AllianceBernstein's Biggest Holder Saw Ex-CEO as Wrong Guy -- With Right Ideas

One thing has been made crystal clear to shareholders in the $500 billion U.S. mutual-fund manager AllianceBernstein (AB) : It's not their company.

Earlier this month, the French insurer AXA (AXAHY) , which owns 64% of the New York-based money manager, abruptly fired Peter Kraus, 64, AllianceBernstein's CEO of the past eight years, for no cause -- and gave him a $99 million separation payout. AXA also unilaterally replaced the independent AllianceBernstein board members who had been appointed to represent regular shareholders' interests.

So as the half-century-old AllianceBernstein navigates an industry-wide shift by investors away from high-fee mutual funds built around human stock pickers to computer-driven index funds and exchange-traded funds that offer market returns in exchange for minimal fees, the shareholders will have little choice but to wait and see what AXA decides.

What's strange is that both AXA executives and the new AllianceBernstein CEO, Seth Bernstein, have indicated they're inclined to keep Kraus's strategies. In fact, they've praised him for helping to stanch massive investor outflows from AllianceBernstein following the 2008 financial crisis, as well as for devising innovative fee arrangements designed to retain investors who were considering a shift to index-based funds following years of underperformance by active stock pickers.

The main reason for Kraus's firing, according to analysts who follow the company, is that AXA executives simply didn't like him very much. Dean Ungar, an analyst at Moody's Investors Service, said he's been told by insiders that there was a "long-simmering personality issue" between Kraus and his French overseers.

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