Equitable Holdings Inc (EQH) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Equitable Holdings, Inc. Fourth Quarter 2020 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to turn the call over to your speaker today, Jessica Baehr, Head of Investor Relations. Please go ahead.

Thank you and good morning, and welcome to Equitable Holdings' Full Year and Fourth Quarter 2020 Earnings Call.

Materials for today's call can be found on our website at ir.equitableholdings.com.

Before we begin, I would like to note that some of the information we present today is forward looking and subject to certain SEC rules and regulations regarding disclosure. Our results may materially differ from those expressed in or indicated by such forward-looking statements, so I'd like to refer you to the safe harbor language on Slide 2 of our presentation for additional information.

Joining me on today's call is Mark Pearson, President and Chief Executive Officer of Equitable Holdings; Anders Malmström, our Chief Financial Officer; and Nick Lane, President of Equitable Financial. Also on the line is Ali Dibadj, AllianceBernstein's Chief Financial Officer and Head of Strategy.

During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the investor relations portion of our website, in our earnings release, slide presentation and financial supplements.

I would now like to turn the call over to Mark and Anders for their prepared remarks.

Thank you, Jessica. And good morning to all joining our call today.

An important part of the CEO's role in any year is to present the financial results and talk about the momentum of the company. I shall, of course, do that today, but the year 2020 with a global pandemic and the demands for a more just society was unlike any other year that we have worked or lived in. At Equitable, this caused us to look inwards to really understand the value we add to our clients and, at the same time, have courageous conversations and start our journey to advance racial equity, so I want to take this opportunity to thank the people of Equitable and AllianceBernstein, who have shown remarkable agility and commitment over the past year. Not 1 day was lost in serving our 5 million clients, an incredible achievement in the midst of the social isolation. I've been fortunate to be a CEO for a number of years now, and I have never felt prouder of our teams.

We had a strong finish to the year. Given the turbulence of 2020, protecting shareholder capital and maintaining a strong balance sheet so that we can honor our commitments was paramount. Equitable is managed on a fair value basis. This means we take no bets on interest rates, and as such, our balance sheet remained resilient throughout. I'm very pleased to report that, despite the tough macro environment, we have delivered on all of our 3-year commitments given at the time of the IPO. All financial targets have been achieved, and we have delivered on the strategic priorities we laid out in 2018.

Full year non-GAAP operating earnings per share of $4.99 is up 5% on 2019. Assets under management were up 10% year-over-year to a record high of $809 billion, supported by robust firm-wide net flows of approximately $8 billion and the recovery in the equity markets. The strength of our balance sheet is evidenced by cash and liquid assets of $2.9 billion at our holding company, and our combined life subsidiary risk-based capital ratio is approximately 410%. This has allowed us to return $1.1 billion to shareholders in the year. And last week, we announced our Board had approved a new share repurchase program of a further $1 billion.

Looking forward. The VA reinsurance transaction we announced in the third quarter remains on target for completion and positions us with a significantly derisked balance sheet and future better risk-weighted returns. It has been a remarkable year for Equitable and one which reinforces the purpose of our organization. Every day, we hear from our clients heightened demand for advice and protection, and we remain very committed and energized in helping Americans secure their financial well-being so they can live long and fulfilling lives.

Turning now to Slide 4, I would like to show what's behind the successful achievement of the goals we set at the time of our IPO. This was largely driven by professional management actions over the last decade and pivoting the company to a fair value basis. Firstly, we have built upon our leadership positions in the VA retirement market, where we have distinguished ourselves through product innovation; and the K-12 supplementary retirement market, where we proudly serve 800,000 educators. Our broad distribution reach, most importantly through our affiliated equitable advisers, has enabled us to change the mix of business from guaranteed products towards accumulation solutions for our clients and resulting in better risk-weighted returns for our shareholders. We have benefited enormously from our investment in AllianceBernstein, which generates over 30% of our cash flows. AB's relative performance against its peers has been strong with positive net flows of $9.2 billion in the year, excluding AXA redemptions, buoyed by record gross sales in retail and the highest institutional active equity sales since 2008. These competitive strengths and the approach we take managing the business have led us to meet or exceed each of our IPO targets.

