Janus Capital Group's hiring of bond guru William H. Gross is expected to bring the Denver firm its first overall net inflows in 4½ years and boost its $177.7 billion in assets under management by up to 25% over the next several years, analysts say.
Initial inflows likely will come from retail investors rather than institutional ones, analysts interviewed for this story said.
The arrival of Mr. Gross could also help boost the firm's growth in Japan, where it has a 2-year-old strategic relationship with Dai-Ichi Life Insurance Co. Ltd.
“Without a doubt it's transformational for Janus,” Jason Weyeneth, analyst at Sterne Agee Group Inc., New York, said of the hiring of Mr. Gross. “It takes a lot of pressure away from turning around the equity franchise.”
Mr. Weyeneth predicted Mr. Gross' arrival will bring in $45 billion in new assets by the end of 2016.
Despite a profit margin of around 30%, publicly traded Janus has been riding equity market gains to earn more fees to produce profits. Its largest strategies, $81 billion in fundamental equity and about $50 billion in quantitative equities — have been in long-term outflow mode.
Mr. Gross joined Janus' $31.4 billion fixed-income business, one of the company's bright spots, with net inflows of $18.1 billion since 2009.
He reports to Janus CEO Richard Weil, not the CIO for fixed income, Gibson Smith. Mr. Weil worked at PIMCO for 15 years before joining Janus in February 2010.
Mr. Smith said in an interview that it made sense for Mr. Gross to report to Mr. Weil. “Dick and Bill worked together at PIMCO, I think it's logical in light of their relationship,” Mr. Smith said.
He said Mr. Gross' top-down investment approach will offer an alternative to the fixed-income investment team's bottom-up approach.
Just how many assets Mr. Gross will bring in to Janus is subject to debate. One analyst, Robert Lee of Keefe, Bruyette & Woods Inc., New York, predicted inflows of $30 billion through 2016.
“It was kind of a no-brainer for them,” said Mr. Lee of Mr. Gross' hiring. “His investment reputation precedes him.”
William Katz, an analyst at Citibank, New York, wrote in an Oct. 3 report that the market has already anticipated $25 billion to $50 billion in inflows to Janus because of Mr. Gross' move, “setting up for possible disappointment should AUM growth lag such lofty expectations.“
Asked what Mr. Gross' arrival at Janus could mean for the tie-up with Dai-Ichi Life Insurance, a spokeswoman for the Tokyo-based insurance giant suggested company officials view him as a potential manager of Dai-Ichi general account money and might consider distributing his funds in Japan.
When asked if Dai-Ichi Life might allocate more money for Mr. Gross to manage, she said in an e-mail that company officials are “proactively considering investment into the fund depending on further due diligence.”
When Janus announced on Sept. 26 that Mr. Gross was leaving Pacific Investment Management Co. to join the firm, its stock increased 46%, hitting a 52-week high of $15.95. Janus stock closed at $13.95 on Oct. 10.
Mr. Katz said in an interview he expects retail investors will drive the inflows to Janus initially. He added consultants to institutional investors might be slower to embrace Mr. Gross and Janus.
“If I was a consultant, I would have to be somewhat concerned about how things ended at PIMCO and also wonder, given his long time in the business, whether Janus in a few years would ultimately face the same succession issues that occurred at PIMCO,” he said.
Mr. Gross had some high-profile disputes with other employees, including Mohamed El-Erian. Messrs. Gross and El-Erian were co-chief investment officers. Mr. El-Erian resigned earlier in the year. Mr. Gross' behavior was called erratic by some employees, who threatened to resign if he was not fired.
