DENVER - Consultants are keeping a watchful eye on developments at Janus Capital Corp., but say their defined contribution clients, while concerned, aren't ready to cut ties with the Denver-based money manager.
The February announcements that the mutual fund manager's parent company would buy back $200 million in shares of Janus common stock from senior Janus executives and investment managers, and another $145 million from other Janus employees, was "inconsistent with what we thought their long-term objectives were - and inconsistency never looks good," said Ruthann Moomy, senior vice president at Callan Associates in Denver.
The transactions will reduce employee ownership of Janus to 2.4% and increase Kansas City, Mo.-based Stilwell Financial Inc.'s share of the company to 91.4%.
In January, Janus Chief Executive Officer Thomas Bailey decided to sell half his stake in Janus back to Stilwell, cutting his share of Janus to 6.2%. The transactions also come after Janus executives waged an unsuccessful battle to avoid being part of former parent Kansas City Southern Industries Inc.'s July spinoff of Stilwell, because they wanted Janus to become independently owned.
Now, the main point of speculation among observers is whether the buyback could be a precursor to portfolio manager defections.
Janus spokeswoman Shelley Peterson said the fear is unfounded. "There has been absolutely no indication from portfolio management that anyone is leaving," she said. Morale is high within the portfolio management ranks and "people are very excited about the team we have in place right now."
From Janus' point of view, she said, the buyback opened the door for management personnel to sell back stock while they still work there, whereas normally the option would be available only to those who left the company. "It created a very level playing field so a lot of people could unlock some of the value that they've created in Janus," she said.
Mark Guinney, consultant at Watson Wyatt Worldwide in San Francisco, said the possibility of key Janus investment personnel leaving is the greatest risk to his clients, a number of whom, particularly in the defined contribution area, have expressed concerns about the company.
"It is something we're watching very closely," he said.
Mr. Guinney doesn't read too much into the sellback announcement, "but if we saw further departures we would have a great deal of concern," he said, referring to James Craig, who retired at the end of 1999 after managing the Janus Fund for 14 years.
While Watson Wyatt clients have asked the consultant to keep a close eye on Janus, none has has terminated the firm. "A lot of the plan sponsors like having that name recognition to present to their participants," he said.
For its part, Janus has increased its focus on the institutional marketplace.
Last year, institutional assets under management surpassed retail assets. Janus had $139 billion in institutional assets as of Dec. 31, up from $119.1 billion a year earlier. Retail assets at Janus were $109.7 billion as of Dec. 31, down from $130.4 a year earlier.
In January, money from institutional investors kept the firm in positive territory in terms of net inflows, despite net outflows on the retail side. "Institutional business has been very strong for us," Ms. Peterson said. "We continue to see strong and steady inflows on the institutional side."
As for Janus' portfolio managers, said Roxanne Fleszar, principal with consultant Financial Resources Management Corp., Peabody, Mass., "There's a whole culture there. I think it's going to take a lot for that culture to break down." The firm's success, its "family atmosphere" and the Rocky Mountain surroundings attracted people to Janus in the first place and would be difficult to duplicate at another money management firm, she said.
If portfolio managers left, there would be cause for concern, but other than Mr. Craig, no key investment people have left recently.
Perhaps the most important point about Janus, she said, is that its funds have remained true to their discipline, even as returns suffered once the market began to drop. "They're growth-style managers and the growth style, large-cap in particular, is out of favor right now. So they're not doing anything wrong," Ms. Fleszar said.
Clients are concerned, she said, but she is not recommending any pull the plug. The only fund that she has on watch is the Janus Fund, because of the portfolio manager change that occurred when Blaine Rollins replaced Mr. Craig. "I think Blaine did a great job in his first year," she said, adding that she keeps such funds on watch for a couple of years.
Watson Wyatt's Mr. Guinney doesn't think the portfolio managers would leave Janus for many of the same reasons as Ms. Fleszar. If anything, he said, "they may decide to take their winnings and retire" or move on to other things. He isn't concerned as much about the managers being poached by another firm.
On the investment performance side, the Janus mutual fund family - which has been the top-selling mutual fund family over the last two years, attracting $37 billion in net flows in 2000 alone, according to FRC - has been hit by the stock market slump after riding high on the bull market.
Russell Kinnell, analyst at Morningstar Inc., Chicago, said the outflows Janus experienced in late 2000 had more to do with the market downturn and the fact Janus has closed many of its largest funds, and less to do with organizational issues.
Mr. Kinnell said the manager sellback could be interpreted in two ways: one, as a precursor to management changes; or two, as a way for Janus employees to diversify their holdings.
Of the first possibility, he thinks it would take a lot for Helen Young Hayes, who manages Janus Worldwide and Overseas funds, or Warren Lammert, who runs the Janus Mercury Fund, to leave the firm given all they've put into it to build it up. If one manager does leave and everyone else stays, said Mr. Kinnell, "that's pretty much business as usual for most money managers, so I don't see it falling apart."
To the second point, he said, "It could mean that they don't expect Janus' growth rate to be as great. If that's all it is, then who cares from a fund investor's point of view. You'd rather they didn't grow as fast as they have the last couple of years."
Stephen Holmes, president of St. Louis-based consulting firm Summit Strategies Group, agrees with Mr. Kinnell. While the sellback might be difficult to perceive as a sign of commitment by the parent company, Mr. Holmes said, it also could be viewed as a great opportunity for employees to sell. "Janus has been an incredible success story," he said, and it will be difficult to repeat the success they've had in the last 10 years. "It's a great time to take some chips off the table and spread them out a little bit"