At Janus Capital Group of Denver, September wasn't such a bad month. But folks there may not be breaking out the fluted champagne glasses -- yet. After a brutal bear market that wrought havoc on the tech-heavy firm, and then the fund scandal, the question of whether or not the firm is finally turning the corner still remains.

Last week, the company optimistically reported that total assets under management at Sept. 30 had risen to $130.2 billion, a 1.9% increase from $127.8 billion the month before. Janus attributed the increase to at least a temporary ebbing of net outflows, combined with $1.7 billion in gross inflows into its Enhanced Investment Technologies quantitative investment management subsidiary, known as Intech.

In September, Janus saw positive inflows of $200 million in long-term assets, excluding money market funds, versus the $1.4 billion in net outflows it experienced in August. So far this year, through the end of August, Janus has lost more than $13.3 billion following the firm's hefty net redemptions of $15.2 billion in 2003 and $13.5 billion in 2002, according to Financial Research Corp. in Boston (see chart, page 9).

In fact, Janus has been steadily bleeding assets every year since 2001 after reaping a record $37.3 billion in 1999 and another eye-popping $40.6 billion in 2000, at the very pinnacle of the technology bubble.

"We're encouraged by last month's positive net flows, which reflect the significant contribution of our Intech subsidiary," said Steve Scheid, Janus' chairman and CEO, in a statement. "Our goal now is to leverage the strong relative performance of our core Janus funds so we can generate more broad-based sales," Blair Johnson, a Janus spokesman, told MME.

But things may get worse before they get better, according to equity analysts who track the asset management industry. In late July, Janus announced that it had been notified that an unnamed investor would be redeeming $5 billion from the firm by year's end (see MME 8/9/04). That intended redemption could push Janus' net outflows even higher.

"We think the net outflows will resume," said Robert Hansen, an equity analyst with Standard & Poor's in New York. "Their core equity business continues to suffer, and I think they've lost confidence with current and new investors as well as financial advisers."

"Turnarounds in the fund management business are extremely difficult, and their fund performance is still lagging," Hansen noted. Although their more recent performance is picking up, the firm is still noticeably lacking four- and five-star Morningstar-rated mutual funds, he added.

Analysts note that the firm's sole shining light has been its Intech unit, a company Janus acquired in February 2002. Intech, which has been managing institutional assets since 1987, employs a risk-managed, mathematically driven investment strategy that tries to capitalize on random stock price movements to beat passive indexes. From the time Janus acquired it through year-end 2003, Intech's assets have soared 138% from $6 billion to more than $14 billion. Year-to-date through the end of August, Intech's assets have climbed another 44% to $20.1 billion, confirmed a company spokeswoman.

Both value and quantitative investment strategies are gaining momentum and have been hot sectors of the market, Hansen said. But Intech represents just a small portion of the overall company, and at year-end 2003 accounted for a mere 9% of total assets under management, according to Janus' most recent annual report. At the end of August, Intech accounted for a larger, but still small, 15% of total assets. "As a percentage of the company, it is not enough to move the needle," Hansen said.

Intech is doing well and has seen about $3 billion in net inflows during the third quarter of 2004, said Mark Lane, an equity analyst with William Blair & Co. in Chicago. But the downside is that its institutional asset management business tends to be "lumpy," with volatile cash inflows, he said.

In addition, Intech's institutional mandate means that its management fees are lower than those of Janus' core equity products, making the unit marginally less profitable for the firm, said Robert Lee, senior vice president of Keefe, Bruyette & Woods, a New York investment bank.

So, the consensus seems to be that Intech has served as something of a life preserver for Janus--but will it last? Probably not, said Franklin Morton, a senior vice president at Ariel Capital Management in Chicago, which owns about 15% of Janus Capital stock. Intech's strong monthly inflows are not likely to be sustained over the long haul, Morton said. But that doesn't cast a pall over the firm, he added.

Despite the 14 months of bad press and fund performance losses in 2001 and 2002, Janus' core funds are showing excellent short-term performance, Morton said. Overall, although the funds' three- and five-year returns are still reflective of the steep losses of the bear market, the funds' longer-term, 10-year track records are great, he added. "Investment performance is the single most important thing and is what keeps me committed [to the firm]," Morton said.

Although the redemption rate for Janus' core funds is down and now running at about the same rate as the rest of the fund industry, gross sales for 2004 have been pretty flat, Lee said. "The key issue for them is in generating new sales," he said.

"The core Janus franchise is still suffering," Lane added. "They have a lot of sellable products, but you are seeing a franchise that is unable to attract assets" due to regulatory implications, Lane said. In April, the firm announced it had reached what would become a $225 million settlement with state and federal regulators that stemmed from frequent fund exchanges.

But it's not just the scandal that has hurt Janus, Lane continued. "Other companies' levels of wrongdoing were worse, but they are not suffering as much, so there has to be something more," he added.

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