Janus Capital Group Inc., reeling from the twin blows this decade of a bear market in equities and a market-timing scandal that undermined its reputation, is taking a new approach under the new leadership installed last year.
Steve Scheid, Janus' chairman and chief executive officer, said the Denver money manager plans to expand its research team and stock coverage and increase sales in intermediary and institutional channels. Since last August, it increased its wholesaler staff by 50%, to 45 people in the intermediary sales division. And the company is looking to bolster its product mix and increase distribution in the 401(k) and insurance channels.
Janus' assets under management have fallen from more than $300 billion in early 2000, the last gasp of the bull market, to $130 billion at June 30 of this year. About $41.4 billion of the outflows have occurred since the beginning of 2003, compared with $527.5 billion of inflows to long-term funds industrywide. This encompasses the period during which Janus and many other fund companies were investigated in connection with allegedly allowing abusive trading in their funds.
In the midst of this turmoil, in April 2004, Mr. Scheid was promoted to chief executive officer, succeeding Mark Whiston, and Gary Black was hired to be president, a new post. Mr. Scheid, a former executive of the Charles Schwab Corp., had joined the Janus board as an independent director in December 2002 and became chairman the next month. In May 2004, Janus added two independent directors, Deborah R. Gatzek and Michael D. Bills. And in early June of this year, the company hired David Martin from Charles Schwab to be executive vice president of finance; a month later, he was chief financial officer as the incumbent, Loren Starr, resigned.
Mr. Scheid said in the next 12 months he hopes to increase sales by 8%. But he said he is focusing on expense reduction as well as asset growth; in the second half, the company will cut advertising spending from $15 million to between $3 million and $4 million.
"Really, when you get down to it, given where we are going with our strategy and where we expect flows to be over the next three to five years, we think we are better off putting an investment in distribution in the intermediary channels and pulling back on marketing," Mr. Scheid said. "When growth investing comes back, we can look at the flows and see where we want to go from there."
Janus boomed in the 1990s while market conditions favored its growth style of investing, but value investing has been the dominant style so far this decade, and it said it would look to hire a value-investing team in an effort to round out its product mix. And last month, it also said it was considering an acquisition to add alternative investments, including hedge funds, to its menu.
"We have good scale and good relationships in" the 401(k) and insurance channels, Mr. Scheid said; "it just takes time to make progress."
Profit fell substantially in the second quarter, to $25.7 million, from $130.2 million the year earlier, and revenue declined 3.5%, to $229.3 million. Assets under management at June 30 had fallen 1.1%, to $130.3 billion, since March 31. Mr. Scheid said that, though he remains optimistic, he expects a further $2 billion to $3 billion of net outflows in the second half.
He wants to move to a cheaper model of marketing that focuses on print advertising, Mr. Scheid said, and the company will reevaluate its advertising budget in a year to 18 months.
Mark Lane, an analyst at William Blair & Co. who covers Janus, said it changed its tone regarding expenses because the sales recovery has been slower than expected. The decision to cut advertising was easy, he said, because when Janus was investing in advertising it was not seeing strong flows anyway.
"In a perfect world, you'd like to spend money everywhere, but this is a plausible decision," Mr. Lane said. "Overall, the focus on expenses is highlighting the fact that the sales recovery has been slow, and that is because growth equities remain out of favor."
David Haas, an analyst at Friedman, Billings, Ramsey who covers Janus, said the company decided to cut the ad budget because advertising spending is the most variable cost a company has and the large ad spending last year did not generate strong flows. "If they are sort of going 'radio silent' through [the] most expensive media," he said, "they could give up some share of mind in the short term."
Mr. Scheid said the trend toward breaking even in asset flows continues, but "it has been a long, hard slog, and it has taken much longer to get to this point than we thought it would. This is our best quarter for net flows in two years."
He is not ready to discuss further specifics about Janus' strategy, Mr. Scheid said. "It is a very, very broad plan. We will lay out more in the third quarter. We plan to cut advertising while not hurting sales or performance."
