Janus Capital Group's strategic alliance with one of Japan's largest insurance companies was widely viewed as a positive move, but the deal doesn't change the need for the Denver-based money manager to improve its performance and asset flows, according to analysts and investment bankers.
Janus' stock received a 10% boost following the Aug. 10 announcement of the deal with Dai-ichi Life Insurance Co. Ltd., Tokyo, that will see the Japanese company gain a 15% to 20% equity stake in Janus over the next year. Janus also will manage $2 billion in Dai-ichi general account assets in what could spur a string of similar cross-global deals between large Japanese financial institutions and U.S. money managers in the near future, sources said.
Craig Siegenthaler, a New York-based analyst with Credit Suisse Group, said the alliance will add to Janus' $152.4 billion in assets under management and also will expand Janus' international client base by linking it with a global distributor. Still, Mr. Siegenthaler remained neutral on the stock, citing fund performance as an ongoing concern. Janus has experienced net outflows in the last 12 quarters as many of its equity offerings have underperformed and institutional investors in general move more assets into fixed income from equities.
“Mainly it's a technical positive due to future Dai-ichi buying,” Mr. Siegenthaler said. “It shouldn't significantly change the underlying fundamentals.”
The six largest separate account strategies offered by Janus and its affiliates, with $60.75 billion in assets, all trailed their benchmarks for one-year returns as of June 30 with an underperformance range of 44 basis points to 13.1 percentage points, according to data from eVestment Alliance, Marietta, Ga. For the three years ended June 30, only the INTECH U.S. Enhanced Plus strategy outperformed its three-year benchmark, 17.1% vs. 16.4%; the other five had underperformance ranging from 178 basis points to 678 basis points.
Janus, which already has several offices in Asia, is partnering with Dai-ichi as falling markets and client withdrawals erode assets and the fees charged for overseeing them. Janus' $152.4 billion in AUM for the quarter ended June 30 was down 7.1% from three months earlier and was 10% less than a year ago. Clients pulled $3.9 billion from the firm in the quarter, including $2 billion from Janus-branded products, $2.5 billion from its quantitative investing unit INTECH and $500 million from its Perkins unit, which specializes in value stocks. Meanwhile, Janus' fixed-income products had $1.1 billion in inflows.
Michael Kim, New York-based analyst at Sandler O'Neill & Partners LP, agreed the Dai-ichi alliance makes sense to expand Janus' global footprint, but any additional upside is “dependent on sustained improvement in performance” as Janus' fundamental challenges still exist. “They are still dealing with considerable performance and redemption issues,” Mr. Kim said. “Negative performance fees likely will remain a drag on earnings for the foreseeable future.”
Janus CEO Richard Weil said in an interview the alliance with Dai-ichi fit with the firm's overall strategy to increase its global client base. Janus had been in discussions with other firms about a similar partnership, but went with Dai-ichi after more than two years of talks because of the insurer's reputation, distribution channels and the fact that Dai-ichi will acquire its equity stake through open-market purchases, Mr. Weil said.