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PREVIEW-AllianceBernstein under pressure on flows
February 10, 2011 / 4:13 PM / 7 years ago

PREVIEW-AllianceBernstein under pressure on flows

* Q4 earnings due out Thursday after trading

* Losing accounts at Vanguard, London fund

BOSTON, Feb 10 (Reuters) - When asset manager AllianceBernstein Holding LP (AB.N) reports quarterly results after trading on Thursday, some analysts fear the worst on flows.

No big asset manager has had a rougher ride of late than New York-based AllianceBernstein, whose shares have fallen nearly 25 percent in the past year.

Unlike other asset managers, the company has missed out on the Standard & Poor's 500's .SPX ride up since the summer, amid continued outflows of investor dollars from its funds and questions about whether it can reverse the trend soon.

The company had $484.3 billion in assets as of Sept. 30, up $26 billion from June 30, mostly on market gains.

But investors withdrew $18.9 billion in that period, and some analysts are bracing for more outflows based on the $486 billion in assets AllianceBernstein reported as of Dec. 31, just a slight rise from Sept. 30.

“Weak (assets under management) growth implies poor relative flows for the quarter,” said Credit Agricole Securities analyst Chris Spahr.

Competitors have faced some of the same problems, but shares of most, including Legg Mason Inc (LM.N) and T Rowe Price (TROW.O), have risen over the past year.

Now customers are getting antsy. “Clearly investors are starting to lose patience and are voting with their feet, which certainly adds to the pressure” on the company, said Morningstar Inc analyst Katie Rushkewicz.

AllianceBernstein spokesman John Meyers said Chief Executive Officer Peter Kraus and other executives would not be available for interviews until after the company’s financial results are released because of “quiet period” rules.

In a conference call with analysts in October, Kraus pointed to improved equity fund performance, which should help flows, and a new fixed-income series. “We’re comfortable with our strategy,” he said.

Kraus is a former Goldman Sachs (GS.N) executive brought in at the end of 2008 at the peak of the financial crisis to replace longtime leader Lew Sanders.

Kraus has cut costs, but also has tried to improve performance while introducing new products to meet client demand. These include the Dynamic Asset Allocation tool for individual investors that automatically adjusts the split between equities and bonds in a portfolio based on capital market volatility. He also rolled out target date funds with income guarantees after retirement.

Rushkewicz also credits Kraus with personnel moves like bringing in Janus Capital JNS.N executive Laurent Saltiel to run AllianceBernstein’s struggling international growth team.

But “turnarounds take time,” Rushkewicz said. Even some Kraus boosters say it can take a while for personnel moves to click.

“Internally there’s a lot of stress and pressure associated with” the departure of Sanders and others, said Tom Cowhey, chief investment strategist of West Conshohocken, Pennsylvania-based Hirtle Callaghan & Co, which keeps several hundred million dollars with AllianceBernstein.

MIXED PERFORMANCE

Still, Cowhey said he is a fan of current management and said AllianceBernstein often tracks the S&P 500 less than other asset managers, as recent stock moves have shown.

AllianceBernstein’s funds also vary widely in performance. Some of the largest have done well, with the $5.4 billion Bernstein Diversified Municipal fund.SNDPX beating 89 percent of peers over three years, according to Morningstar data as of Feb 4.

But others lag. The $4.9 billion Bernstein Tax-Managed International fund .SNIVX has been beaten by 97 percent of peers over three years, and the $2.6 billion AllianceBernstein International Value (ABIYX.O), by 98 percent.

Poor performance has turned off some customers. In October, Vanguard Group Inc said it had replaced AllianceBernstein as manager of most of its $3.7 billion Vanguard U.S. Growth Fund and on a smaller fund after a long period of underperformance.

Also last year, AllianceBernstein was among a group of fund managers replaced by the Lambeth Pension Fund, for the inner London borough of Lambeth, after returns lagged benchmarks.

The Illinois Municipal Pension Fund said in December it would review the management of an account run so far by AllianceBernstein because of its organizational changes. The two organizations referred questions to each other.

Whatever flow figures the company reports, Kraus’ task will be to convince investors to give the stock a bit more time. One sign of perseverance: AllianceBernstein spokesman Meyers said the company will bid again for the contract in Illinois.

Technically the company owns just over a third of operating partnership AllianceBernstein LP, with French insurer AXA Group (AXAF.PA) holding most of the rest. (Reporting by Ross Kerber; Editing by Lisa Von Ahn)

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