AllianceBernstein's Kraus Walks Away With $99 Million After ExitBy and
Asset manager agrees to buy the 4.3 million shares Kraus held
Nine board members also are ousted in management revamp
Peter Kraus, ousted as chief executive of AllianceBernstein Holding LP, is walking away with about $99 million as questions remain about the startling shake-up at the asset manager.
The company agreed to purchase 4.34 million stock units already beneficially owned by Kraus at $22.90 each, according to a regulatory filing Monday. During his tenure at the company, Kraus received most of his pay in units. They were awarded under his employment contract.
Kraus’ departure -- and the removal of nine directors -- left analysts puzzled and fueled speculation on several fronts: that majority owner Axa SA wanted more direct control, that there was friction between the CEO and Axa, or that a major strategy shift was on the way. A conference call led by Axa Chairman Denis Duverne provided few details.
“Management’s conference call produced more questions than answers,” Jefferies analyst Surinder Thind wrote in a note on Monday. The changes “would lead one to believe AB will be undertaking a change in strategy. Otherwise, the change does not appear to be justified.”
Kraus didn’t return a call for comment. Spokesmen at Axa and AllianceBernstein declined to comment beyond the press release on the changes.
Axa took action after AllianceBernstein, known for its actively managed funds, suffered $9.8 billion in net outflows in fiscal 2016. But that wasn’t cited by analysts who issued notes after the news broke on Monday and, in fact, several praised Kraus for stabilizing and diversifying the firm, which has almost $500 billion in assets. Kraus became CEO in December 2008 and in his first few years watched as investors pulled billions from the firm. Assets peaked at more than $800 billion in 2007. Kraus eventually stemmed the bleeding.
Pressed by analysts to explain the sudden changes, Duverne was terse. "We decided it was time to put new leadership in place,” he said on the call. “We are not here to challenge what has been done in the past. We are here to discuss the future.”
JPMorgan Chase & Co.’s Seth Bernstein will take over as CEO and Robert Zoellick, a former World Bank president and Goldman Sachs Group Inc. executive, as chairman, according to a company statement. Kraus had held both positions.
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.
“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 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.
AllianceBernstein fell 3.3 percent in New York trading on Monday. Including reinvested dividends, the stock has lost 2.1 percent this year through April 28. Over the past five years, it has gained 138 percent on that basis, compared with 86 percent for the S&P index of asset managers and custody banks.
In an interview with Bloomberg Television’s Erik Schatzker last June, Kraus 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 an earnings release April 27.
“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 Monday. “We are confident that with Bob and Seth we have the right leadership team in place.”
The first sale of Kraus’ stock units will occur on Sept. 1 and include units he owned as of April 28, the company said in the filing. The transaction doesn’t include restricted units, which will be paid in the future.
— With assistance by Alicia Ritcey, Sonali Basak, and Sabrina Willmer