms to scale and reach their full earnings potential. With that, operator, please open the line for questions.
We will now begin the question- and- answer session. Please limit your initial questions to two in order to provide all callers an opportunity to ask questions. You are welcome to return to the queue to ask follow-up questions. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We do ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Craig Siegenthaler with Bank of America. Your line is open. Please go ahead.
Good morning, Seth. Hope you and the team are doing well. Our question on the evolving backdrop in fixed income. AAA-rated ten-year muni bonds are now yielding 6% after tax, and high-yield bonds are yielding 8%. I know you know these numbers, but it has been a long time since we had yields at these levels. In parallel, you have a leading fixed income franchise with 70% of AUM outperforming on a three-year basis. If we strip out the sizable incoming Corebridge inflows that we have good visibility into, what is the net flow outlook across your fixed income business, and what has been the recent feedback from large institutions and wealth gatekeepers post the spike in the ten-year US Treasury yield?
Thanks, Craig. It's Onur. Let me take a first crack at your question. We definitely are bullish about the outlook for our fixed income franchise, given the higher rate environment. You are absolutely right. This gives investors a unique opportunity to rebalance their portfolios with higher-yielding fixed income assets. And we play in fixed income across tax-exempt, as well as taxable, across retail, institutional, domestic, and Asia. We are definitely seeing a lot of different ways to benefit from it. In terms of our pipeline, we definitely added a significant amount of fixed income assets to our pipeline. In the third quarter, we had a significant emerging markets debt win from a large institutional client. We had another securitized fixed income mandate win from another large institutional investor.
We are definitely seeing several segments of the institutional market weighing in and taking action to benefit from the higher rates across investment grade and high yield. Despite the worst muni environment, we continue to generate positive flows in our market-leading muni franchise in retail. Our ETFs continue to gather significant assets in fixed income, including our Taiwan active ETFs, exceeding $500 million in AUM. All positive signs. That all being said, particularly on the taxable side, particularly retail investors and Asian investors tend to wait until the rate environment to stabilize with the Fed actions before they go full into income. As a result, it might take several quarters for them to come back on a full scale. It's going to play out across multiple quarters, but we expect fixed income to be a positive contributor and tailwind to our business independent of the Corebridge merger.
But Craig, I would just add that we're beginning to see gatekeepers begin to pound the table, which is I think what your inclination is, that this is a very good entry point, particularly for munis. Now, of course, you have the crosswinds of people trying to tax-loss harvest following September. But we do see that interest growing, and we see it particularly given the fact that the underlying economy continues to be pretty robust. So, both muni and corporate credit is in pretty good shape. So, I share your underlying optimism, but I would note Onur's point that it will take several quarters for this to really find its way through.
Thanks, Seth. Just for a follow-up, and Onur, you may have just hit on that a little bit, but I wanted to narrow the fixed income topic into the Asian geography, where you have a leading business, especially in the retail channel. And there's some flagships that have historically done very well there, like American Income and Global High Yield, I think might have been the two biggest on the bond side. But are you hearing that investors there are ready to buy the dip, or are they still reacting to negative near-term performance? And I think you said it might take a little bit of time. And then also, what funds in Asia you think are best positioned?
Sure. Yeah, we need to your point, answer that question more bottom up. The trend with Global High Yield, which tends to have a very strong followership in Taiwan, particularly, but also broader Asia, that has been more a story of risk-on appetite from the retail investors, particularly with the AI trade favoring high-risk, high-growth AI stocks. So that has been more a little bit of an asset reallocation trend with the strength of the technology market. So it was not related with the fixed income dynamics. It was mostly driven by, surprisingly, equity market dynamics. As we know, markets are cyclical. There's going to be market corrections, and we remain constructive that clients will take advantage of, to your point, high effective tax rates in high yields.
We have pretty good capacity in our Global High Yield fund to build up back to full capacity, if you will. That is quite positive. Particularly, there is more skepticism around AI. At least for some of the fixed income strategies there, that could be a positive. While I also recognize it might create some other issues in other parts of the business. On the American Income portfolio, which is our second strategy. That tends to do well and gain market share when the rates stabilize. Given that is typically a long duration or duration long strategy, it tends to do well when the rate outlook is more stable. That is what I was commenting on given still remaining uncertainty around the Fed’s decisions. That might take another few quarters for them to watch what Fed is doing, whether they are continuing to hike or hold.