Operating earnings have been growing at 7% CAGR since the IPO, at the top end of the range we provided, fueled by the completion of our $160 million general account rebalance target and net productivity saves of $75 million. We have met our payout target ratio and have returned $3.1 billion to shareholders to date. And as a result, our EPS has been growing at 14% CAGR over that period. Balance sheet strength is evident with our RBC ratio at approximately 410% and surplus cash at holdings. Our non-GAAP operating ROE of 17.3% is ahead of target. In light of a strong final quarter, the adjusted operating margin in AB picked up to 30.1% for the year, ahead of the guidance we gave. So all in all, I'm very proud of what the management team has achieved over this period, and this provides confidence for the future.

Now turning to Slide 5. In looking to the future, we have distinct capabilities and a number of drivers that give us confidence in our ability to grow.

Firstly, our risk management capability. We still face uncertainty with the ongoing pandemic, so maintaining a fortress balance sheet and improving our risk profile are obviously critical. We will continue to manage the business on a fair value basis recognizing shareholders do not reward us for our ability to forecast future interest rates.

We remain on track for the closing of the VA reinsurance transaction in the first half of 2021. This transaction will reduce the CTE98 tail risk from our legacy VA portfolio by approximately 64%. And the positive ceding commission we will receive from Venerable, backed by Apollo, validates the economic soundness of our reserving and asset liability management. Going forward, this transaction will provide more certainty as to the future cash flows of the business, with a limited impact to earnings. Furthermore, in our life business, we will improve the risk profile of our portfolio by moving away from the IUL protection space and focusing on the VUL accumulation market through our affiliated advisers and third parties. This is a continuation of a 10-year journey. Today, over 85% of our new business is not interest sensitive, whereas a decade ago, the overwhelming majority of our new business was interest sensitive with rich guarantees.

Moving to productivity. Over the past year, we have been focusing on integrating an enterprise agile framework across our organization; to our knowledge, the first financial services company to attempt to do so remotely. Our goal is to create a more efficient and impactful organization to drive innovation and attract the best talent for the future. On technology, we have benefits from the separation from AXA, as it gave us the opportunity to upgrade our capabilities such as enhanced modeling to drive insights for growth and productivity. As an ongoing result of the pandemic, there will be a structural shift in how companies operate going forward. Of course, this means greater digitization of processes like electronic applications and reduction in certain corporate expenses like travel. We are also assessing the opportunities of a hybrid workforce and how we can optimize offices in the future. We have a good track record of improving risk profile and delivering on productivity. This will continue to be a focus of ours going forward.

It is upon this foundation of improved risk profile and productivity that we look to the future towards accelerating GA optimization and business growth. Firstly, on optimization of our general account: The combination of Equitable and AB investment teams provide us an attractive opportunity to improve yield. Equitable's $95 billion general account remains predominantly invested in investment-grade corporates and is conservatively positioned. Our investment teams have created the opportunity to reallocate significant AUM through high-quality illiquid assets to further improve risk-adjusted returns. We have a virtuous circle here in managing our general account, the ability to deliver additional yields and at the same time see new alternative strategies for AB and create high-multiple businesses for our shareholders. AB has a good track record here in integrating high-quality teams and building out our alternative investment business.

On the business growth side, new business has largely recovered to pre-COVID levels. This is driven by our distribution reach and product innovation anchored in economic realities. Today, we have built out our Individual Retirement business, excluding legacy VA, to $73 billion of assets, which is fully ALM matched and low capital intensive. Our newly launched Dual Direction buffered annuity has helped to fuel record sales of SCS of $1.5 billion in the fourth quarter in what is an increasingly competitive market. We also continue to see growth in our Group Retirement business, proudly providing 1 million clients with a secure income for retirement, which has grown to over $42 billion in assets.

We continue to grow our alternatives business with AB, approximately $20 billion of assets today. Amplifying the success we have had in developing new alternative businesses, we are encouraged by our ESG efforts designed to meet the growing demand for these products and positions us as a responsible company. AB has been a leader in responsible investing with innovative partnerships such as Columbia University's Earth Institute. Today, AB has built strategies which amount to $16.5 billion in portfolios with purpose, which has grown 60% over the past year. Approximately 80% of AB's AUM uses ESG factors integrated into their investment process. On the Equitable side, 80% of our general account investment-grade corporates are aligned to the UN Sustainable Development Goals. We see ESG continuing to grow in importance and value for us.

With respect to our nascent businesses, Employee Benefits has now grown to 485,000 [enrollees] and, over the next few years, will grow in significance. Our wealth management business managing through our broker-dealer platform has grown to $62 billion of assets under administration. And we continue to evaluate opportunities to expand both businesses organically and inorganically.

