If advisers needed a go-go growth fund in the late 1990s, they probably turned to Janus Capital Group. Yet the aggressive strategy that Janus used to manage most of its funds ultimately backfired. After the tech bubble burst, the Janus name became a synonym for corporate management turmoil, manager exodus and vast fund outflows.
And all of this appalling news was before New York Attorney General Eliot Spitzer's allegations describing how Janus, along with a growing list of mutual fund companies, had engaged in abusive trading practices. And the fallout from the ongoing scandal has sucked considerable money out of Janus at a time when most fund companies were enjoying a rebound in the markets. Through November of last year, investors pulled $12.2 billion out of the Denver-based company's mutual funds, a drop of 15% from the start of the year, according to Financial Research Corp.
Although Janus built its brand name among individual investors, it also relies heavily on financial advisers and institutions for distribution. Close to half of the $152 billion in the assets it manages comes from these two sources.
"They ran to the sector that was hot, which stayed hot for some time, so they looked brilliant," said Bill Wixon, a planner in Plymouth, Minn. "Janus Worldwide was one [fund] that I actually liked, [but] when [portfolio manager] Helen Young Hayes left (see MME 4/28/03), I lost my last motivation to use them. Frankly, why would you dump money there as opposed to American Funds?"
Answering that sort of question is now up to Erich Gerth, senior vice president and director of Janus Global Advisers, who oversees international and domestic broker/dealer, registered investment adviser (RIA) and institutional distribution business. Gerth joined Janus last July after a stint as national sales director at Goldman Sachs Asset Management. So, after barely a month of joining the firm, Gerth went from the frying pan into the fund-trading fire.
Gerth's first response was to think more carefully about how to put out the flames. "We're trying to take a narrower and deeper approach to distribution, rather than a broad approach, which may have been the case here and throughout the market prior to the bear market," Gerth said. "We must make sure we are consistently in front of our clients, and that's what I have impressed on our salespeople." Along those lines, Gerth has hired eight new regional sales directors, bringing the wholesaler force to 18.
Their first task is to improve their relationships with planners, who in the past have often felt that Janus was arrogant and resented not being able to talk to its superstar managers.
"With RIAs and the planning community, we want to identify our clients and provide them with a platinum-level of service," the 40-year-old Gerth said.
Better service aside, advisers point to performance and fund management as the obvious keys to bringing Janus back into favor. During the bubble, most Janus funds invested in the same large-cap growth and tech stocks, like AOL, Nokia and Cisco. As its assets swelled, Janus seemed to make little effort to diversify the separate fund holdings.
Stephan Cassaday, of Cassaday and Co. in McLean, Va., got nervous as the funds ballooned in size. "We were seeing such a big percentage of daily fund inflows going to Janus in the late 1990s," he recalled. "The crowd going wild [was] bad."
To encourage advisers, Janus is broadening its product offerings and taking a more conservative approach in many of its funds. Its former parent, Stilwell Financial, bought other fund managers during the market boom, including Berger, Bay Isle Financial, Intech and 30% of Perkins, Wolf, McDonnell and Co. The acquired talent has allowed Janus to add value and small- and mid-cap offerings to its fund family, helping offset the blowup in its core growth funds and the departures of many senior fund executives. Although the turnover and turmoil have affected the firm, its fund managers have quietly put together a credible 2003. The Janus Growth & Income and Janus Mid Cap Value returned 24.7% and 35%, respectively, in the year.
And some advisers say they appreciate the firm's immediate communication with advisers when the first mutual fund scandal broke last fall.
Others, though, are taking a wait-and-see attitude.
For most, though, the checklist that Janus must meet to get back into favor is a long one. "It would take some evidence that all of the people who broke the law are gone and that all of the funds no longer look alike," Wixon said.
Still, one testament to the firm's staying power is the fact that many value managers, including Ariel Capital and Davis Selected Advisers, have bought the company's stock, figuring that its strong brand name and new management will see it through the tough times. Bill Jacobs, an analyst with Harris Associates, investment adviser to the Oakmark family of funds, views Janus as a trustworthy growth name, in spite of all of its problems. Harris recently held a 4.6% stake in Janus's shares.
Other advisers worry that in its haste to right its wrongs, Janus might stray from that growth bent. Gerth is not worried about forcing a new image on the firm that won't fit.
"Done right, you can clearly transition," he maintains. "Our job is to tell a concise story and show the proof that we are more than a growth manager. We are optimistic because we are not trying to do it organically. That would be far more challenging."
In other words, Janus will look to the acquisitions it made, to run the value offerings, while its core growth style tries to repair itself and get ready for the next sustained market move up.
How many advisers will be along for the ride still remains to be seen.
Laurie Kulikowski is online managing editor of sister publication Financial Planning.
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