Confidence game: Janus bumps stake in INTECH to 89.5%
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April 10, 2008 01:00 AM

Confidence game: Janus bumps stake in INTECH to 89.5%

$61 million purchase values quant shop at $2 billion

Raquel Pichardo
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    Executives at Janus Capital Group, Denver, bought another piece of Enhanced Investment Technologies LLC, or INTECH, Palm Beach Gardens, Fla., late last month, raising its stake to 89.5%.

    “At the margin, their purchase signals their continued belief in that business,” said D.J. Neiman, associate analyst at William Blair & Co., Chicago, who follows Janus.Janus bought the 3% stake for $61 million, according to an April 2 filing with the Securities and Exchange Commission, giving INTECH a value of $2 billion.

    Generally, money managers’ profit margins have been squeezed as assets under management remain down or flat due to market impact, said Mr. Neiman. For INTECH, “investment performance is still very good, but we’re in an interesting environment overall and the industry is under pressure,” he said.

    Given the market conditions, Mr. Neiman was surprised the value of the company was $2 billion up from $1.8 billion in 2006, when money managers were under less stress. In each of the last two years, Janus has bumped up its stake in INTECH, which had $64.1 billion under management throughout its 11 portfolios as of Feb. 29, according the firm’s website.

    Last year, the mutual fund company bought a 4% chunk for $81 million, valuing the company at $2 billion, the same as earlier this month, and in 2006 it picked up a 5% piece. The 2006 deal valued INTECH at $1.8 billion.

    James Aber, a spokesman at Janus, declined to comment, saying the firm was in a quiet period preceding an April 24 earnings conference call.

    In a conference call with analysts a year ago, Janus officials indicated they planned to take a larger share of INTECH, but said they would stop short of owning 100%. Janus executives believe in employee ownership and will never own 100% of the subsidiary, according to Shelley Peterson, a Janus spokeswoman.

    Boom followed by a slowdown

    From 2002 to 2006, INTECH experienced exceptional growth in assets: from $7.3 billion under management to $62.3 billion.

    But then, as performance slumped, flows slowed. Between 2006 and 2007, assets grew 12%, vs. nearly 40% for the previous year. “The flat valuation is somewhat a reflection of what INTECH’s been doing this past year,” said Andrew Richards, equity analyst at Morningstar Inc., Chicago, referring to the money manager’s rate of asset growth.

    INTECH has had a rocky two years, with outflows touched off by poor performance. But performance — and flows — have turned around considerably.

    At the end of the fourth quarter, 77% of INTECH’s strategies were outperforming their benchmarks on a one-year basis, and 89% of those with a three-year track record were outperforming their benchmarks for that period.The firm’s $15.6 billion large-cap growth portfolio, its largest strategy, returned 1.27% gross of fees in the fourth quarter, outperforming its index, a mix of the Barra Growth Index and the S&P 500/Citigroup Growth Index, by 255 basis points, according to data on INTECH’s website. That was the first out-performance for that portfolio since the first quarter of 2006.

    INTECH had net inflows of $100 million for the fourth quarter, a dramatic improvement from the $2.2 billion in outflows during the third quarter.

    Morningstar’s Mr. Richards said a turnaround in performance could have helped stem the asset bleed. Also, “because of the institutional nature of the business, if they had even one client restructure their portfolio (in the third quarter), that could have hurt flows,” he said.

    Janus purchased INTECH in 2002 and, until recently, INTECH had served as the main growth driver for the firm.

    The company will not release first quarter results until later this month.

    CEO Black had a nice 2007

    Separately, Gary Black, Janus’ chief executive, has changed his employment agreement to give the compensation committee oversight of his pay, according to the regulatory filing. Mr. Black previously had a written employment contract but his pay can now be changed at any time at the discretion of the committee, said Mr. Aber. The change was Mr. Black’s decision and “reflects his confidence in the company’s ability to perform over the long term,” according to the filing.

    Mr. Black’s base pay in 2007 was $800,000, but he raked in a total of $9.2 million. He got $6.3 million in an incentive plan bonus, $1.1 million in options, $975,457 in stocks and the rest in “other compensation” like retirement benefits, according to Janus’ most recent proxy statement.

    In 2006, when he served as chief investment officer until Nov. 5 of that year, Mr. Black had the same base pay, but brought home $15 million, including a $9 million incentive plan bonus, $3 million in options and $2 million in stock.

    Mr. Aber, the Janus spokesman, declined to provide Mr. Black’s current salary.

    “His pay is median for the industry,” said Mr. Richards, referring to Mr. Black’s 2007 pay. His new contract is standard among other asset management firms, he said. “He’s symbolically endorsing his faith in the company,” said Morningstar’s Mr. Richards.

    Contact Raquel Pichardo at [email protected]

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