Our focus on these elements will put the business in a strong position for the future, allowing us to deliver on our long-term financial targets; and ensuring that Equitable will be a stable, value-generating company for decades to come. Overall, demand for retirement products and advice remain strong, and we intend to maintain our reputation for distributing innovative products that are economically sound.

I will now pass it to Anders to provide more detail on our financial results for the full year and fourth quarter.

Anders?

Thank you, Mark.

Turning to Slide 6. On a full year basis, non-GAAP operating earnings were $2.3 billion or $4.99 per share, up 5% for the year on a per share basis. Excluding notable items of $37 million in the year, non-GAAP operating earnings per share was $4.91, up 14% year-over-year on a normalized basis.

Moving to GAAP results. We reported a net loss of $648 million in year, which was primarily driven by noneconomic impacts from hedging and nonperformance risk, in line with expectations. As Mark mentioned, assets under management increased 10% to $809 billion, supported by total company net flows of $8 billion and favorable markets. We also benefited from solid performance across each of our business segments.

In Individual Retirement, operating earnings were $1.5 billion. We saw strong demand for buffered annuity products, evidenced by record Structured Capital Strategies sales in the fourth quarter and retail full year sales up 19% year-over-year. Group Retirement reported operating earnings of $491 million, up 26% year-over-year. Our ability to shift to a digital engagement model contributed to net flows of $296 million, up 11% year-over-year, marking the eighth consecutive year of positive flows.

AllianceBernstein's operating earnings were $432 million, up 13% year-over-year, with 10% growth in AUM supported by $14.9 billion in active net flows excluding expected low-fee AXA redemptions. And lastly, our Protection Solutions segment reported $146 million of operating earnings with continued growth in Employee Benefits and the pivot to less interest-sensitive accumulation products. Overall across these businesses, we continue to drive strong results by leveraging our competitive strengths to realize attractive returns.

Turning to Slide 7, I will review our consolidated results for the fourth quarter before providing more detail on our segment results and capital management program.

Non-GAAP operating earnings were $748 million for the fourth quarter, up from $653 million in the prior year quarter. Non-GAAP operating earnings per share increased by 20% to $1.65 per share, primarily driven by strong net investment income attributable to alternatives, increased fee-type revenue on higher separate account balances and share repurchases. The outperformance of alternatives reflects strong private equity performance in the third quarter, which we report on a 1-quarter lag. Notable items net impact on earnings for the quarter was $110 million favorable adjustment or $0.25 per share. Normalizing for these items, non-GAAP operating earnings was $638 million in the fourth quarter or $1.40 per share.

Moving to GAAP results. We reported a net loss of $1.2 billion in the quarter, which was primarily driven by noneconomic impact from hedging and nonperformance risk in line with expectations. Our economic framework and prudent risk management underpin these results, and we reprice our products on a regular basis to align with economic realities. As a reminder, we hedge to our full economic liabilities. Evenizing the balance sheet to interest rates, our hedging program performed as expected with 96% effectiveness for the quarter.

Moving on to the business segments.

I would like to begin with Individual Retirement on Slide 8. Operating earnings of $442 million were up 13% versus the prior year quarter, primarily driven by higher alternatives income and growth in SCS account values. Results also included $73 million of notable items in the quarter related to positive equity markets, reducing DAC and higher net investment income. First-year premiums and current product offering net flows improved 19% and 52%, respectively, versus prior quarter, driven by record sales in Structured Capital Strategies, reflecting the breadth and depth of our distribution. Net inflows on our current product offering and lower surrenders were partially offset by expected outflows [of] our capital-intensive fixed-rate block of $863 million in the quarter or $3.3 billion in the year. Finally, our VA reinsurance transaction with Venerable remains on track for a second quarter close, significantly derisking our balance sheet and validating our reserves.

Turning to Group Retirement on Slide 9. We reported operating earnings of $166 million, up 52% versus the prior year quarter, driven by higher alternatives income and fee revenue on higher account values. These strong results include notable items of $23 million primarily driven by higher net investment income in the quarter. Net flows improved by $26 million [year-over-year] with strong renewals and lower surrender rates largely attributable to our digital engagement initiatives. Account values increased by approximately $4.6 billion year-over-year due to market appreciation and continued net inflows over the trailing 12 months.

