Online Extra: Janus' Scheid On "Our No. 1 Goal"
After top finance jobs at Charles Schwab (SCH ) and the former First Interstate Bancorp, Steven L. Scheid, 51, has taken on a daunting challenge. He's the new chairman and chief executive of beleaguered Janus Capital Group (JNS ), the technology-oriented mutual fund company that was tarred in last year's market-timing scandals and now struggles with declining assets in a flat market. With $129 billion under management -- down from $310 billion in 2000 -- Janus wants to preserve a lucrative growth-fund niche under the shadow of far bigger rivals.
Scheid, a genial Kansas native who started his career as a CPA at Arthur Andersen & Co., is laboring to halt the flight of investors from the firm's funds. He wants to boost its stock, now about $14 a share, vs. $54 in the fall of 2000. And he wants to broaden the investments that Janus' portfolio managers make and move well beyond technology stocks.
Can he do so, while preserving 35-year-old Janus' research-heavy approach to investing? Scheid talked about his challenges and plans with BusinessWeek Chicago Bureau Manager Joseph Weber. Following are edited excerpts:
Q. What are you major goals and major challenges? A:
Q. What are you major goals and major challenges?
A:The very first thing we need to do is return Janus back to being an asset-management firm. For a while, it wasn't sure if it wanted to be a distributor, or if it wanted to be a big marketing company, or was it really an asset-management company. So our No. 1 goal is to make sure that everyone understands that our focus is on producing great returns for our fund shareholders.
Janus has always been a firm that has created strategic advantage from its ability to do research. Now, I believe we still have that edge, and I believe we're better positioned today than we were five years ago. We have the talent here -- whether it's on the portfolio managers' side, or on the research side, or on the marketing side, or on the distribution side. And [new Chief Investment Officer] Gary Black has only added to the depth, experience, and sophistication of the talent that was already here.
Janus' brand is still a great brand. It has been dented a bit here, and we've got to invest in it, which frankly we haven't done, but we're going to.
Q. What about the tarnish? How do you get rid of that? How do you buff up the image, or the reality, I should say? A:
Q. What about the tarnish? How do you get rid of that? How do you buff up the image, or the reality, I should say?
A:First, for us to deliver the performance our clients expect. Second, make sure that our clients know that we appreciate their patience and support. The third is making sure we're investing in the brand. And finally, making sure that we conduct ourselves in the most ethical fashion, that we set standards around how we conduct ourselves, and that everybody understands that we take our responsibilities to serve our fund shareholders first as our No. 1 goal.
My focus is making sure that I get the gross sales at Janus moving up. We're right at the cusp now where we're getting kind of into normal redemptions. And so what we've got to do is to grow the assets is to get our gross sales up. I'm very hopeful that in six months the story about redemptions will be over.
Q. You say six months. Will it take that long for the net outflows to stop? A:
Q. You say six months. Will it take that long for the net outflows to stop?
A:Six months is a reasonable time frame. It takes a long time for perception to catch up with reality. The reality is the performance is good, the firm is in fine shape, the settlement is behind us, but it takes -- just like it took individuals a long time to recognize that there was a bubble out there in the marketplace -- it still takes that consumer awhile.
The consumer is waiting to make sure that the returns are not only strong, but consistent. And so I think what Gary and I are doing is we're making every effort internally in working with our [portfolio managers] to make sure this is not a one-year phenomena. We're aligning our portfolio-manager compensation to make sure that it's tuned into performance.
Q. Are you changing the orientation of the companies in your portfolios? Traditionally, it has been technology stocks. A:
Q. Are you changing the orientation of the companies in your portfolios? Traditionally, it has been technology stocks.
A:We still have a great understanding of technology. But that's not how the firm was founded. The firm was founded on finding great growth companies, finding companies that had good growth dynamics with very solid management principles and [whose] products would be accepted in a broad sense. And so from that perspective, it's more getting back to the basics as opposed to being a technology-oriented investment firm.
Q. Getting back to the challenges, obviously the stock has been an issue. It's substantially down from its high. It's down even a little bit from when you were named CEO. How can you improve this performance? A:
Q. Getting back to the challenges, obviously the stock has been an issue. It's substantially down from its high. It's down even a little bit from when you were named CEO. How can you improve this performance?
