Star flight may put Janus in orbit

Headhunters could have a field day with Janus Capital Corp.

The Denver company is struggling to maintain stability in the face of internal strife and pallid performance, and the possible defection of star money managers is its most immediate threat.

The telling moment will come as soon as the stars receive their year-end bonuses in the first quarter, according to industry sources.

“I wouldn’t be surprised if we saw a lot of key people leave Janus,” says Roy Weitz, publisher of FundAlarm.com, a website that tracks portfolio manager activity. “Morale at the firm is dropping, but it hasn’t gotten really ugly – yet.”

Among those likely to be courted most aggressively are Scott Schoelzel and Helen Young Hayes, managers of the $31 billion Janus Twenty Fund and the $37.7 billion Janus Worldwide Fund, respectively.

Mr. Schoelzel’s fund was down 16.75% for the 52 weeks ended Nov. 29, while Ms. Hayes’ was off 4.31%.

While the short-term performance of Mr. Schoelzel’s and Ms. Hayes’ funds is nothing to write home about, both managers are considered among the industry’s brightest stars. In 1999, Janus Worldwide gained 64.4%, while Janus Twenty jumped 64.9%.

In September, Jim Craig quit as Janus’ chief investment officer to run a new charitable foundation with his wife.

Pivotal role

Mr. Craig, 44, joined the company as an analyst in 1983 and played a pivotal role in transforming it from a single-fund shop with less than $300 million in assets under management to one that runs more than $300 billion today.

Many view Mr. Craig’s departure as a sign of things to come for Janus, which recently lost a contentious battle with its former owner, Kansas City Southern Industries, regarding the spinoff of the company into Stilwell Financial Inc.

With their no-fear style of growth investing out of favor with the market and their noses out of joint over Stilwell, it’s only a matter of time before some of Janus’ 23 managers decide to hit the road, observers say.

The defections will most likely begin during next year’s first quarter, when most fund companies award managers with their annual bonuses. It’s not uncommon for fund managers to wait until they’ve received their bonuses to make a job change.

“I have a couple of searches right now where the successful candidates are waiting for their bonuses,” says Alex Thomson, a fund industry recruiter at Pendleton & James Associates in Boston. “As soon as they get their bonuses, they are giving their notices.”

While salary levels vary widely, a typical large-cap growth manager of a top-performing fund can expect an annual bonus in the range of $750,000 to $2.75 million, on top of a base salary of $250,000.

Chairman and president Thomas H. Bailey declined to comment on the possibility of more defections. But Shelley Peterson, a company spokeswoman, says it isn’t something that keeps anyone at the nation’s fifth-largest fund group up at night.

“The rest of the world may speculate, but it’s just not a concern to us,” she says. “We have a very tight-knit group. Morale is actually very good.”

Indeed, Janus is well known for inspiring loyalty among its managers. In an industry where people change jobs like other people change light bulbs, Janus has done a pretty good job of retaining its top talent over the years.

Until recently, only one star employee had ever left the company. Thomas Marsico quit as manager of Janus Twenty in 1997 to start his own firm.

But life is very different at Janus today. The company’s heavy technology bets in such companies as America Online Inc. and Yahoo! Inc. have curdled in recent months, and many of Janus’ once-high-flying stock funds are cranking out lackluster returns.

Investors are beginning to take notice. Janus had retail fund outflows of $771.9 million in October after September redemptions of $45.6 million. September was the first time since December 1997 Janus had net outflows. The company has closed five funds this year, including the $46.4 billion Janus Fund.

Nevertheless, the company pulled in $36.9 billion in new money for the first 10 months of this year, versus $25.8 billion during the period one year ago, according to Financial Research Corp. in Boston.

Despite the current downturn, Burton Greenwald, a Philadelphia fund consultant, says, “The Janus cachet would still be very seductive in today’s marketplace.”

“Many of Janus’ people are apt to be wooed fairly ardently in the wake of Jim Craig’s resignation and the realignment of Janus as part of Stilwell,” Mr. Greenwald adds.

Pendleton & James’ Mr. Thomson agrees. “Janus’ name is starting to come up a lot now because many clients view it as a firm that has a lot of good people who may be feeling disenfranchised,” he says.

Road map

Besides Mr. Schoelzel and Ms. Hayes, other Janus managers likely to be targeted are Warren Lammert, who oversees the $16.3 billion Janus Mercury Fund; David Decker, manager of the $1.6 billion Janus Special Situations Fund and the $3.1 billion Janus Strategic Value Fund; Jim Goff, who runs the $8 billion Janus Enterprise Fund; and Blaine Rollins, who manages the Janus Fund.

It’s doubtful that Janus managers would land at large, well-established fund companies such as Boston giants Fidelity Investments or Putnam Investments.

That’s because Janus managers are widely considered to be among the highest paid in the industry and it’s unlikely a big fund group would risk upsetting its existing management team by paying top dollar for an outsider.

More likely, a Janus manager would join a small but aggressively growing fund company – one that wouldn’t balk at having to pay up to put itself on the map by attracting a marquee name. That possibility becomes even more likely if the company gives the manager an ownership stake in the business.

Then there’s the possibility that a Janus manager would strike out on his or her own. After all, it worked wonders for Mr. Marsico, who left to form his own company, Marsico Capital Management. By Sept. 30, the Denver company had more than $16 billion in assets, including $4 billion in mutual funds.

Mr. Marsico sold his company to Bank of America in July for $1.1 billion.

“Marsico has shown them the road map,” says FundAlarm.com’s Mr. Weitz. “I wouldn’t be surprised to see someone like Helen Young Hayes go out and pick up $1 billion – even in this kind of a market.”