Now turning to Investment Management and Research or AB on Slide 10. Overall, AB delivered strong results with operating earnings of $141 million, up 8% year-over-year, primarily driven by higher base fees on higher average AUM and lower operating expenses. AB experienced $20 million of lower COVID-related expenses in the quarter, which is accounted for in notable items, or $9 million Equitable Holdings. In the fourth quarter, AB generated $3.9 billion of net inflows, excluding expected low-fee AXA redemptions of $700 million, attributable to strong performance in the institutional channel. Further, AB reported gross sales of $31 billion, up $4.3 billion or 16% from a year ago, led by the retail channel.

Moving to Protection Solutions on Slide 11. We reported operating earnings of $58 million, down from $129 million in the prior year quarter primarily due to mortality experience and the PFBL reserve accruals, including $7 million included in notable items in the quarter. While we are encouraged by progress being made on COVID-19 vaccine distribution, we are very mindful that the negative impacts on the people and communities we serve remained. In the quarter, we had higher mortality experience relative to expectations driven by COVID-19, but the negative impact was more than offset by a PFBL reserve release. While we expect some volatility to continue, we maintain our guidance of $30 million to $60 million earnings impact per 100,000 excess U.S. death claims. Gross written premiums decreased 5% versus the prior year quarter, but as mentioned previously, we continued to see strong momentum in the Employee Benefits business with 36% increase in annualized premiums versus the prior year quarter.

Turning to Slide 12, I would like to highlight our strong capital and liquidity position demonstrating our financial strength and the resiliency of our balance sheet. We remain committed to our capital management program, returning $1.1 billion to shareholders, including $400 million of share repurchases accelerated into 2019. In the fourth quarter of 2020, we returned $175 million to shareholders with $75 million of cash dividends and $100 million of share repurchases. We have also initiated our 2021 capital management program, executing a $170 million accelerated share repurchase early this quarter.

Our financial strength is evidenced by a combined RBC ratio of approximately 410%. This includes an accelerated $949 million dividend upstream in December of last year, securing our ability to deliver on our commitments in 2021. We remained well positioned at the holding company with cash and liquid assets of $2.9 billion, well above our $500 million minimum target; and ended the quarter with our debt-to-capital ratio of 26%, in line with our target. In January of this year, we opportunistically raised another $300 million in preferred stock, taking advantage of record low rates to further optimize our capital structure. As a reminder: We plan to execute an incremental $500 million of share repurchases in 2021 following the close of the legacy VA reinsurance transaction, in addition to our 50% to 60% payout ratio target.

With that, I will now turn the call back to Mark for closing remarks.

Thank you, Anders.

As you can see, 2020 was another very strong year for our company despite the headwinds we faced. This is evidenced by the successful achievement of all our IPO targets and strategic priorities. This past year also provided us with the opportunity to demonstrate just how resilient our business model and balance sheet are, resulting in solid earnings, and the continued execution of our capital management program. Looking ahead, I can say with confidence that we are continuing to operate from a position of strength, with a clear focus on positioning the business for the future. I look forward to the progress we will continue to make as we ensure the fortitude of Equitable for decades to come.

With that, I'd like to open the line for questions.

(Operator Instructions) Your first question comes from the line of Nigel Dally with Morgan Stanley.

So I had a question on buybacks. You have a substantial amount of cash, $2.9 billion at the holdco, well above your target. So against that, it would seem that you could be more aggressive in buybacks than what you've currently authorized, so what's the rationale behind in what seems to be an excess amount of liquidity at this point? [If the pandemic and related economic concerns dissipate], could we see some portion of that used for incremental buybacks, or has that been earmarked for something else?

Thank you very much for joining the call, yes. Well, look, we're very pleased to come through this pandemic with such a strong capital position. I think it's really a reflection of our fair value approach and capital management. So it's something we intend to take forward. Just a reminder: We have returned $3.1 billion since the IPO, and we maintain committed to returning that 50% to 60% payout ratio. We also announced as a result of the Venerable transaction we would increase that by a further $500 million. Our focus now, Nigel, is really maintaining that financial flexibility and the balance sheet strength. We think it's critical at this time. It's still very uncertain in the markets, but we repeat our commitment to the 50% to 60% payout ratio, plus an additional $500 million related to once the Venerable transaction closes.

Great. Then just on Individual Retirement. We've seen a lot of new competitors enter the buffered annuity space. In your prepared remarks you said that's resulting in a more competitive environment. Is it just more competitors entering? Or are some of those new entrants being more aggressive on pricing? Just trying to understand whether it's the increased competition will result in some erosion of returns going forward.

Nick, do you want to take that?

