The abrupt termination of Mr. Kraus and the eight independent directors stunned industry observers. After all, AllianceBernstein had been performing reasonably well — particularly for an active manager — and Mr. Kraus had helped reverse the trend of consistent outflows the company had experienced since 2007, leading to inflows in the second quarter of 2014.
Adding to the confusion, AllianceBernstein's owners seem happy with the firm's investment philosophy and a company spokesman said there is no intention of altering course.
Sources with whom Pensions & Investments spoke said they suspect the move is the result of AXA looking to have more control over its asset. AXA bought a minority stake in the manager 1991 and became the majority owner in 2000.
“All signs seem to point to AXA wanting to exert more influence and bring (AllianceBernstein) more tightly into its orbit for whatever reason,” said Robert Lee, a managing director and analyst at Keefe, Bruyette & Woods Inc. in New York. “And to do that, I guess they felt that they needed to make sweeping changes. But it is perplexing.”
In its first-quarter earnings statement, released April 27, AllianceBernstein reported $497.9 billion in assets under management as of March 31, up 3.7% from Dec. 31 and up 5.5% from a year earlier.
Data from P&I show the firm's total U.S. institutional, tax-exempt AUM was $90.77 billion as of Dec. 31, up 2.1% from the year earlier period.
Mr. Duverne said in the May 1 call that he believes AllianceBernstein “has performed quite well over the years and the strength of the franchise is undeniable. But he also noted: “In light of the current challenges that the industry faces, we thought that it was appropriate to have a new leadership to lead the company forward and face the accelerated pace of challenge that the industry is facing now.”
Mr. Duverne did not provide details as to why AXA overhauled AllianceBernstein's leadership — and many industry experts found the reasoning for Mr. Kraus' termination wanting.
Domonkos L. Koltai, a partner and co-founder of investment bank PL Advisors, New York, called the change, “a surprisingly aggressive move.”
“By most objective standards, AB's performance has been decent on (Mr. Kraus') watch given where they started,” said Mr. Koltai. “He built a top-notch fixed-income business from scratch, for instance, and built some decent alternative capabilities.”
Dean Ungar, a senior analyst at Moody's Investors Service, said the removal of Mr. Kraus as CEO “is not a sign that the active management world is dead.”
“The company, an active manager, has been remarkably stable in an industry that's been facing challenges,” Mr. Ungar explained. “Revenue's up. Income's up. Operating margins are up. Sales are much higher than they were a year ago. In many ways, it was a very good quarter for AllianceBernstein.”
Following news of the planned IPO, Mr. Unger said: “I don't think this changes anything. I think AXA still wants a closer relationship (with AllianceBernstein) and is looking for more cooperation.”
When Mr. Kraus took the reins in December 2008 following the global financial crisis, the firm was in trouble. Poor returns and client redemptions was putting its AUM in a tailspin. At year-end 2007, global AUM was $800.4 billion. Four years later, that figure had dropped nearly in half, to $405.9 billion. AllianceBernstein experienced institutional net outflows of $7.9 billion for the quarter ended Dec. 31, 2011.
But Mr. Kraus' plan to course-correct the ship, which included building a broader, more balanced and client-focused institutional platform, ultimately paid off. In the second quarter of 2014, AllianceBernstein reported quarterly institutional net inflows of $6.8 billion and its highest quarterly total net inflow since 2007 of $8.3 billion.
Pension plans that have recently hired AllianceBernstein include State of Wisconsin Investment Board, Madison, which invested $375 million with AllianceBernstein in the “funds alpha” allocation in February.
SWIB spokeswoman Vicki Hearing declined to comment on how the leadership change at AllianceBernstein might affect its relationship with the board, which oversees a total of $104.6 billion in assets, including the Wisconsin Retirement System's $96.4 billion.
Last year, the Oklahoma Police Pension & Retirement System, Oklahoma City, hired AllianceBernstein to manage up to $65 million in emerging markets equity. Steven Snyder, executive director and chief investment officer of the $2.2 billion plan, said in an email that Mr. Kraus' termination was not cause for concern.
“We, and our consultants, have had conversations with AB and their EM portfolio team and we have no concerns regarding the changes in the C-suite at AB,” said Mr. Snyder.