(Bloomberg News) Peter Kraus has worked for more than two years to stem client defections from New York-based investment manager AllianceBernstein LP.

Since joining the company as chairman and chief executive officer 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 pulled $126 billion in the two years ended Dec. 31, mostly institutions exiting its stock funds. 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 23 rivals in an institutional investor brand- loyalty survey by Cogent Research, a research and consulting firm in Cambridge Massachusetts.

"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.

The combined firm's assets peaked at $837 billion in 2007, and have since tumbled 42% to $487 billion as of Feb. 28.

'Episodic' Performance

AllianceBernstein's equity funds trailed 67% of peers in the three years ended Feb. 28, data from Denver-based Lipper show, a period that includes most of 2008, when the MSCI AC World Index fell 42%. For the past year, the funds beat 51% of rivals.

Kraus, 58, blamed the withdrawals on "poor" stockpicking 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 in an interview at the company's Midtown Manhattan headquarters. "I also understand why some people are saying they will wait for the proof."

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