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Rating:Does Kraus Have AllianceBernstein Stuck in a Negative Feedback Loop? Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, November 22, 2011

Does Kraus Have AllianceBernstein Stuck in a Negative Feedback Loop?

News summary by MFWire's editors

Fundsters, advisors and investors looking for reassurance about AllianceBernstein [see profile] and its chief, Peter Kraus (#27 on MFWire.com's 2010 list of top fundsters), probably won't find it in the new issue of Forbes. Halah Touryalai evaluates Kraus' tenure atop the New York-based asset manager and Axa subsidiary, asking in her headline "Why Can't Former Goldman Star Peter Kraus Stop the Asset Bleeding at AllianceBernstein?"

Pointing to Kraus' $29.6-million payday for three months of work at Merrill Lynch in 2008 and the $6 million upfront and the $50 million in possible stock awards headed his way when he jumped to AllianceBernstein, Forbes suggests that Kraus is "a poster boy for the kind of lopsided reward system Occupy Wall Street protesters are fuming about."

How is AllianceBernstein doing? Forbes notes that the mutual fund firm reach a peak of $837 billion in assets under management in 2007, dropped to $462 billion at the end of 2008 when Kraus took over, and fell further but slower over the past three years, now reaching $402 billion. The firm suffered $15.4 billion in net outflows last quarter, and its shares have dropped 20 percent since January 2009, and 39 percent year-to-date.

Turning to Credit Lynonais Securities Asia analyst Chris Spahr, Forbes wonders if AllianceBernstein is caught in a negative feedback loop, where market woes turn value investments into value traps when managers are forced to sell their winners to satisfy impatient investors who want out.

"The real question, however, may be whether Kraus hasn't gone far enough in his makeover of Alliance. He's disrupted the firm's culture and operations, but he is so far mostly sticking to the founder's investment approach," Forbes writes. "Post- 2008 fundamental analysis, as practiced by AllianceBernstein and many other firms, appears to be out. Is the change temporary or permanent?"

Columbia Business School professor Bruce Greenwald also weighed in for the article, and Forbes includes snippets from Kraus' comments on AllianceBernstein's third-quarter earnings call last month. 

Edited by: Neil Anderson, Managing Editor

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