Money Manager Magazine and Thomson Media about mutual funds and fiduciaries
$5B Pulled From Janus May Spark Activity
August 9, 2004
Janus Capital has had to withstand some face slapping from investors while it
attempts to cure its ailing business, but it may soon run out of available cheek
space as the hits keep coming.
The Denver-based fund shop, which has endured a facelift of senior management, a
massive settlement with regulators and extremely poor performance over the
course of the bear market, was dealt another blow late last month when one of
its investors alerted the firm it plans to redeem $5 billion by year's end. The
unnamed investor, which is widely suspected to be a pension plan, notified Janus
shortly after the firm's July 22, second-quarter earnings call and said that its
board of governors will vote on the withdrawal in early August.
Some experts think this move signals a new wave of redemptions, and not just at
Janus. "I think there's going to be a continued run on a number of mutual fund
families, as some of the internal news at those funds is a lot worse than what
we're hearing now in the public. The problems run a lot deeper than is being
acknowledged," said Randy Herz, a 401(k) adviser and senior vice president at
Herz Financial in Firmington, Conn., and Boca Raton, Fla. "I think you will see
more institutional investors and more big money start to crack down and move
As for Janus, the news of the withdrawal comes on the heels of a less-than-rosy
second-quarter conference call in which the firm said earnings would be down 5
cents to 6 cents a share for the second half of the year due to fee reductions
agreed to in settlements and lower asset levels. However, these predictions were
made on the assumption that assets would remain at the $135 billion mark. The $5
billion expected to leave Janus represents 3.7% of its assets and eclipses the
$3.5 billion in redemptions the firm suffered year-to-date through the end of
June, according to Financial Research Corp.
"We're disappointed when any client comes to this conclusion, especially given
our improved performance and the steps we've taken to put our fund holders
first," said Steve Scheid, Janus' chief executive, in a statement. Janus
declined to name the investor.
While the investor may remain unknown, some of Janus' problems are not. Scott A.
Wertheim, vice president at New York brokerage Wall Street Access, in charge of
the firm's retirement plan division, said the combination of poor fund
performance, a new management team and a high portfolio manager turnover are all
factors that can drive investors away. "All the stars of Janus are virtually
gone," he said. Wertheim also noted that the firm recently replaced Laurence
Chang as manager of one of its most well-known funds, the Janus Worldwide fund,
after only a short stint at the helm. Jason Yee took over for Chang, who
succeeded Helen Young Hayes in early 2003, when she unexpectedly retired.
However, the scandal alone is generally not enough to fuel a move. Typically,
performance needs to be off, or there needs to be some other significant
problem. "None of our clients has made changes from plan providers, and I would
imagine that most people in the industry have gone through and evaluated what
they're going to do by now," Wertheim said. "The mass exodus out of different
providers has come to a slowdown period at this point." Wertheim said he
expected those who were going to make a move would have done so by June 30.
Others are not so sure. "The timing may be more associated with what they know
about internally at the firms, and it is probably a sign of more news to come
out of those fund families," said Herz, who consults with medium and large
employers on 401(k) platforms. "This whole thing is not done. There is a lot
more bad stuff that's going on."
Several executives at companies Herz advises are uncomfortable with having
scandal-tainted funds on their platform. "We're meeting with them and they're
saying, Do we really want to have Janus in here?'" He said as the news has made
it more to the mainstream, and with average investors becoming educated on
malfeasance, plan sponsors are less comfortable exposing employees to some of
Bruce Fenton's opinion lies somewhere between that of Herz' and Wertheim's.
Fenton, president of Atlantic Financial, a company with corporate and individual
clients in Westboro, Mass., anticipates more institutional clients moving their
money in the coming months, but not to the same degree as in the early stages of
"It's a complex world for these fiduciaries, and it's a very serious matter for
them," Fenton said. "I think some of them may have rushed to judgment because
they moved out of one fund family into another that had exactly the same
situation that they moved out of."
Fenton said fiduciaries are facing all sorts of new issues and questions
concerning plan policy. "If they're moving from one family for a certain reason,
is that going to be their policy forever? What happens if the next family they
move to has exactly the same problems? Are they going to move again and again?
Every time they move it costs money and they have to wonder whether they are
being prudent." Fenton also said fiduciaries are concerned about liability,
especially if they vacate one shop only to move into another where it is later
revealed there are more serious problems. If they then stay put, does that open
them up to liability?