Nigel -- yes, I'll take that. First, I believe it's a positive to see competitors in the market validating the growing need for buffered annuities. The upside potential with downside protections are right for this current dynamic environment and, I also think, speak to needs of consumers as they approach and live in retirement. While enhanced competition, we think, [both expands the pie], I would agree that we expect enhanced competition. With that said, look, as the pioneer in launching this category, over the last 10 years, we've built a privileged distribution network; and believe we've got a track record on innovation, not just copying, that give us an edge. As both Mark and Anders referenced, we had a record SCS quarter, particularly in Equitable advisers. So innovating resilient products anchored in economic realities is still at our core. As a leader in the fastest-growing annuity segment, we think we'd start in a position of strength and remain focused on continuing to build solutions that create consumer and shareholder value.

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

My first question was on M&A and also using some of your excess capital just in terms of M&A from here. I know in the past you guys have spoken about wealth management and Employee Benefits as potential uses of capital for M&A. Just interested to know if those are still kind of the target businesses. And then could you give us a sense of how much excess capital you kind of intend to use for M&A? And any kind of time line associated with M&A from here?

Elyse, it's Mark. Thank you very much for joining. Yes, you're right. At the time of the IPO, we said, for the first 3 years, we're going to try and build credibility and execute on those financial targets we just talked about. And we did tell you not to expect any large M&A transactions at that time. So that's really what we've been doing, but yes, we are open to -- now particularly with the strength of the balance sheet, we are open to some bolt-on M&A as a way to accelerate growth. We'd be very interested, consistent with our strategy, on capital-light businesses, so yes, that pushes us towards looking at EB and wealth management, but I can assure you we will always do so if they make economic sense. So we'll maintain that discipline. We don't have to go into M&A, but if the right opportunity is there, we have the ability to act. And we would look at it very, very seriously. First priority now remains on closing that legacy VA reinsurance deal. That's very important for us. It's 64% of the CTE tail risk, to get that off the balance sheet. So that's our first priority, and that's sort of on track for close in first half of 2021.

Okay. And then my follow-up: Within Group Retirement, can you just give us a little bit of an update on the competitive environment? And how are you seeing your ability to grow within school plans just given all of the ongoing impacts of the pandemic?

Great. I'll take that. This is Nick. First, teachers are working harder than ever. And we're proud to serve them, especially for myself. With 3 kids at home, I've never had more respect for distanced learning and what teachers do every day. That segment, we believe, continues to be resilient. Teachers are employed. They're working hard. As you've seen, we had record net flows and record renewals, which I think speaks to the trust and the relationships that we've built over the last 30 years as well as our unique model. So we continue to see growth in that segment, and we continue to see the opportunity to serve teachers that do an important part in helping the future of the American public.

Your next question comes from the line of Jimmy Bhullar with JPMorgan.

So first, I just had a question on your stake in AllianceBernstein. And I think in the past there's been discussion about you potentially considering a sale of that stake or maybe buying-in the whole company. Just wanted to see where that stands currently.

Jimmy, it's Mark. AllianceBernstein has been enormously beneficial for Equitable Holdings. I mean, if you look at cash flows today, it's 30% of cash flows. And total shareholder return in AB since the IPO is 80%, 24% per annum. We have said in the past that we do the responsible thing and look at all options, but the best option we have at the moment is the holdings that we have and continuing to work closely with AllianceBernstein to get those synergies. I mean there's a couple of things which I -- both Anders and I referenced in the presentation. One is this ability to leverage the general account to help AllianceBernstein build out its alts business. It's really a nice virtuous circle, Jimmy. We get additional yield for our policyholders, which is good. It makes us more competitive. And we are able to build high-multiple businesses for shareholders in the alts, and AB has been remarkably successful in that. Nick and Ali are on the line as well; and also spearheading for us much more commercial synergies between the 2 organizations, using insurance as an asset class, for example. So we're very happy with the investment in AB. We'll, of course, always look at options. You would expect us to do so for our shareholders, but the holding so far has been enormously beneficial to Equitable Holdings.

Okay. And then just on your -- tax rate was very low in the fourth quarter, and I think there was a favorable settlement on an IRS audit. What's your expectation of the tax rate going forward? And is some of the -- or are you expecting a lower tax rate in the next few years, to the extent you can quantify it?

Sure. Thank you, Jimmy. Yes, absolutely. So we -- as you said, I think it's true. We had a tax audit settlement, which is kind of normal course of business. And I think it just allows us to take foreign tax credit into account, which lowers the effective tax rate by about 1 percentage point going forward. So you can expect the effective tax rate to be between 17% and 18% going forward, always assuming that everything else stays equal.