We believe it is most likely to be hold than hike. If they see that stability in the rate, they will decide to come in. So that is my point around a few quarters, watching the external environment and the Fed decisions. Then on top of that, we have a number of more, I would call, quote-unquote, "emerging strategies" like our active taxable fixed income suite in Taiwan. Again, those are getting good traction as we are unlocking a new client channel through the brokerage channel, unlike our traditional intermediary channel. That is net new opportunity for us, even in a market where we have high market share. That will be additive, but obviously from a scale perspective, we are talking about, on one end, $20 billion flagship products. On the other hand, a relatively emerging ETF suite starting from a low base.
Thank you.
Your next question is from the line of Alex Blostein with Goldman Sachs. Your line is open. Please go ahead.
Hey, good morning. Seth, Onur, congratulations to you guys both post the announcement.
Thank you.
No, of course. Wanted to go back to some of the comments you made around margin, and obviously we've seen a number of very large mandates, and you talked about the long-term NPV sort of benefits from having long duration capital. Yes, lower fee rate, but more attractive margin. When we think about the profitability in the business, year to date, you guys are running at about, I think, 33% operating margin within the 30%-35% target. How do you think that margin range will evolve over time? Should we think of you being 35% plus over the next couple of years as these bigger mandates come in on the alt side?
Hey, Alex, it's Tom. How you doing? I would continue to think of us in the 30%-35% range while we continue to invest in the platforms and take on these lower fee, larger, scalable assets and mandates. It allows us room to continue to invest in the business.
Okay. That makes sense. Second question for you guys. I wanted to ask about some of the financing deals we see in the AI ecosystem. It looks like AllianceBernstein has a number of building blocks that are necessary for participation here, whether it comes to alternative credit, asset-backed finance, obviously corporate and infrastructure structured products. Of course, you have a large insurance business affiliation which is an anchor to a lot of these. Haven't seen you in the headlines really in most of them, but curious how you think about that opportunity and whether or not you see AllianceBernstein participating in some of these dynamics. Thanks.
Yeah, absolutely. Typically, we try to stay away from the headlines, focused on core investment process, and managing risk. In terms of our activity there, definitely very active. We have done several deals in the data center space financing with attractive returns. Typically, we get high-yield type returns with investment-grade credits. To your point, that has been one of the bigger drivers of us exceeding our end of 2027 goal. We had a goal of $90 billion-$100 billion in private credit by end of 2027, and we hit that six months earlier, with almost $105 billion. Definitely participating in the AI-driven CapEx cycle is a driver of that. Also being affiliated with an insurance shareholder gives us a front-row seat in terms of understanding the risk dynamics and not overstretching ourselves.
We have seen with some of the different parts of the data center environment, there could be stress points as well. Overall, we are also cautious in terms of our concentration, and we are managing our concentration very carefully. It's an overall positive. We also, given we are very heavy in IG investment grade, we are managing concentration and any risk very carefully.
Great. All righty. Thank you very much.
Your next question comes from the line of Bill Katz with TD Cowen. Your line is open. Please go ahead.
Okay. Good morning, everybody. Thank you for taking the questions. Seth and Onur, congratulations to you both, respectively. Just maybe wanted to pick up what you mentioned on the high net worth side. You mentioned that the fourth quarter and 2027 are feeling pretty good. I was wondering if you might be able to quantify what that might look like, and can you maybe talk a little bit about the competitive backdrop? I appreciate you operate in the higher net worth component piece of the industry, but it does seem like there's just very intense competition for financial advisors. Just sort of wondering if you could unpack what that looked like for you as you look to build your pipeline. Thank you.
No, absolutely. Definitely, we remain very constructive about the fourth quarter of this year. October numbers so far are looking in that direction. As we noted, there has been an asset rebalancing trade in the third quarter. Given the accounting rules for net flow accounting, that might create a transitionary or short-term outflow which reverses itself in the subsequent months. If you look at it on a net new asset basis, which is typically how the wealth managers look at it, in the third quarter, we were still positive around 2%. As you know, we tend to average 5%-6%. So it was a low quarter from that perspective. We own it. That said, I think the fourth quarter is looking much stronger. In terms of dynamics, you are absolutely right.
