AllianceBernstein, the money manager that oversees about $498 billion, ousted CEO Peter Kraus and more than half of the board in a shake-up.
JPMorgan Chase’s Seth Bernstein will take over as CEO and Robert Zoellick, a former World Bank president and Goldman Sachs executive, as chairman, the company said on Monday in a statement. Kraus had held both positions and stands to get at least $99.3 million as part of an exit agreement.
Pressed by analysts to explain the sudden management revamp, Denis Duverne, chairman of AXA SA, the French insurer that’s the parent of AllianceBernstein, provided few details. "We decided it was time to put new leadership in place,” he said on a conference call. “We are not here to challenge what has been done in the past. We are here to discuss the future.”
Kraus became CEO in December 2008 and in his first few years watched as investors pulled billions from the money manager. Assets at the firm peaked at more than $800 billion in 2007. Kraus, 64, eventually stopped the bleeding and stabilized assets. But most of AllianceBernstein’s business is active management at a time when investors are fleeing stock picking for firms offering passive, index-based funds.
“You have to wonder if there was a specific problem or if they just thought he was the wrong guy for a changing industry,” said Lawrence Glazer, managing partner at Mayflower Advisors in Boston where he helps oversee $2.5 billion.
AllianceBernstein has agreed to purchase 4.34 million stock units beneficially owned by Kraus at a price of $22.90 per unit, according to a regulatory filing. The first sale will occur on Sept. 1 and include units he owned as of April 28. The transaction doesn’t include restricted units, which will be paid in the future.
Kraus wasn’t immediately available for comment and AllianceBernstein officials didn’t return a call.
Bernstein, 55, spent more than three decades at JPMorgan, most recently as managing director and global head of managed solutions and strategy at the bank’s asset-management arm, according to the statement. He isn’t related to Sanford Bernstein, the founder of a predecessor to AllianceBernstein, a company spokesman said by email.
AllianceBernstein added three new independent directors. Joining are Barbara Fallon-Walsh, previously an executive at Vanguard Group; Daniel Kaye, who retired from Ernst & Young; and Ramon de Oliveira, a former JPMorgan executive. The panel will also include Duverne, Anders Malmstrom and Mark Pearson, all from Axa.
“We note that all of the board members announced have strong ties with AXA Financial, which we believe suggests AXA might be trying to exert more influence on AB,” a team of analysts at Keefe, Bruyette & Woods wrote Monday in a research note. AXA owned a 63.8 percent economic interest in AllianceBernstein as of March 31.
Including reinvested dividends,AllianceBernstein's stock has lost 2.1% this year through April 28. Over past five years, it has gained 138% on that basis compared with 86% for the S&P index of asset managers and custody banks.
The vast majority of AllianceBernstein’s assets are actively managed. Kraus, in an interview with Bloomberg Television’s Erik Schatzker last June, said active investment managers need to shrink assets by as much as a third if they want to beat industry benchmarks. “It is pretty clear that active managers have not performed above their benchmarks to any great degree,” he said.
In the first quarter of 2017, the firm attracted $1.6 billion in new cash, AllianceBernstein said in its earnings release on Monday.
“In an industry that is confronting significant shifts, we need to continue transforming the business to improve the quality of our investment solutions while delivering our services more effectively,” Duverne, said in a statement on Monday. “We are confident that with Bob and Seth we have the right leadership team in place.”