Your next question comes from the line of Ryan Krueger with KBW.

In the 10-K you put out this morning, there's some discussion around Reg 213 in New York. And it seems to be cited as, I guess, a material risk factor, if New York doesn't revise it, in terms of your dividend capacity going forward, so I guess I was hoping to get a little bit more color on, I guess, how Reg 213 is differing from the NAIC VA regime. And what -- I guess, what options do you have to mitigate this risk?

Yes. Look, I think, Ryan, I mean, we talked about that before, but I mean, first of all, we are in a very strong capital position, and you saw that. I mean we have $2.9 billion at the holding company. So that allows us to maintain our capital management program going forward, but Reg 213 is a rule that New York put out that is just not as market sensitive as the VA -- the NAIC VM-21 rule is which is much more economic. So we've pointed that out many times. In a way, it's almost like counterintuitive because Reg 213 becomes, I would say, more prominent in a good market environment and less in a bad market environment. Having said that, it's not binding for us at year-end 2020. It's not binding right now, but it's something that could become binding. And in particular, if you remember, we had very strong market, so this noneconomic impact actually becomes more of an issue. In addition also, this gets amplified with the VA transaction, which makes it even less kind of reasonable. And that's why we strongly believe, and we are in discussions with the DFS, we're going to find a good solution with them that really makes an economic sense. So that's why we put it out. If it doesn't change, it's going to become a problem at some point, but we strongly believe we're going to find a good solution with the DFS because they want prudent risk management. We want prudent risk management, and so our interests are aligned.

Got it, appreciate that. And then just separately, on your commentary around productivity and expense ongoing initiatives, can you give us any sense of the potential magnitude that could have? I guess, when you initially did the IPO, you talked about a $75 million expense-save plan that you've now achieved. Is this something that could be as significant as that $75 million going forward?

Yes. So look. I think, at the IPO, we were very specific. I think this is -- obviously, expense management efficiency program is something that is always top of mind for management, and it continues to be for us. I think what we always said is that we clearly see benefits from the -- let's say, the change in environments with the pandemic. We saw some onetime benefits, but a big piece of that, I would say 30% to 50%, will remain, just as Mark pointed out in his remarks, that -- I think there's going to be less travel. There's going to be less real estate costs going forward, but we will continue to do efficiency programs and make sure that we are most efficient. But it's not just about costs. It's also about reinvestment back into the business to become a more efficient company. This is a continuous path.

Your next question comes from the line of Yaron Kinar with Goldman Sachs.

I -- my first question goes to the potential to grow the wealth management business. I guess, if you go after that strategy, I guess, can you at the same time continue to consider a potential decrease in the stake of AllianceBernstein? Or does AllianceBernstein then becomes an even crucial -- greater, crucial portion of the organization?

Let me touch on that, then I'll pass to Nick about the wealth management. Obviously, having an asset manager as a subsidiary, it's extremely helpful in keeping as much of the margin as we can in our wealth management business. So that's you would understand the economics of that. And AllianceBernstein is also closely involved with the Equitable team in building out model wealth portfolios as well, which is both good service to our clients but also a way for us to capture as much of the value chain as we particularly can. So yes, you're right. Those two are pretty much linked. Let me pass to Nick now on our wealth management book itself and the trajectory we've been seeing there over the last few years.

Thanks, Mark. Yes, look, we're encouraged by the growth that we see in wealth management, positive [3.5] in net flows that you can see from the numbers. I think this speaks to the strength of our affiliated distribution, advisers, Equitable advisers and their ability to holistically serve clients. So positioning us as the primary relationship that helps navigate them through different life stages. We continue to see opportunities in that space.

Got it. And then my second question, probably more of a follow-up to Ryan's last question on the expense saves. I think in the prepared remarks you talked about digitalization as well, so can you maybe talk about kind of finding the balance between the expense saves and investment in the platform and what the priorities are as you think about both sides of that equation?