A:Performance equals gathering assets, and so if we do the investment performance, then the assets under management will grow, and our stock price is linked to this performance. The overall market is down. Our stock has basically tracked the overall stock market's performance. We have a very solid group of shareholders that are very long-term thinkers.
With that said, I'm obviously very impatient to get this company turned around. But I'm going to make good, long-term decisions on how to run the business. I'm going to invest in the investment area, I'm going to invest in distribution, and I'm going to invest in the brand. And that's how we'll create value. I'm not going to manage this company on a quarter-by-quarter basis.
Q. Is this the biggest challenge you've ever taken on in your career, or have there been others that were even tougher? A:
Q. Is this the biggest challenge you've ever taken on in your career, or have there been others that were even tougher?
A:It's an opportunity to make this a great firm again. You know, I worked at Schwab. Schwab was about the same size firm when I got there, about $3 billion to $3.5 billion in market cap. It was a midcap company, and it was still kind of trying to find its way into its next life. I did 11 jobs at Schwab in almost seven years there. I was at First Interstate and went through the hostile takeover with Wells Fargo (WFC ), so that was interesting.
Q. What was the toughest job you ever had? A:
Q. What was the toughest job you ever had?
A:Doing a turnaround of a Houston bank in the midst of the oil and real estate crisis. That was the hardest challenge. That was 1985 to 1988. It was Allied Bankshares. I parachuted in there in September of 1985. Oil had already cracked at that point. It went from $29 to $18 literally overnight. And my wife said, "Why are we doing this?" I said, "This is going to be great. It's going to be a lot of fun."
Ultimately, I became the chief financial officer. I was only 31 when I arrived. Then we sold to First Interstate. I ultimately became the principal financial officer of First Interstate. We ended up restructuring the bank, got it to completely change its strategy from a commercial, real estate lending bank into a broad retail organization, retail distribution, and very strong business-banking organization.
We entered into the investment sales area. I supervised the sale of investment products, which was kind of my first taste of this side of the business, which I found to be exciting, obviously. Also, I ran human resources there, so I had a lot of broad management experience. I was very fortunate to get that.
Q. And at Schwab, that wasn't a turnaround? You were building? A:
Q. And at Schwab, that wasn't a turnaround? You were building?
A:That was a completely different set of skills. My role there was to build financial disciplines that would allow the company to double about every 18 months. Then they asked me to work on providing risk-management disciplines, which I did. Then I became a CEO of the mutual-fund complex at Schwab and worked in retail distribution.
I took the retail distribution over, which was a half-trillion [dollars] in assets. And I took that over right after the bubble, which was November, 2000. It was a hard time. It was a very, very hard time. Absolute returns on assets were down, but the most difficult thing was that we had to restructure and reposition the firm, so we had to be really involved in a lot of layoffs, which isn't a thing anybody really relishes.
Q: How many people lost their jobs at Schwab? A:
Q: How many people lost their jobs at Schwab?
A:Oh gosh, we probably had to lay off 2,500. It was a very tough time.
Q. Are you committed to having Janus remain independent, or do you think a sale is likely in the future? A:
Q. Are you committed to having Janus remain independent, or do you think a sale is likely in the future?
A:We're making investments in the investment side of the house. We're making investments in the brand. We're making investments in our distribution system, and we're able to attract top talent to get this done. Firms that are typically being dressed up for sale are cutting costs. They're shining things up in a way that would position it, not for the long term, but the short term. That's clearly not what we're doing.
As it relates to [whether] the right strategy [would] be to merge with a behemoth firm, I don't think that there are any facts that would support that asset managers would serve their shareholders better by being with a large firm. We're in the stock-picking business, and having a great investment team is the most important thing to have, and that doesn't relate to size or scale at all.
I've got $1 billion in cash. I can go out and make smart investments. You know we have a great brand and those things are important, but I don't see any reason from a financial and strategic perspective to run for cover to a larger firm at all. I think the future is really quite bright here.