Janus Plans for Life After the Tech Bubble
By AARON LUCCHETTI
Staff Reporter of THE WALL STREET JOURNAL
After several years of riding high on a wave of New Economy optimism,
Janus Capital Corp. is coming back to Earth to face the tough post-bubble
future.
Officials at the Denver mutual-fund firm, a
unit of Stilwell Financial Inc., have become
increasingly concerned that Janus's
phenomenal growth rate during the past
three years probably is gone forever, according to an internal company
memorandum. To improve customer service while also helping maintain
profits, the memo outlines plans to greatly expand the company's use of the
Internet and to shift investors away from doing business over the telephone
with live representatives.
"The last few years at Janus have certainly been extraordinary, as we've
experienced unprecedented growth in assets," Janus marketing chief Stuart
Novek said in the internal memo to top executives written in late summer
and more widely distributed to company officials last month. "With that
said, however, we now need to recognize that the kind of top-line growth
we've seen at Janus over the last few years is likely to be gone forever,"
Mr. Novek wrote.
Indeed, "top-line" revenue growth has ballooned as Janus's mutual funds
grew to more than $300 billion, from less than $100 billion three years
earlier. But Janus's heavy technology bets on investments such as Nokia
Corp., America Online Inc. and Priceline.com Inc. have soured, and 12 of
the 14 Janus stock funds are down for the year through Friday. That has
cut into Janus's assets under management and the percentage-based fee it
collects on those assets.
In addition, investors have begun withdrawing money from the company's
retail stock funds. Until this year's tech slowdown, investors were pouring
cash into Janus; It received new money at the rate of more than $13 million
an hour in the first quarter, for example. Janus portfolio managers couldn't
invest it quickly enough, and several funds grew so large that they closed
their doors to new investors, bringing the total number of closed Janus
funds to eight.
Regardless of how our success is quantified, everyone agrees that Janus has
emerged as one of our industry's elite few.
With that said, however, we now need to recognize that the kind of top-line growth
we've seen at Janus over the last few years is likely to be gone forever. For many
reasons -- both Janus and industry related -- the days of 100% asset and revenue
growth are behind us; therefore, delivering superior margins will become far more
difficult over the coming years. ... "
-- Excerpt from a Janus internal memo
But in October, Janus had withdrawals of about $700 million from its retail
stock funds because of investor defections, according to AMG Data
Services, Arcata, Calif. It was the second consecutive month in which
money flowed out after 32 consecutive months of new money rolling in.
The combination of declining prices for stocks in Janus portfolios and
investor withdrawals caused assets under management by Janus parent
Stilwell to drop by more than $15 billion in October.
Janus officials point out that the defections also are balanced out somewhat
by new money still flowing in through financial advisers, insurance
companies and other institutions. And even with the latest withdrawals,
investors have poured more than $35 billion in net new money into Janus
funds this year, far more than received by any other fund firm. Still, Janus
officials say they are planning a major initiative to cut costs and "reinvent"
the way the company does business.
Employee productivity has to improve "before we begin facing the
inevitable rapid decline" of revenue and asset growth, Mr. Novek wrote in
the memo. "For many reasons, both Janus and industry related, the days of
100% asset and revenue growth are behind us; therefore, delivering
superior margins will become far more difficult over the coming years."
Janus's management, usually tight-lipped about the company's strategies, is
beginning an effort to cut costs by steering more of its four million
mutual-fund shareholders to the Internet. Next month, the firm is launching
a revamped Web site that will give investors the ability to open up new
accounts electronically for the first time, as well as buy and sell Janus
funds.
Janus also will offer account information personalized for many of its
investors on the Web site so that they won't have to call the company's
phone centers as frequently. Earlier this year, Janus hired 1,000 temporary
workers to handle the surging phone volumes flowing into its call centers in
Denver and Austin, Texas. "Call volumes can spike up incredibly, and that
poses a lot of staffing problems," says Janus spokeswoman Jane Ingalls.
While potentially saving money, the Janus program "is less about cutting
costs than it is about making our shareholders' experience with us better,
faster and easier," Ms. Ingalls says. "Cost-cutting is a natural outgrowth of
becoming more efficient. It's not, however, a starting point."
Stilwell Financial, which was spun off by Kansas City Southern Industries
Inc., Kansas City, Mo., in July and owns 82.3% of Janus, cited the
temporary employees at Janus as one reason for increased operating
expenses in its third-quarter earnings release Oct. 26. In the first nine
months, Stilwell's cost of professional services, which includes temporary
staffers, more than doubled to $49 million, from $19.3 million in the
year-earlier period.
Stilwell stock has slumped with the fortunes of its biggest unit, Janus. After
reaching a post-spinoff high of $54.50 in September, Stilwell stock fell
almost 39% to $33.50 last month, in part because investors have fretted
about the September departure of Janus Chief Investment Officer Jim
Craig to run a foundation with his wife. The stock price has since improved
and changed hands at $50, up $1.06, at 4 p.m. Monday in New York
Stock Exchange composite trading.
For shareholders, Janus's expanded emphasis on doing business via the
Web could result in longer wait times holding on the telephone if Janus cuts
back staffing on its phones. In his internal memo, Mr. Novek said Janus
would work toward "empower[ing] people -- employees, shareholders,
clients, business partners, stockholders ... anyone who touches Janus -- to
do more things by themselves." Even so, Janus says investors will "have the
option of doing both" online and phone communications. "We wouldn't
force people to do one or the other," an official says, adding that the firm
has no plans to cut back its phone staff.
At the same time, more tools on the Janus Web site could free the
company's phone representatives to deal with investors' complex questions
about taxes, investment risks and diversification. The company also may
use Web broadcasts to make Janus's portfolio managers more accessible
online, according to the memo. Plans aren't yet completed; Janus officials
are scheduled to meet this week to further discuss details of its Internet
strategy.
A focus on getting shareholders to do more business online isn't unique to
Janus. Fidelity Investments, the nation's largest mutual fund firm, has
worked for years to steer its customers online to check fund prices and
other basic information. And Invesco Funds Group, Janus's crosstown
rival, began letting customers open fund accounts online last year.
Write to Aaron Lucchetti at aaron.lucchetti@wsj.com |