Yes. It's Mark again, Yaron. Let me have a go at that. Obviously, digitization came particularly to the fore in the last year in our Group Retirement business when schools shut down. And you've heard a number of firms talk about decades of progress made in weeks. And that was certainly the case at Equitable, where we have to pivot a face-to-face model to a digital model, and the teams did an incredible job on that. So both clients and advisers now are getting much used to working in a digital way, and that is accelerating the progress in that particular area. So that's perhaps not unique to Equitable, but we've seen we've certainly accelerated our progress there. The other point which may be lost on some people: We've gone through a major technology separation from AXA. If you remember, at the time of the IPO, we had onetime separation costs of $700 million below the line. That was to cover the brand establishment and the separation of the IT architecture from AXA. Our IT teams have done a superb job not just in separating from AXA but in using this onetime opportunity to upgrade the technology. So that's giving us opportunities and confidence about our productivity saves because we had that big step change as a result of the separation. And then the third arrow to our quiver, if you like, is this agile working. We have brought in a new way of working into Equitable where we're applying design thinking, much more adaptive leadership to up the metabolism of the company, if you like. So those are the 3 things I would point to that give us confidence that we can continue to see productivity saves and, as Anders said, reinvest back in the business for productivity and for revenue gains going forward.

Your next question comes from the line of Mark Hughes from Truist.

The general account optimization effort of build-out of the alts portfolio. Can you talk about what are the prospects for more movement in that direction, say, over the next 12 months? And then second question maybe is that also it sounds like they performed well in the fourth quarter. Was that above the expectations you might have for how those would perform on a run rate basis? What should we assume kind of on a go-forward basis?

Maybe I start with the first one, first -- (inaudible). Sorry for that. Can you hear me now? Okay, good.

Yes.

Clear now, yes.

[Maybe I start] with the first (inaudible) about the general account optimization. I mean this is a journey we started in with the IPO. We -- obviously, we moved from most -- a lot of treasury was moved into corporates and to public corporates. And the journey we're doing now, which is a continuation, is -- as we said in the remarks, is really going more into privates, into illiquid asset classes. And you can expect that to continue. Just to give you some numbers: I mean at the IPO we talked about the $160 million uplift from the GA. We achieved that by the end of '19. Since then, we continued that. We accelerated that. We did another $80 million during 2020. Obviously, there was opportunity earlier in the year which helped us, but this is a continued path that we go. And I think, as Mark said, it's really to improve the risk-adjusted return of the general accounts. So that's continued.

Your second question is on the alternatives performance generally for the fourth quarter. Alternatives always get reported with a quarter lag, so in Q4 we really saw the strong market performance in Q3, but overall the year was still behind what we would expect a normal run rate. Q4 was above, but the full year was still behind on a normal run rate. So I would say, going forward, alternatives will go back to what we expect. We might see a little bit an uplift in Q1 just because Q4 [was] that strong, but then we expect to go back to normal run rate.

Your next question comes from the line of Tom Gallagher with Evercore.

First question is on would you consider doing further risk-transfer deals after this one when Venerable closes? And I ask it for a few different reasons but just curious if you're more -- and if you would consider it, are you more inclined to do the rest of your legacy VA business? Or would you consider other lines like life insurance? And I guess my final point on that is with this whole Reg 213 sensitivity issue, Anders, I presume, if you got rid of all your legacy VA business, that would maybe not eliminate it but it would certainly lessen that as a concern.

Yes. So look. I think -- thanks for the question, Tom. So first of all, I think the focus is -- really, as Mark said, is now on closing the current deal. I think we're well on track to do so, but we still want to do that. And as you remember, I mean, this deal did multiple things. It actually -- I mean it reduced the balance sheet significantly, but it also validated our reserves. It really showed us that our reserves are appropriate because it got validated by a third party. So we don't need to do further risk transfers going forward. We would obviously always look at if it makes sense. And you just pointed out Reg 213 could if we don't find a good solution with the DFS, which is clearly our base case because we strongly believe in that, but look. I think we always try to optimize the capital position, but the big push was really this first one because it took off so much risk, the 64% that Mark mentioned. And it validated our reserves. So that's really the focus right now.

That makes sense. And just my follow-up: Just I guess I just want to get a handle on these smaller businesses where you'd consider inorganic opportunities, Employee Benefits and wealth management. Are these businesses profitable on a stand-alone basis currently? And can you share, if so, how much? Like what did those 2 businesses each earn on a stand-alone basis in 4Q?

Yes, we don't, I mean, disclose the detailed numbers, but you can basically see -- I mean they're all marginally profitable, clearly, but in order to make them relevant, that's why we have to grow them. And that's really the focus right now, but right now they're not relevant from a P&L perspective. And that's why really, as Mark talked about, we need to make them relevant, but they are marginally profitable.

Your next question comes from the line of Suneet Kamath with Citi.

