Posted on: Sunday, April 11, 2004
Janus seeks to regain investors' confidence
By Allan Drury
The (Westchester, N.Y.) Journal News
As the stock market staged its greatest bull run ever during the late 1990s, Janus Capital Group Inc. seemed to have the perfect model for mutual fund investors who wanted rapid growth and weren't frightened by risk.
Janus emphasized funds that were heavy with pricey technology, media and telecommunications stocks.
Janus favorites like Cisco Systems Inc., America OnLine Inc. and Amazon.com soared, producing double-digit percentage gains for fund investors. Wall Street liked the concept, too, pushing the stock of Stilwell Financial Inc., which was Janus' parent company until January 2003, to $54 a share by September 2000.
But that was before the stock market downturn and New York Attorney General Eliot Spitzer's allegations that Janus allowed improper trades shrank investors' portfolios and confidence in the Denver-based company.
Investors responded by pulling their money out of Janus funds. The outflows and depreciation in stock values reduced the company's assets under management from $250 billion in 2000 to $147.5 billion in February.
More than 4 million investors depend on the expertise of Janus managers to make their money grow. The company, which calls itself the ninth-largest mutual fund complex in the United States, markets 28 direct funds directly to investors, 17 funds through advisers and 16 funds to investors outside the United States.
Steve Belgrad, Janus' vice president and treasurer, acknowledged the publicity from Spitzer's allegations and the poor performance of some of Janus' funds during the bear market of 2000 to 2002 caused money to flow out of the company's funds.
Janus may have taken a particularly hard hit from the publicity because its brand is so well known, he said.
But he said the revelations of market timing have prompted the company to place new emphasis on its responsibility to fund shareholders.
The company has brought in several new executives, appointed an independent chairman and initiated research on about 250 more stocks, he said.
Janus' latest step came when it hired Gary Black, whom Institutional Investor magazine named a top analyst for six straight years, to serve as president and chief investment officer.
A research report by Guy Moszkowski, an analyst at Merrill Lynch & Co. Inc., said the company's willingness to pay Black $34 million over three years shows the importance the company is placing on having someone in the job to bring in and hold assets.
Despite the turmoil, Janus earned $949.9 million, or $4.14 a share, last year.
Janus was one of the first companies Spitzer named last September when he announced that some of the industry's largest players had allowed favored, elite investors to make improper market-timing trades, diluting returns for other fund shareholders.
Market timing involves making rapid trades in and out of funds to take advantage of inefficiencies in the way shares are priced.
Paul Levis, president of Summit Financial Consultants in Yonkers, said Spitzer's allegations hit Janus particularly hard because the company features a number of no-load mutual funds.
Those are funds investors buy without paying a sales commission and often without an adviser. The decisions of these retail investors are heavily influenced by the publicity a mutual fund company gets, Levis said.
"As investment advisers we're given the difficult task of presenting information clearly to our clients," he said. "I might lose a client's confidence if I recommend a fund from a company that's been implicated in the scandal."
