AllianceBernstein also drops 9 of 11 directors as money managers fend off cheaper rivals
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AllianceBernstein Holding LP fired its chief executive and removed nine of its 11 directors, the most dramatic shake-up yet among money managers under pressure to halt a flood of cash to cheaper rivals.
Peter Kraus, a former Goldman Sachs Group Inc. executive who had served as AllianceBernstein's chairman and CEO since 2008, was terminated from both those roles Friday, the firm said in a securities filing Monday.
Before his abrupt exit, Mr. Kraus had been discussing succession plans with the board. He had identified internal candidates for the role, and intended to stay until his contract expired in January 2019, said people familiar with the matter.
AXA SA, the French company that has majority ownership of AllianceBernstein, wanted to make a change sooner, these people said. Seth Bernstein, a former J.P. Morgan Chase & Co. executive, is the new CEO and will serve on AllianceBernstein's board.
The shake-up reinforces the changes sweeping through old-fashioned money-management firms that have long relied on their ability to bet on individual stocks and bonds. Hundreds of billions of dollars have been pulled in recent years from these firms focused on active money management, as investors lose faith in star managers and seek out cheaper funds that mimic stock and bond indexes.
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"Money management firms whose business model is to promise clients investment strategies that 'will beat the market' are in deep trouble," said Alan Palmiter, a business law professor at Wake Forest University.
The rise of giants such as BlackRock Inc. and Vanguard Group, which together have more than $9 trillion in assets, has made life more difficult for firms including AllianceBernstein, which had $497.9 billion in assets at the end of March, according to the firm's most-recent earnings report.
AllianceBernstein -- formed in 2000 from the combination of a mutual-fund firm and research outfit -- first experienced trouble during the 2008 financial crisis, when bad wagers on financial firms led to the ouster of Chief Executive Lewis Sanders.
Mr. Kraus, a former investment banker who had once advised AXA, was asked to help the firm recover. He brought with him a resume that included stints at some of the biggest names on Wall Street.
He had recently left Goldman and joined his former colleague, John Thain, to help navigate Merrill Lynch & Co. through what would become the worst downturn in decades. He was given a $29.4 million contract and Merrill stock to replace his holdings in Goldman, The Wall Street Journal reported in 2009.
Within months, though, Merrill had sold itself to Bank of America Corp. Mr. Kraus left for AllianceBernstein, reporting to AXA Chief Executive and Chairman Henri de Castries.
AllianceBernstein under Mr. Kraus became more diversified. But it continued to struggle with broader industry shifts including a flood of investor cash flowing into exchange-traded funds, a move away from proprietary wealth-management products and a reduction of Wall Street spending on investment research.
It cut fees, pushed into riskier, more-complex strategies for which investors are willing to pay higher fees and focused on selling what it called "solutions" that combine multiple investment strategies.
The firm, which accounts for less than 3% of AXA's revenue, appeared to be gaining momentum and had high expectations for a set of new low-cost funds it is launching this year, said industry executives.
Over the past year, however, Mr. Kraus wasn't able to forge a strong relationship with new AXA Chairman Denis Duverne, according to industry executives and people close to Mr. Kraus. Mr. Duverne succeeded Mr. de Castries, who announced his departure as chairman and CEO in March 2016.
Shortly after Mr. Duverne became chair, Mr. Kraus left AXA's management committee as part of a larger reshuffling of a team that reported to new AXA Chief Executive Thomas Buberl.
On a Monday conference call with analysts, Mr. Duverne said it was time to bring in a new leadership team, without saying why the company took such dramatic steps now. In a securities filing, AllianceBernstein also said AXA removed all but two members of AllianceBernstein's board.
"I'm surprised by these developments given how much I respect and admire him," said George Walker, chief executive of Neuberger Berman Group LLC and a former colleague of Mr. Kraus at Goldman.
"He's leaving the firm in a much better place than when he arrived," said Colm Kelleher, president of Morgan Stanley.
The board will now be led by Robert Zoellick as chairman. He previously served in the administrations of presidents Ronald Reagan and George H.W. Bush, and was president of the World Bank Group from 2007 to 2012.
Mr. Kraus's replacement, Mr. Bernstein, comes to the asset-management firm from J.P. Morgan, the largest U.S. bank as measured by assets. He had been at that firm for more than three decades, and has no family ties to AllianceBernstein.
In March, J.P. Morgan executives told the bank's staff that Mr. Bernstein would leave to pursue another opportunity. By April, a person familiar with the matter said, it was clear to the bank's asset-management executives that Mr. Bernstein had a job offer in hand.
AXA plans to purchase as much as $99 million in AllianceBernstein stock from Mr. Kraus, not including other restricted stock units he holds as part of his employment agreement. He also will receive the remainder of the compensation he would have earned through his prior employment agreement.
Mr. Kraus received $6.4 million in 2016, according to AllianceBernstein's 2016 annual report, a total that includes a base salary of $400,000.
Under his three-year employment agreement, Mr. Bernstein, 55, will receive a base salary of $500,000 and a target cash bonus opportunity of $3 million a year. Starting in 2018, he will be eligible for stock incentives worth $3.5 million annually.
On Monday's call with analysts, Mr. Bernstein called the money manager's strategy "sound" and said the goals in place for the firm are "both ambitious and achievable."
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(END) Dow Jones Newswires
May 02, 2017 02:47 ET (06:47 GMT)