Peter Kraus has worked for more than two years to stem client defections from investment manager AllianceBernstein LP.
Since joining the company as chairman and chief executive in December 2008, with a pay package valued at $52 million, he has recruited money managers, tied compensation more closely to stock performance and rolled out new products in areas such as inflation protection and asset allocation. It hasn't stopped the bleeding.
Clients — mostly institutions exiting its stock funds — pulled $126 billion more out of the company's portfolios in the two years ended Dec. 31 than they put in. At 28% of assets, the withdrawal rate was the highest for any publicly traded U.S. mutual fund manager. In February, AllianceBernstein ranked last among the 23 firms in an institutional-investor brand loyalty survey by Cogent Research.
“Their clients are walking out the door, and a lot of institutional investors don't have a positive impression of them,” said Christy White, a principal at Cogent. “It doesn't bode well for the future.”
When Alliance Capital Management LP acquired Sanford C. Bernstein & Co. in 2000, the $3.5 billion deal combined Alliance's focus on investing in fast-growing companies with Bernstein's specialty in stocks its managers deemed undervalued. Bernstein also ran a highly regarded investment-research unit.
Since reaching a peak of $837 billion in 2007, the combined firm's assets had tumbled 42%, to $487 billion, as of Feb. 28.
AllianceBernstein's equity funds trailed 67% of peers for the three-year period ended Feb. 28, data from Lipper show. That period includes most of 2008, when the MSCI All Country World Investable Market Index fell 42%. For the one-year period ended February, the funds beat 51% of rivals.
Mr. Kraus blamed the withdrawals on “poor” stock picking in 2008 and what he called “episodic and volatile” performance in some of the firm's equity funds over the past two years.
“I see no reason why our returns in the future won't be consistent and better than the competition,” he said. “I also understand why some people are saying they will wait for the proof.”
The firm's relative returns will improve as 2008 results drop out of three-year performance numbers, Mr. Kraus said.
“I don't think our clients believe we have become somehow mentally incapacitated or that we are not good stock pickers,” he said.
The firm suffered because many of its funds held a lot of financial stocks that collapsed in the second half of 2008, said Katie Rushkewicz, an analyst for Morningstar Inc.
“Investors have long memories, and it takes a while to regain their favor,” said Burton Greenwald, an independent mutual fund consultant. “There is no shortage of other choices in this business, and there is always someone out there with a pretty good record.”
SHARES TRAIL RIVALS
Like AllianceBernstein, Janus
Capital Group Inc. and Legg Mason Inc. have struggled to limit redemptions.
Assets at all three firms remain below the peaks reached before the financial crisis, which erased $37 trillion in value from global equity markets from November 2007 through March 2009.
In a March presentation, chief operating officer David Steyn said AllianceBernstein hoped to build its business in 401(k)-style retirement plans to $100 billion in assets from $30 billion, though he didn't give a specific time frame. He also said the firm wants to add more alternative assets, a category that includes hedge funds and private equity. The firm oversees $12 billion in such funds, he said.
“Peter Kraus is turning the franchise around,” Macrae Sykes, an analyst at Gabelli & Co., said in a telephone interview. Gamco Asset Management, Gabelli's money-management arm, and Gabelli Funds LLC own a combined 831,000 AllianceBernstein shares, according to data compiled by Bloomberg.
