Principal Moves the Noise Below the Line While $11 Billion Walks Out the Door
PFG lands 12% YTD EPS growth at the top of its range, then redefines operating earnings and quietly concedes the active-equity bleed is not over.
PFG · Earnings Call · 2026-10-27
The number management led with, and the one it had to address
Deanna Strable-Soethout opened with the good news: adjusted EPS up 12% year to date, “at the high end of our target range, including 7% growth in the third quarter against a strong prior year comparison” — Deanna Dawnette Strable-Soethout, CEO · 2026-10-27. Then, three paragraphs later, the admission: total company net cash flow was negative $11 billion for the quarter. That is the whole story of this call in miniature — a company executing well in its insurance and retirement engines while its asset-management arm leaks assets out of a shrinking product category. What matters is not that the outflows exist. It is how narrow and how stubborn the bucket is. Kamal Bhatia was explicit that the damage sits in active equity strategies, mostly US retail, and that industry flows are stacked against the style. Even the improvement from the second quarter came with a caveat:This is now a multi-quarter refrain rather than a shock. On the April call Kamal described redemptions “concentrated among a very small number of U.S. equity -- active equity mutual funds in the U.S. wealth channel” — Kamal Bhatia, President and CEO, Principal Asset Management · 2026-04-24, and by July he was sizing the offending cohort at “slightly more than 5% of our firm AUM” — Kamal Bhatia, Chief Operating Officer, Principal Asset Management · 2026-07-28. A 5% slice is producing an $11 billion quarterly hole. The offsets are real but smaller — private markets +$800 million, active ETFs +$500 million, international pension +$400 million, each of the first two running near $2 billion over trailing twelve months. The company's own keyword trail shows positive flows sitting at rank 21 this quarter: present, but no longer the headline.the level of net outflow this third quarter while it was better than Q2, is still significant as you highlighted... it remains concentrated and there is a strong bias against those kind of products in the wealth business and retail business.
A definition change eight months in the making
Wells Fargo's Wes Carmichael asked the sharpest question of the session: why move the actuarial assumption review below the line? Joel Pitz's answer was reasonable — “we stepped back and asked why it is even part of our OE definition” — Joel Michael Pitz, CFO · 2026-10-27 — and transparent, since the impact this year is immaterial and will still be shown on slide 11. But the sequencing is worth noting. Back in February, when a peer redefined operating earnings around real estate, Joel said the company “were contemplating doing that for the first quarter of 2026” — Joel Pitz, Executive Vice President, Chief Financial Officer (CFO) · 2026-02-10. Nine months later, a different definitional change arrives. In both cases the effect is the same: a cleaner headline number. That this quarter produced a $59 million, $0.27-per-share after-tax drag from lower variable investment income and encaje performance makes the timing legible. assumption review was the third most prominent phrase on this call; a year ago it was a headline gainer in the fourth quarter of 2024. It is now a reconciling item.Beam: small cases, outsized narrative
The acquisition of Beam Benefits closed September 1, adding roughly 26,000 small-business customers and a digital-first platform. Amy Friedrich sized the drag honestly — about $1 million to $2 million of earnings this quarter — and laid out the mechanism: moving Beam policies onto Principal's paper and dental network starting 1/1/2027, with repapering spread across the calendar because these are small cases with scattered anniversaries. The strategic logic is the same one that has been repeated for at least three calls now: Principal's sweet spot is the underpenetrated small end, not the saturated mid-market where RFPs and enterprise HR tech dominate. The underwriting underneath it remains the company's best asset. A 59% specialty benefits loss ratio sits below the 60-64% range; dental recorded a sixth consecutive quarter of year-over-year improvement. The soft spot was group disability, where a higher loss ratio drew a question — and Friedrich's answer, that this is a line with inherent quarterly volatility and that trailing-twelve-month trends matter more, is a deliberate walk-back from July, when she said she “do not expect disability loss ratios to improve further from first half results” — Amy Christine Friedrich, President, U.S. Insurance Solutions · 2026-07-28. They have now drifted up. That is consistent, but it is a deceleration in the one engine that has been flawless.Bricks, not shovels — while the shovel trade de-rates
The most interesting exchange was on AI infrastructure, asked twice, once about the general account and once about third-party mandates. Pitz's answer on the balance sheet was reassuring: direct data-center exposure is "very low single digits," diversified by geography, structure, tenant and maturity, and structured without taking GPU or hardware risk. Kamal's answer on the third-party side was an actual house view:That view is now being tested by the tape. The market's AI data center basket is down roughly 5.6% over the last 30 days with six advancers against forty-eight decliners — the neocloud and mining-adjacent names (IREN, CORZ, APLD, HUT) that carry the leverage. Principal is deliberately on the other side of that barbell, owning land and improvements with collateral behind the equity. CBRE, reporting in the same window, was talking about data center land sales — the same thesis from the brokerage side. Principal's version is smaller-ticket and earlier: a private infrastructure debt business built from scratch, a first large institutional mandate won this quarter, and a pipeline that Kamal says grew another $700 million after capital was put to work. The other new thread is geographic. Korea drew a direct question about reports of Samsung seeking a stake — management declined to comment on rumors but spent two minutes describing the market's similarity to the US: concentrated market caps, insurance and bank capital seeking global conduits, and an undeveloped retirement system. That is a real option, unpriced and unquantified.our AI strategy, at least with respect to our investment management business, simply boils down to us focusing on bricks, versus pick and shovels... the sweet spot of the build out is much smaller... sort of the 50-megawatt is the area we focus.