Janus to fold Berger after reorganization

It’s the mutual fund industry’s version of “Whatever Happened to Baby Jane?”

Last week’s announcement by Stilwell Financial Inc. of Kansas City, Mo., that it will consolidate its money management holdings under the umbrella of its flagship, Janus Capital Management Inc., sets the stage for a bitter rivalry between two Denver-based sister firms: Janus and the soon-to-be-defunct Berger Financial Group LLC.

Janus, by the way, plays the role of Jane, the down-and-out child star desperate to reclaim her glory; Berger plays Blanche, the soft-spoken sister and the target of Jane’s wrath.

Berger, in a statement released exclusively to InvestmentNews, indicated that its days are numbered. The late Bill Berger, a well-known growth investor, founded Berger in 1974. Today the company oversees $15 billion in assets and 11 mutual funds.

“We are very disappointed that the Berger brand will cease to exist,” the statement proclaimed. “Bill Berger was a legendary figure in the mutual fund industry, and it will be very sad to see the company that bears his name disappear.”

The move to dissolve Berger comes even as the smaller group is doing a better job than Janus in attracting new money. In the first seven months of 2002, Berger’s stock and bond funds picked up $689.2 million in new money, while Janus posted outflows of $9.7 billion, reports Financial Research Corp. in Boston.

Janus sustained $12.1 billion in outflows in 2001, compared with $641.3 million in inflows for Berger, according to FRC. The FRC figures do not include the 15 Janus Aspen funds, which are aimed primarily at institutional investors.

Donald Cassidy, senior research analyst at New York fund tracker Lipper Inc., says Janus is taking a big chance by doing away with the Berger name.

“Both names have equity in them right now,” he says. “The Berger name, perhaps because of the good performance of its value funds, might have a little more. It’s a bet that the market will change, and that Janus will have a new ascendancy and be king of the hill.”

Nevertheless, Janus’ move makes sense. While it’s presently taking a beating for investing too aggressively during the late 1990s, the company’s brand name is better known than Berger’s. And it would be costly for the new Janus to try to run two mutual fund companies, especially given their overlapping investment styles. Janus has been forced to lay off employees in recent years to keep expenses in line with dwindling assets.

“It’s inefficient for them to pursue a Procter & Gamble marketing strategy – having three different brands of detergent on the shelf,” says Burton Greenwald, a mutual fund consultant in Philadelphia.

Janus, which manages about $135 billion in assets and 64 mutual funds, already is considering plans to merge nine Berger funds into similarly managed funds of its own. The remaining funds, all of which are value funds, likely will be renamed under the Janus moniker.

lines in the sand

Shareholder approval of the overall retooling is not needed. But trustees and shareholders of the Berger funds must approve any change to the management of their funds.

Battle lines are being drawn between Berger and the new Janus.

“The trustees of the Berger Funds, not Janus or Stilwell, will be responsible for selecting a new adviser for these funds,” Berger said in an online statement. “The trustees have begun considering the alternatives.”

Berger executives expressed disappointment with the formation of a new Janus. They vowed, however, to assist in a smooth transition.

“We are disappointed that so many of our people will be losing their jobs as a result of the decision,” another statement said. “We have a moral obligation to perform our jobs to the highest standards until this transition is complete.”

Stilwell expects the consolidation – which essentially will dissolve that company – to save $40 million a year. The new company will be headquartered in Denver.

The agreement between Janus and Stilwell brings to an end the long-standing feud between the two entities over control of the company.

Janus portfolio managers have long lobbied for independence from Stilwell, which they viewed as an extra layer of bureaucracy. Stilwell resisted the effort, arguing that a stand-alone Janus would be too narrowly focused and would lack the financial wherewithal to compete with such giants as Fidelity Investments and Putnam Investments LLC, both based in Boston.

“We have clearly seen a new management team emerge at Janus,” says Stilwell chief executive Landon Rowland, who will become non-executive chairman of the new Janus holding company when the changes go into effect Dec. 31. “We’re very comfortable with that management team and its vision about Janus’ prospects.”

new direction

Mark Whiston, an 11-year Janus veteran, will lead the combined company as chief executive. Mr. Whiston, 41, rose steadily through Janus’ ranks.

A former executive at Fidelity, Mr. Whiston currently serves as president of retail and institutional services at Janus. He is responsible for overseeing the distribution of the company’s retail and institutional funds, as well as managing its institutional business.

In taking Janus’ reins, Mr. Whiston beat out Helen Young Hayes, the company’s managing director of investments. Ms. Hayes was widely viewed as a top contender for the position, which has been vacant since Janus founder Thomas H. Bailey stepped down in July.

Ms. Hayes, Mr. Whiston and Jim Craig, Janus’ former chief investment officer, will become directors of the new company. Three new independent board members are expected to be appointed by yearend.

Mr. Whiston says he is looking outside Janus for a new president.

“I’m taking this step because I want someone who will bring a really fresh perspective to the business,” he says. “I think it’s smart and strategic for us to add some additional talent and strengthen the bench of the Janus management team.”

Like retail investors, advisers who sell Janus’ funds will soon see an expanded menu of products from the new company. Janus, which began selling through advisers four years ago, oversees about $12 billion in adviser assets.