Peter Kraus Ousted as AllianceBernstein's CEO -- 2nd Update

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The French parent company of AllianceBernstein Holding LP fired the money manager's chief executive and all of its independent board members.

Peter Kraus, a longtime Goldman Sachs Group Inc. executive whose 2008 appointment by majority owner AXA SA as AllianceBernstein's CEO drew fanfare, was terminated from his position Friday, according to a securities filing. Seth Bernstein, a former J.P. Morgan Chase & Co. executive, has been named chief executive and given a seat on the company's board.

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On a Monday conference call, AXA Chairman Denis Duverne said it was time to bring in a new leadership team. But Mr. Duverne offered few specifics on why the company was taking such dramatic steps now.

The announcement stunned industry executives and analysts, some of whom said AllianceBernstein had made progress in its turnaround from its poor performance during and following the financial crisis. People familiar with the matter said Mr. Kraus had never forged a strong relationship with Mr. Duverne, who was appointed AXA's chairman last year. Mr. Kraus was removed from AXA's management committee when a new group was formed following Mr. Duverne's promotion.

AllianceBernstein is among a set of stock- and bond-picking firms that have struggled to stem a flood of lost capital to exchange-traded funds and other passive investments that track indexes and typically charge lower fees. Notably, even while shares of many companies in the financial industry have rallied in the past year, AllianceBernstein shares are in the red.

The migration has left active investment firms like AllianceBernstein to cut their fees, push more aggressively into passive funds or turn to riskier, more complex strategies for which investors are prepared to pay higher fees. The firm appeared to be gaining momentum, and had high expectations for a set of new low-cost funds it is launching this year.

On the call, AllianceBernstein's new executives praised the firm's strategic direction.

The firm also named Robert Zoellick as chairman. He previously served in the administrations of President George H.W. Bush and President Ronald Reagan, and was president of the World Bank Group from 2007 to 2012. Mr. Zoellick will receive $425,000 cash and an equity-based grant worth $425,000 annually.

AXA America Holdings Inc. is the parent of the sole stockholder of AllianceBernstein Corp., which is the general partner of AllianceBernstein Holding. According to a filing Monday, an affiliate of AXA America on Friday acted to replace Mr. Kraus and remove nine directors from the board of AllianceBernstein Corp. Mr. Duverne and Mark Pearson remained on the board.

New to the board, which now consists of eight members, are incoming CEO Mr. Bernstein, Ramon de Oliveira, Barbara Fallon-Walsh, Daniel Kaye, Anders Malmström and Mr. Zoellick.

Write to Joshua Jamerson at joshua.jamerson@wsj.com

The French parent company of AllianceBernstein Holding LP fired the money manager's chief executive and removed all of its independent board members.

Peter Kraus, a former Goldman Sachs Group Inc. executive appointed to AllianceBernstein's top post in 2008, was terminated from his position Friday, according to a securities filing. Seth Bernstein, a former J.P. Morgan Chase & Co. executive, has been named chief executive and given a seat on the company's board.

On a Monday conference call, AXA SA Chairman Denis Duverne said it was time to bring in a new leadership team. But Mr. Duverne offered few specifics on why the company took such dramatic steps now. AXA is the majority owner of AllianceBernstein.

Over the last year Mr. Kraus and Mr. Duverne had not been able to forge a strong relationship, according to people close to Mr. Kraus and industry executives. Mr. Kraus was hired by Mr. Duverne's predecessor as chair, Henri de Castries, who left in March 2016.

Shortly after Mr. Duverne became chair, Mr. Kraus was removed from AXA's management committee as part of a larger reshuffling of a team that reported to new AXA Chief Executive Officer Thomas Buberl. A May 2016 press release announcing the moves noted that Mr. Kraus "will continue to be a resource...on a wide variety of strategic matters."

Mr. Kraus's replacement, Mr. Bernstein, comes to the asset management firm from a senior executive position at J.P. Morgan, the largest U.S. bank as measured by assets. He had been at that firm for more than three decades. In March, J.P. Morgan executives told the bank's staff that Mr. Bernstein would be leaving 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.

At least publicly, Mr. Kraus gave no indication of his imminent ouster. At a small gathering with AllianceBernstein shareholders in March, the CEO predicted the firm would become a leading provider of actively managed funds that set their fees based on how well they perform against their benchmarks, one person familiar with the matter said.

The shake-up at AllianceBernstein stunned industry executives and analysts. Some said AllianceBernstein had made progress in its turnaround from its poor performance during and following the financial crisis.

AllianceBernstein is among a set of stock- and bond-picking firms that have struggled to stem a flood of lost capital to exchange-traded funds and other passive investments that track indexes and typically charge lower fees. Notably, even while shares of many companies in the financial industry have rallied in the past year, AllianceBernstein shares are in the red.

"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. "Over the last several decades, the promises have proven illusory. There is little evidence that anyone, after fees and even before fees, can beat the market,"

The customer migration has left active investment firms like AllianceBernstein to cut their fees, push more aggressively into passive funds or turn to riskier, more complex strategies for which investors are prepared to pay higher fees. The firm appeared to be gaining momentum, and had high expectations for a set of new low-cost funds it is launching this year.

During Monday's call with analysts, Mr. Bernstein called the money manager's strategy "sound" and said the goals that are currently in place for the firm are "both ambitious and achievable."

Executives instead said the moves relate to accelerating industry changes, without providing additional detail.

The executives suggested they would not provide a significant amount of additional compensation to retain top talent, adding that they'd spent much of the weekend meeting with senior staff who are committed to the firm.

In the money management industry the stability of portfolio management teams is often important for retaining client money. Pacific Investment Management Co., for example, put in place a special bonus pool following the departure of co-founder Bill Gross.

The removal of Mr. Kraus was the second such change in the last decade for AllianceBernstein. His predecessor, Lewis Sanders, was ousted by AXA following the asset manager's struggles during the 2008 financial crisis.

Mr. Kraus, a former investment banker who had once advised AXA, was viewed as a bold choice. He'd left Goldman to join his former colleague, John Thain, in 2008 to help navigate Merrill Lynch & Co. through what would become the worst downturn in decades. Within months, though, Merrill had sold itself to Bank of America Corp. AllianceBernstein hired him in December 2008.

"I'm surprised by these developments given how much I respect and admire him," George Walker, chief executive of Neuberger Berman Group LLC, said of Mr. Kraus. AllianceBernstein today is "a tougher better competitor than it was a handful of years ago," said Mr. Walker, a former colleague of Mr. Kraus at Goldman

Following Mr. Kraus's exit, the board will be led by Robert Zoellick as chairman. He previously served in the administrations of President George H.W. Bush and President Ronald Reagan, and was president of the World Bank Group from 2007 to 2012. Mr. Zoellick will receive $425,000 cash and an equity-based grant worth $425,000 annually.

Mr. Duverne and Mark Pearson remain as directors. New members to the board, which now consists of eight members, are incoming Mr. Bernstein, Ramon de Oliveira, Barbara Fallon-Walsh, Daniel Kaye, Anders Malmström and Mr. Zoellick.

--Joshua Jamerson contributed to this article.

Write to Justin Baer at justin.baer@wsj.com and Sarah Krouse at sarah.krouse@wsj.com

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.

"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."

Write to Justin Baer at justin.baer@wsj.com and Sarah Krouse at sarah.krouse@wsj.com

(END) Dow Jones Newswires

May 01, 2017 19:20 ET (23:20 GMT)