AllianceBernstein Ousts C.E.O. and Shakes Up Board
In a move that highlights the increasing pressures faced by stock pickers on Wall Street, Peter S. Kraus, the chief executive of AllianceBernstein Holding, was ousted by the money manager’s controlling shareholder on Monday.
The abrupt shake-up, which included the appointment of six new members to the AllianceBernstein board and the removal of nine, comes as investors continue to abandon higher-priced, actively managed mutual funds in favor of cheaper exchange-traded funds that track a wide variety of stock and bond indexes.
AllianceBernstein, an institutional fund manager rooted in a culture of active stock management, has seen investors take their money elsewhere in recent years despite efforts by Mr. Kraus to reverse the company’s fortunes.
As part of the reshuffling, Axa Financial, the French insurance giant that owns the firm, named as Alliance’s chairman Robert B. Zoellick, a former president of the World Bank and senior economic official in Republican administrations.
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Mr. Zoellick did have a stint with Goldman Sachs, but he has no hands-on experience in the asset management industry.
Seth Bernstein, a longtime JPMorgan Chase executive, was named chief executive.
According to a regulatory filing, Axa has agreed to buy Mr. Kraus’s 4.3 million shares of Alliance stock, a transaction that will net him about $100 million.
Wall Street chief executives have been fired before, but such an extensive reshuffling — suddenly removing nine directors — is unusual. Alliance, or AB, as the firm has recently rebranded itself, manages about $500 billion, with a focus on managing bond and equity portfolios for large institutions like pension and sovereign wealth funds.
And while there had been outflows and some ups and downs in performance, analysts had been saying that Mr. Kraus’s strategy had been showing some signs of success.
The firm had sought regulatory approval for starting a suite of funds in which the investor fee would rise or fall depending on performance.
And fund returns have been respectable of late. According to Credit Suisse, 74 percent of AB funds were ranked four or five stars by Morningstar, a figure that far surpassed those of larger active managers like Franklin Templeton and T. Rowe Price.
The shake-up came as a shock to employees, most of whom left work on Friday believing that Mr. Kraus was their leader, according to an employee who declined to be identified.
Over the weekend, though, Axa moved quickly to make the change.
On a conference call on Monday, analysts who cover the stock challenged the chairman of Axa, Denis Duverne, asking him repeatedly why he had decided on such an extreme step given the firm’s improved performance in recent quarters.
One analyst asked if there were other issues, perhaps related to the company’s finances, that drove the board to act as it did.
“There were no concerns about anything,” Mr. Duverne said. “Its just an acceleration of the changes with the new team.”
On the call, Mr. Duverne took pains to say that he was supportive of the direction Mr. Kraus had taken the firm. But Mr. Duverne also left little doubt that he wanted the company to adapt more rapidly to the changes rattling the fund management world.
“We are not here to challenge what has been done in the past,” he said. “We want to adjust the company to the new structure of the industry.”
According to Morningstar, 36 percent of the mutual funds it tracks now follow passive strategies — up from 16 percent 10 years ago. Morningstar believes that the share of index-driven strategies will increase to 48 percent by 2021.
Active managers have been struggling for years to come up with a strategy for confronting the tremendous flow of money to passive investment strategies, but the recent pickup in money moving to exchange-traded funds is forcing many to act sooner rather than later.
The industry leaders, Vanguard and BlackRock, have attracted record-setting amounts into their exchange-traded-fund lineups.
Asset management experts and executives have warned that a vast reordering of the sector is inevitable.
“We are going to see a large consolidation in the asset management industry,” Laurence D. Fink, the chief executive of BlackRock, said at a mutual fund conference on Friday. He said managers were having a hard time finding returns that beat the market benchmark.
That it was Mr. Kraus who took the fall for his industry’s troubles was noteworthy.
More than most of his peers, Mr. Kraus, a former top executive at Goldman Sachs who had led Alliance since 2008, had said loudly and repeatedly that a rush of money into exchange-traded funds posed a danger to market stability.
To counter this trend, Mr. Kraus pushed for concentrated investment approaches, in which managers focus on a small group of companies that they strongly believe will perform well. His move to adjust fees to performance was also a bold move to address investor concerns regarding high-cost funds.
But in a marketplace that had become enamored with lower-cost index options, his strategy had not yet yielded significant gains in money flowing into the firm. Axa decided not to wait any longer.
