Abrupt Leadership Changes at AB Lead to Uncertainty

AB fired Peter Kraus, its CEO and chairman, on Monday, May 1, and unseated nine of the firm’s 11 board directors. Seth Bernstein, a 30-year veteran of J.P. Morgan, assumes the role of chief executive officer for the firm, while Robert Zoellick, a former president of the World Bank Group, assumes the role of chairman of the board. Joining the two remaining board directors, Denis Duverne and Mark Pearson, are Bernstein and Zoellick, Anders Malmstrom, AXA Financial’s chief financial officer, and three independent board members, all of whom serve as directors on other entities for French insurer AXA Financial, AB’s controlling owner.

AB has provided little insight into the impetus for these sweeping leadership changes. Kraus took the firm’s reins following the 2008 financial crisis and was credited with streamlining AB’s resources to better tap the firm’s broad capabilities. The results have been uneven, however, and it appears AXA, which owns 63% of the company, lost patience.

Nevertheless, AXA leadership has not sufficiently explained the rationale for the leadership change, or any strategic changes that it expects the new team to embark upon. While AXA leaders indicated that they do not expect AB’s strategy to deviate much from the path that Kraus had set the firm on, it strains credulity to assume that AXA cleaned house with the intention of upholding the status quo. Without further details, investors will have trouble evaluating the extent to which these changes could affect the way AB manages its funds and, in turn, the outcomes they’re able achieve as fundholders.

Given this, we have questions about AB’s stewardship of capital and therefore are reconsidering the firm’s current Parent Pillar rating of Neutral. (The parent rating is one of five pillar ratings that culminate in the overall Analyst Rating that we assign to any funds that we cover.)

Pending our reassessment of AB’s parent pillar rating, we are placing the analyst ratings of all AB funds that we cover Under Review. After we’ve reevaluated AB’s parent rating, we will update the Morningstar Analyst Ratings of all AB funds that we have placed Under Review.