We believe we are participating in the most attractive part of the wealth management space, ultra net worth, because there are stronger moats in that part of the market. We are not making our money from lazy cash or sweep economics, which is under more pressure from AI trade. We are not dependent on balance sheet-heavy lending kind of solutions. So the result that's a positive that makes our business relatively consistent. And we are seeing strong growth with ultra net worth clients, including global families and family offices, given we have a global asset management franchise. In terms of hitting that question head-on, in terms of our advisor headcount, we are positive year-over-year. So we are definitely adding advisor headcount despite heavy recruiting activity. We are able to attract talent, including internal promotes.
We had 25 or so new advisors year to date, and we already have several other advisors who accepted and about to join us in the fourth quarter. We are continuing to see a headcount increase in our advisor ranks and the surrounding teams. The higher rates might also bring more rational behavior, perhaps to some of the competitive strategies, because we recognize in certain cases, some of the more commission-heavy driven packages and upfront payments might not make more sense in this kind of high-rate environment. Hence, we believe, A, we have the right proposition for the advisors. We are winning in ultra net worth, including some of the pre-IPO companies. As a result, we will continue to attract talent, and hopefully competition will normalize when people make their math and update their spreadsheets with hopefully more realistic assumptions.
Okay. Thank you for that. It is very helpful. My second question, I appreciate you are doing very well in the alts bucket and running ahead of your prior plan. As I think about that pie chart that you provided in your slide deck, it is very strong within the segment broadly of credit. How are you thinking strategically beyond credit, and how are you thinking about other areas of maybe real assets or secondaries footprint, infrastructure more broadly? How do you see the evolution of that over the next several years? Thank you.
Yeah, sure. You are absolutely right. Our focus on private credit was deliberate. Given we had a right to win with our privileged access to insurance balance sheets, and given demand for income from our ultra net worth clients, that was the right place to focus our energy on. We participate from the broader alts demand in our private wealth channel. As you know, we also use third-party managers, and we participate from the attractive economics from that, including revenue share kind of arrangements that flows through. The result, our ability to benefit from rise of alternatives, particularly in the retail channels, is not limited to our manufacturing. We like distribution as much as we like manufacturing. We are definitely looking at the adjacencies with also Corebridge, Equitable merger, and the synergies, what we can do in the private equity space definitely is an area.
As we look at longer duration liabilities, what we can do with some of our strategic partners. Infrastructure definitely plays into that across equity and debt. There might be some synergies between real estate debt capabilities, given we have a very large-scale platform now, including the $12 billion we added this quarter. So maybe there might be opportunities, adjacencies with real estate equity as well. Also, some of our vehicles can invest in real estate equity, so we have that flexibility to go into that space. So those are the ones that I would circle.
Our private wealth channel, again, might allow us to do some strategic deals with up-and-coming asset managers with attractive economics, because we typically like the next-generation managers that are looking for a scalable distribution platform, and we can have a win-win partnership as we have done in the past with other managers like private equity secondaries.
But one of the things that I am particularly excited about with Corebridge is they have a very different liability outlook than does Equitable. So the interest for us in, for example, infrastructure with Corebridge as our affiliate and majority owner through Equitable, actually presents a much more interesting opportunity for us now than it did in the past. So those are areas we would like to explore more.
Thank you.
Your next question is coming from the line of Dan Fannon with Jefferies. Your line is open. Please go ahead.
Continues to come in a bit lower than your original guidance. Curious as to what's maybe coming in below budget. As we think about the growth longer term, I know it's a bit early for 2027 guidance, but how to think about the outlook for non-comp on a multi-year basis in terms of that growth rate?
Hey, Dan, how you doing? I missed the first part of your question, but I think what you were getting at is our non-comp spend is coming in lower than budget. Look, that's just through cost discipline and expense discipline. That's really what it is. We continue to stay in contact with all the teams and ask them to save anywhere and everywhere they can, and they continue to deliver. In Q4, there is always some seasonality, so I do expect it, and it will tick up in Q4 as we meet clients and there's going to be higher volume of meetings and T&E as always in Q4. Was there a second part to your question there, Dan?
Just the longer-term outlook for, I know it's early for the 2027 full guidance on it.
Yeah.
Just to think about the growth rate of non-comp on a multi-year basis.
Okay. Longer term growth rate, as I was telling Alex Blostein, I think we continue to live in 30%-35% for a while. We are building our 2027 plan right now, so nothing to share there. What I would expect is continue to build out platforms where needed. Certainly, going to invest in AI and things of that nature, but we just haven't finalized our 2027 plan yet. When it is finalized, we are going to share those guides with you as soon as possible on the next call.
