With one big bat permanently missing from a once formidable lineup and another nursing a number of nagging injuries, the Denver mutual fund business is undoubtedly short on star power. But with the market rebounding, multiple fraud settlements conceivably behind it and several small shops on the rise, the industry is crawling back from the Styxian depths.

"The worst is over," said Jeff Adams, president of the no-load Westcore Funds, which managed to escape the carnage inflicted upon most of the Denver-area shops. Westcore was able to grow its assets by $300 million during the scourge, bucking the prevailing trend of sizeable outflows. "It hasn't been a fun experience for most people in town, but now it's back to business." Fresh off the completion of its merger of the Aristata Funds, Westcore now has $7.5 billion in assets under management.

The performance and market-timing woes endured at Janus and the now-defunct Invesco prompted massive outflows and the loss of hundreds of jobs in the Rocky Mountain region. As a result, the city has slipped from being the nation's sixth-largest mutual fund hub to No. 15 in the country in less than four years, according to Financial Research Corp. of Boston.

In many ways, Denver is a microcosm of the mutual fund industry as a whole.

For years, the face of the Denver fund marketplace has been Janus and Invesco, both of which pursued aggressive growth strategies in the latter half of the 90's, filling their investment buckets with technology stocks. Ultimately, it was that overemphasis on growth and technology that set them on a downward spiral. On top of that, each firm was slapped with lawsuits for their involvement in market-timing schemes that bilked the savings of long-term shareholders. In other words, things went from bad to worse.

"There are not a lot of jobs in Denver," said Cary Chapman, founder of Rocky Mountain Wealth Advisors, a registered investment advisor that manages wealth for high-net-worth clients using separately managed accounts. He noted that there are a number of qualified people on the street hoping to stay in Denver, but a majority of them may be forced to leave the city to remain in the industry.

Denver was a unique location within the fund community because it afforded people the opportunity to enjoy the outdoors and still have close ties to the securities industry. In other cities, mixing business with pleasure has more to do with personal taste rather than lifestyle. The city also boasts a very young population, which proved ideal for setting up back-office type organizations.

For these reasons, Denver not only became a popular service area but also attracted a lot of talent nationwide. When the market finally tanked and firms began bleeding assets, service jobs were the first to go. Throw in the regulatory mess that ensued, and a lot of the investment talent began fleeing to start their own hedge funds or work in the managed account space.

"Denver is primarily a growth town rather than value, and that puts it at a disadvantage," said Don Cassidy, senior analyst at Lipper's Denver office. "But there isn't any blood running in the streets." In order for Denver to improve its standing among the nation's top mutual fund towns, the rebuilding must start with Janus, since the firm holds roughly 80% of assets in Denver. To do so, Janus must "change the tone and taste of the investor market," a shift that will take some time, Cassidy noted.

Perhaps the biggest challenge for Janus, now that the firm has begun to distance itself from the scandal, is renegotiating employment contracts with its key portfolio managers. If the shop can't hold on to its top talent, it could spell big trouble for Janus, Cassidy said. So, Janus isn't going away, it's just smaller now. And despite the difficulties the company has faced, it has actually increased its analyst base by hiring a lot more junior people. Currently, the only jobs that Janus is looking to fill are in marketing and distribution as it begins to focus on the different channels.

The folding of Invesco is consistent with the larger trend of consolidation in the fund industry. In Denver alone, Invesco, Berger Funds and Founders Funds have all disappeared in recent years, having been consumed by larger entities. With the fund community's profile in Denver shrinking, questions remain as to its staying power. Which firms will step up to fill the void? Will there be another Janus to come out of Denver?

"I don't think we'll ever see the level of assets we saw in early 2000," Chapman said. "The only firm I can see growing to that level is Marsico. They have hired, but they're not hiring aggressively." Aside from Janus and Marsico Funds, Chapman doesn't think any other firm will eclipse the $25 billion mark.

Geoff Bobroff, principal of Bobroff Consulting in East Greenwich, R.I., noted that the choppy growth in the industry prevents the emergence of another Janus. "The cost of entry makes it difficult to achieve success when you look at the increasing regulatory burden and the lessening of the focus on financial assets and increasing focus on other alternative investments," Bobroff said. "We just don't have the engine of growth we had in the 90's." Bobroff commented further that the fact that firms touched by the scandal have continued to lose assets even though performance appears to have normalized is "disappointing if not debilitating."

Marsico, founded by former Janus portfolio manager Tom Marsico in 1997, cropped up on the strength of its funds' performance. Based on a combination of top-down analysis and bottom-up stock picking, Marsico has been able to post positive flows in each of the last three years. Given its performance record and strong distribution through Bank of America, it is considered the only real threat to Janus market share, if there even is one. Excluding money market funds, total assets stood at $4.6 billion as of the end of September.

A smaller player to keep an eye on is Icon Advisers, a value shop that blends disciplined value investing with technical analysis, a strategy that has helped generate more than $3 billion in a short period of time. Cambiar Investors is another value option in the Denver area that is best known for running institutional money for some of the major airlines.

Denver is on the rebound, but only time will tell if the town will return to its former glory. According to Cassidy, that would require a significant acquisition in which a firm was willing to move its people to Denver. "While that sounds great on paper, you can't just take your intellectual capital and move it in a business like this," Cassidy said. As for the prospect of a smaller firm emerging from within the existing community, he said, it would take an extended market rally that lasted several years and some pretty strong performance to put Denver back on the map.

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