So I wanted to start with EPS. I guess, on last year's fourth quarter call, you guys had given a target of 8% to 10% EPS growth in 2021. I think 2020 probably came in better than maybe you thought, so is that 8% to 10% range still a good target for you guys? And I'm assuming you'd be putting that against the $4.91 normalized EPS result for 2020.

Yes. So look. I think, as we said in the past, I -- we don't give short-term targets or short-term guidance, but I think long term the 8% to 10% is the right target. I think clearly that's what we aspire, to get towards 10%. And you're absolutely right.

Right. I mean you gave a specific target for 2021 on that call. That's why I was asking the question. I know you don't give...

Yes, yes, but we always say that this is really a long-term view. We want to grow the business sustainably. And I think that's why 8% to 10%, I think, is the right target long term.

Okay. And my second question is, as we think about the stock and the company, it would seem to us that one of the biggest sources of potential upside is in the value that's ascribed to the legacy VA block. It seems to us that the market is not giving full credit to that piece of the business, especially considering the value that you got for the block that you're reinsuring. So have you thought about maybe additional disclosures that you could provide to help the market understand kind of the quality of the business, maybe how much of the earnings comes from the SCS product? I mean I think that's, in my mind, a real opportunity for the stock. And to the extent that you guys could provide some additional information, I think it would be very constructive. So just curious about your thoughts on that.

Yes. Look. I think it's a good question. I usually don't comment our stock that much. I think that's -- (inaudible) that's your job. I think what we strongly believe is, I think, we have the right business mix now. We continue to grow in the areas we want to grow. I think we validated that the reserving is absolutely appropriate. I think we saw the benefit from the Venerable transaction in the stock price. I'm convinced that, if we just continue that path, it will come through. We're in here for the long term, and I think that's why we just continue to do that path and improve the business.

Are you able to tell us what percentage of the earnings comes from the SCS product?

We don't disclose that, but we can talk that through with you in detail.

Your final question comes from the line of Andrew Kligerman with Crédit Suisse.

I guess, first, on the Group Retirement business. I'm kind of curious as to -- and again I'll stay with longer term. What's kind of a sustainable longer-term earnings growth rate? You grew in the quarter about [20%, this 25%], so just kind of curious long term. And then with that, you had clearly some COVID disruptions in the schools in a big way and first-year premiums were down 29%. And I'm curious as to how you see that recovering this year.

Maybe I'll take the growth rate, first, and then Nick can talk about the business. So just from a growth rate, I think, I mean, we talked about that before. Look, this business is a steady business that we like. We grow the assets under management, and you saw we have positive net flows now for 8 years. So from a growth rate, what you can expect is, in a way, wage growth that comes from the wages of the participants and then the market growth. That's really the underlying growth. And then we get some leverage through the general account rebalancing and the expenses. That's basically how I look at the growth rate, but this is a fantastic business. It shows positive momentum. And I think, Nick, now you can talk about a bit the details that we saw during the year.

Yes. Thanks, Anders, yes. Clearly, obviously, access to schools remains dynamic. As Mark alluded to, I think one of the silver linings during this period has been our use of remote digital tools that's allowed us to extend and deepen the relationships we have with consumers. So we expect, as schools start to reopen and we start to see a reentry in American society, that, that will actually amplify our impacts going forward.

Got it. And then with regard to the Protection Solutions unit, I was just kind of interested in a detail around profits followed by losses, that reserve accrual and curious as to why and how much of an offset that PFBL item was to unfavorable mortality in the quarter. And then also curious: Would results have been materially different if Equitable was already reporting under LDTI?

Yes, good question. And so first of all, look, I think, first then, Protection Solutions. I mean we saw some headwinds on the mortality side in Q4, and then the PFBL reserves did offset some of that but not all of that. It's just it's kind of smoothed that a little bit out over time. Under -- after LDTI, you won't see that volatility coming from the reserves and either increase or decrease anymore because the way it works. It takes out the DAC and so it becomes much less of a volatile item. So the mortality would probably then impact more the bottom line results.

I see. And no specific number you can provide on the PFBL.

I don't think -- no. We don't provide, but think about the mortality was -- I think we had excess mortality north of 40 million, which is, we would say, mostly attributable to COVID. So no, it's not always 100% clear because people don't declare all the time, but we attribute that mostly to COVID, which was really very much in line with what we had and guided [you for comes through]. But the PFBL then -- it offsets some of that.

Ladies and gentlemen, this concludes today's conference call. On behalf of Equitable Holdings, we thank you for participating. You may now disconnect.