The search is over.
Embattled fund manager Janus Capital Group last week named Gary Black, chief investment officer for Goldman Sachs Asset Management's global equity business, its new president and chief investment officer. Black's appointment ends an extensive search for a replacement for former CIO Helen Young Hayes and former international chief Richard Garland, who was forced out for his role in the initial market timing and late trading scam involving New Jersey hedge fund Canary Capital. (See related interview with the director of Janus Global, page 8.)
In his new role, Black will be responsible for the performance of all Janus products and investment management activities, including overseeing portfolio managers, analysts and traders. Additionally, he will be asked to maintain a disciplined investment process and expand the Denver-based company's research capabilities. He will also be tasked with broadening the company's product lineup and leveraging its brand across the globe.
Black negotiated a handsome pay deal that includes a $500,000 base salary, an annual bonus of up to $4 million and a number of performance-based incentives. Overall, he is eligible to earn $9 million this year and more than $10 million in each of the next two years. Much of his compensation will be tied directly to fund performance, a rarity for the president of a company.
Black, 43, will report directly to CEO Mark Whiston. No official start has been determined, but it is expected to be somewhere between mid to late April, according to Janus spokesperson Shelley Peterson.
Janus called Black a "natural fit" for a research-oriented firm, citing his strong research background and a reputation for being one of the best analysts on Wall Street.
At Goldman, Black managed a 180-person investment team including CIOs, portfolio managers and analysts specializing in value, growth, blend and international equities. During his tenure, GSAM doubled its value assets, tripled its REITs business and posted record flows in its growth equity portfolios. Black is also credited with helping marry Goldman's institutional and private client businesses into a single entity. Prior to working at Goldman, Black was a top-rated tobacco analyst at Alliance Bernstein.
But given his value background, Black doesn't exactly mesh with the existing corporate culture at Janus. "It's very interesting they brought in a person from the value side of investing, rather than growth," said Don Cassidy, senior research analyst at Lipper. "This is a signal that they want some fresh blood, some fresh thinking."
To the "bottom-up" Janus shop, Black is expected to bring a more value-oriented, risk-control discipline, Cassidy said. In doing so, Black is likely to look at the markets rather than just companies. That entails taking a look at things like historical valuations.
Another important new perspective Black brings is his view on risk control, which during the boom of the late 90s turned out to be part of Janus's undoing, as the firm was heavily weighted in technology, a sector that crashed after swelling to a robust 34% portion of the S&P 500.
While it is clear that he will bring about significant change to the previously insular corporate culture at Janus, Black has been careful not to say anything that would slight the portfolio managers or skew their investment choices. "Janus will continue to be a bottom-up, company-by-company manager but we'll also pay attention to macro themes, such as emerging demographic, social and technological trends," Black said in an interview posted on the company Web site.
"I don't see him as imposing a style discipline at the Janus funds, but [rather] helping mold the process on the margins," said Dan McNeela, an analyst at Chicago-based fund tracker Morningstar. McNeela speculated that Black's top priority will be to get up to speed with what the current practices are at Janus, so he can form a good comparison to what he was used to at Goldman.
Black has to find a comfort level with the portfolio managers relative to the market and the risk he believes they're taking, he said. That way, he can ensure they're aware of their positions and the potential consequences of those bets.
In terms of his personal background, Black was a Harvard man whose father thought he was crazy for going to college, seeing as he was from a blue-collar family, according to a former co-worker at Sanford Bernstein. His blue-collar roots would explain his dedication to research, which is often a daily, grind-it-out type process that involves rolling up your sleeves and putting in long hours.
"Research is the essence of portfolio management," Black said. "Eighty percent of the value-add is in the research process. The rest is stock valuation and risk control."
Janus has yet to be formally charged in the mutual fund trading scandal despite being one of the first four firms implicated. Meanwhile, another early culprit, Bank of America, and its merger partner FleetBoston, have agreed to a $675 settlement with the SEC and New York Attorney General Eliot Spitzer. (See story, page one.)
With Janus' own settlement still pending, it is difficult to assess the collateral damage from its involvement in the scandal. But the company did announce recently that it expects institutional clients to withdraw $4.5 billion from its funds in the first quarter.
Still, the company has made significant strides in the last six months in an effort to right the ship. As a result of its internal review of trading practices, Janus fired a number of employees and forced Garland's resignation. Since then, the company has bolstered redemption fees on its funds to deter market timers and added two more independent directors to its board. With a spate of regulatory proposals currently on the table, you can be sure there will be more to come on that front.
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