Understood. Then just broadly, tax-aware investing is a significant theme across the space with a lot of growth. You guys highlighted SMAs and ETFs. As you go beyond that into various indexing or direct indexings, long-short strategies, are these things or capabilities that you are offering clients through your Bernstein Private Wealth, or you are looking to invest in more holistically as a firm?
Yeah, so I will take that question in two parts, Dan Fannon. Onur speaking. One, obviously, our first starting point with these strategies is tax efficiencies and implementation feature, not a primary objective. Our strategies always stand on their economic merits, right? So that's an important distinction, right? If you look at the latest comments from Treasury and IRS officials, obviously, they are targeting products that don't follow those principles. So we feel very good about the quality of our thinking in terms of tax-aware investing, and we recognize they are not targeting tax-aware investing, tax-loss harvesting ETFs or exchange funds or traditional pre-planning. Those are all the categories we have strong capabilities. So we feel very well-managed in that regard, and we will continue to benefit from our clients' needs for tax-aware investing and traditional tax planning. That's the growth area for us.
We have a large direct indexing platform that is about $10 billion. As you know, our muni SMA platform is industry-leading across Bernstein Private Wealth and U.S. retail. We are very pleased with our success with the ETFs, including a recent launch. We are now getting close to $25 billion almost in four years in the business, so that's definitely another area. All in all, it's a positive given our clients are typically high net worth and ultra net worth, and we are good at tax-aware investing, and we are doing it the right way from our perspective.
Thank you.
Your next question comes from the line of Glenn Schorr with Evercore. Your line is open. Please go ahead.
Hi, this is John Dunn. On the pipeline, you mentioned the additions in the quarter, but what are some of the larger components right now and maybe any chunky mandates? How should we maybe think about general time to funding, and can any areas fund more quickly than others?
Hi, John. You didn't sound like Glenn. Just kidding. In terms of the pipeline, as we look at the pipeline, as I mentioned in the first question around fixed income, we have seen definitely strong pipeline adds in traditional fixed income. Emerging market debt, securitized credit were a couple of good examples. As you know, some of those public fixed income mandates tend to deploy quite fast, unlike some of the other longer deployment cycle private credit products. In terms of our average deployments, I wouldn't be surprised if it's more like six months rather than the longer end that we had in the previous years. So definitely relatively quick deployments. As you know, in the pipeline, there are a couple of exceptions. One, we don't take credit for any new Corebridge Equitable asset that's going to be net new.
Second, any of our private alt strategies that go into our private wealth channel, even when we have visibility into that, do not go into the pipeline because it is by definition just a third-party institutional pipeline. It tends to understate our knowledge of already committed capital from a private alts perspective. In private wealth, in terms of our gross capital raise in alts, it is 50% higher than last year. That has been definitely an area of strength, including private credit, including some of the interval fund, kind of more semi-liquid strategies.
Got you. Then maybe on, you mentioned the globalization of active ETFs. I tend to think of that as more a domestic thing. Can you bring that a little more to life with maybe some examples of where you are seeing that? Then just more broadly, any areas of active that you are working on now that you would highlight that are seeing demand?
Sure. Yeah, no, you are absolutely right. ETFs started as a more domestic phenomenon, given some of the unique tax treatment of in-kind redemptions in the U.S. legislation, and some of those tax benefits do not translate in international markets. That being said, liquidity of ETFs, the intraday pricing, real-time pricing, and accessibility tends to make ETFs popular, even if they might not have the same tax benefits of domestic. So it is a little bit more client preference in international markets. The adoption is slower in other markets relative to U.S. Depending on how we look at it, probably five years behind. But we are seeing definitely a pickup in demand, particularly in the last couple of years. It definitely is a global phenomenon. It depends on local infrastructure, the depth, and the breadth of the retail buyer and the online platforms, et cetera.
But definitely, we are seeing opportunities for us in several key markets, including Taiwan, as I mentioned in my previous comments. Japan, as you know, we have a joint venture there that has not been activated yet, but that definitely provides upside. Then we launched our UCITS ETFs very recently, and that allows us access to the large continental European market, as well as several other Asian markets that might prefer to invest in UCITS product. All in all, I would say Taiwan, Japan, parts of continental Europe are a few that I would highlight. Maybe after that, a couple of Latin American markets like Mexico as well.
