Janus: Down but far from out

When Jim Craig resigned as head of the inspired brain trust of Janus Capital Corp. in August, many saw it as a sign – after a tortured period of losses – that the bloom was finally off the rose in Denver.

Mr. Craig, a brilliant strategist and recruiter of talent, was largely responsible for the Colorado company’s success in catapulting to $300 billion in assets, from $10 billion, in nine years.

rebound bound

But despite his departure, declining fund performance, the slumping Nasdaq Composite Index and some highly visible corporate restructuring at its parent company, Janus has largely kept its reputation and its asset base intact.

But those traumas and others heralded the beginning of a new era at Janus that is increasing the mutual fund giant’s emphasis on independent investment advisers.

Until six years ago, not a single Janus employee was dedicated to servicing advisers. Then it hired one person for the East Coast and one for the West Coast.

In the past year, it has created a technology platform that funnels information to advisers, and since January, it has doubled the number of staffers dedicated to advisers even as it has laid off thousands of other employees.

Two recent additions to Janus’ RIA sales force in Denver follow up on calls, make appointments for its outside sales force and make cold calls to smaller investment advisers with good growth prospects.

not in time?

Advisers say it is clear that Janus is playing catch-up with them, but it could be too little, too late.

“I’ve gotten more information from Janus in the past 12 months than I have in the past three years,” says Carlo Pannacione, a principal with Navigation Group in Redwood City, Calif.

Indeed, Janus has always believed that it could deliver the results investors seek and that additional service employees nicked performance by adding to costs.

George Hagerman, director of the registered investment adviser group for Janus Funds, says that recent events have inspired his firm to spend more to stroke advisers.

“I looked at it from the standpoint of retention,” he says. “The press was beating us pretty hard, and it looked like we’d need a lot more support.”

paying the freight

And there are plenty of Janus advisers to retain.

A study on registered advisers published in February by Tiburon (Calif.) Strategic Advisors found that 61% of those surveyed use Janus Funds, compared with Invesco at 46%, Fidelity Investments at 43% and Vanguard at 42%.

Mr. Hagerman says that he can justify the additional expense because advisers are paying the freight.

Since the beginning of the year, Janus’ overall redemption rate has remained almost neutral – but only because assets flowing in from the clients of advisers are balancing out redemptions by retail investors.

That trend is pervasive enough that the executive and portfolio management suite of Janus Funds itself has made courting RIAs a top priority.

Recently, a group of Linsco/Private Ledger Corp. analysts went to Denver to get answers on behalf of their firm’s 3,600 advisers.

Collectively, the advisers saw tens of millions of dollars erased from clients’ Janus holdings during the past year’s technology debacle.

“We go [to Denver] especially in times when there’s publicity like this, and we report back to our advisers,” says Jim Putnam, LPL’s national sales director for Janus Funds.

But after a day-long meeting with Janus’ portfolio managers and analysts in Denver, the LPL team came away with a good feeling.

“They seem to be doing the right things,” Mr. Putnam says.

The right things include replacing Jim Craig’s position with a high-powered committee and keeping the company on track with its mission of buying growth stocks, growth stocks and more growth stocks.

S. Timothy Kochis, president of Kochis Fitz Tracy & Gott Inc. in San Francisco, says he also called a meeting with Janus to get reassurance on behalf of his clients.

“Some of our clients have experienced concerns about Janus – like the turmoil with KC Southern,” he says. “We say: `We’re aware of it, and it’s not a problem.’ They stick to their strategy.”

a stormy period

Thomas H. Bailey, chairman of Janus Capital Corp., waged a public battle against Kansas City Southern Industries Inc. when it created Stilwell Financial Inc. as a holding company for Janus along with Berger LLC, Nelson Money Managers PLC and DST Systems Inc.

Mr. Bailey was given no power and no shares in the new venture, which made some investors wonder whether he would leave to start his own shop. But he has stayed on.

Still, Mr. Kochis says that he invests only in the Janus Overseas Fund, and it is only one of three large-cap international funds that he utilizes.

Meanwhile, Mr. Pannacione says Janus faces fresh challenges with advisers when it comes to winning new accounts.

When he re-balanced the asset allocations in his clients’ portfolios in January to reduce technology holdings, Janus funds were the first to go.

That’s because most Janus funds use “growth” as their strategy, and so they contain a hybrid of technology and other companies.

That made it easier to use technology-specific funds to achieve the precise asset allocation he sought.

It reduced the number of his accounts with Janus funds to less than 10, from more than 50, he says.

A portfolio manager for a competing mutual fund company says that Janus faces another challenge: Huge capital gains in its funds have built up over the past decade. That means new investors have to sustain both volatility and the tax hits from realizing those gains.

“Newer investors get a painful double play,” he says. “That could wear down the loyalty even of the advisers.”

But Mr. Pannacione also finds that competition from copycat funds makes Janus funds stand out far less than they did years ago.

“Now everybody has alphabet-soup pricing,” which includes no-load offerings, he says.

“It’s now a matter of performance and the support they’re willing to give advisers.”