In terms of what we are working on in equities, first and foremost, obviously, we are monitoring the markets and AI trade, its impact on broader sectors, and incorporating all of that into our investment process is first and foremost priority for us. From a new successes or where we are focused on from a new product perspective, we have seen great momentum with our thematic strategies. If you think about more technology-oriented Disruptors strategy or the more security-oriented Security of the Future product. Security of the Future is, I think, approaching $10 billion. Disruptors is approaching $5 billion in terms of trajectory. We are definitely seeing a lot of demand for those kind of innovative thematic solutions. Some of our traditional strategies are getting some demand as well. There has been definitely renewed interest in emerging markets.
Definitely, the value strategies continue to do well, like large-cap value. We believe we can be very competitive there. Given we report performance on a more AUM-weighted basis, sometimes it skews towards high AUM products. We have a long list of outperforming products in relatively attractive categories that we believe will catch some client demand. Those are a few that I would highlight.
Thank you.
Your next question comes from the line of Benjamin Budish with Barclays. Your line is open. Please go ahead. Benjamin, your line is open. Please go ahead. Let us move on to the next caller, which is Bill Katz from TD Cowen. Your line is open. Please go ahead.
Great. Thanks. I just have a couple clean-up questions for you guys. You mentioned that there's a potential building appetite for fixed income. We've certainly heard that from some of your peers. Be curious when you're talking with the gatekeepers, whether it be on the institutional side or the retail side, where might those accounts be funded? My second question for you guys is it looks like you had a pretty strong third quarter for private market performance fees. The implied guidance would assume relatively flattish to slightly up fourth quarter. Is the cadence shifting here just a little bit? Maybe you can unpack the dynamics. Given its October 27th, I'm sort of curious if you'd be willing to provide how the net flows are looking for the month. Thank you.
Yeah, I'll defer to Tom on the performance fees question. Maybe taking the first part of question on the flow outlook. Bill, in terms of where the money is going to come from, I would say some of it's going to come from cash, some of it's going to come from rebalancing of the equity portfolios, given some of the portfolios are now heavily skewed towards equities, particularly if you have been investing in large cap and large cap growth kind of stocks. Those are the expectations talking to gatekeepers, but again, there's going to be some nuances depending on the geography, depending on the local rate environment, and local politics and stuff like that. In terms of the flow outlook, I think we touched on every aspect of it, but if you sum it up, feeling quite constructive about Bernstein Private Wealth.
October is proving to be a relatively strong month. Still another few days left in October, so don't want to conclude. So feeling good about the momentum with Bernstein Private Wealth, which fourth quarter tends to be typically seasonally a positive quarter as well. In terms of other channels, definitely insurance looks robust. Institutional, if I look at the active side, is looking relatively good from a pipeline perspective. Sometimes we have ebbs and flows because we have some smaller portion of AUM passive mandates that tend to follow relatively random patterns, hard to predict. Given it's not our core business, that might skew the numbers a bit. But on the active side, it looks pretty solid. Retail, as we mentioned, it's going to take a few quarters for, I think, things to normalize.
It's a combination of, as I mentioned, Asian investors will typically wait for the rate environment to stabilize more before they come back. Sometimes they also wait for Chinese New Year in January, et cetera, to revisit their asset allocation. So those are a few drivers. On the equity side, some of the flagship products, like large cap growth, continues to have some outflow pressure, as you have seen in the third quarter. So it's going to take, I think, another few quarters for it to normalize as well, given the broader equity market environment, the volatility, as well as our own unique circumstance.
Then Bill, on the performance fees, let us start with the Q3 performance fees. They were largely driven by ABPCI and due to the normalization of the middle market lending environment. On your point about Q4, I agree with you back there, obviously. I would not say that the cadence has changed much. In Q4, there is always an uptick in performance fees, and that is largely because many of the funds crystallize in Q4. In particular, our FSO fund crystallizes in 4Q, and that is going to be a large driver of the public side. Then we will continue to get performance fees out of ABPCI in 4Q as well.
Great. Thank you.
There are no further questions at this time. Mr. Jorgali, I turn the call back to you.
Thank you, Tracy, and thank you to everyone who joined our call today. We look forward to catching up with you next quarter. Have a good one.
This concludes today's call. Thank you for attending. You may now disconnect.