Putting A New Face On Janus
Most of the companies at which Steven L. Scheid has worked have come to grief. Arthur Andersen & Co., where he started out as an accountant, flamed out years later. Allied Bankshares and First Interstate Bancorp, where he held the top finance jobs, were gobbled up by rivals: Allied after it stumbled in energy and real estate loans; First Interstate when it became the object of a hostile takeover. And now, Charles Schwab Corp. (SCH ), where the genial Scheid was a vice-chairman until 2002, is struggling. Bad signs for his latest employer, Janus Capital Group Inc. (JNS )? Emphatically not, says the new CEO of the Denver mutual-fund company. Insists Scheid: "I'm very bullish on where we are."
But Scheid, a 51-year-old Kansan whose sunny optimism gives no hint of the disappointments that befell his ex-employers, admits that Janus has a way to go to regain the investment world's confidence. "It takes a long time for perception to catch up with reality," he says.
The company's tech-heavy funds rode the Internet boom to dizzying heights, only to fall hard in the bust. Fund investors in droves started pulling money out because of poor performance -- and kept up when the firm got tainted in the mutual-fund scandals. On Aug. 18, the company agreed with New York Attorney General Eliot Spitzer, the Securities & Exchange Commission, and other enforcers to pay $226 million to settle allegations that Janus had permitted market timing in its funds by hedge fund Canary Capital Partners and others. Over the past year, Janus has moved to discourage such practices, by imposing redemption fees on short-term transactions and ensuring that funds are valued at the latest prices.
Scheid insists that better times lie ahead. And since he became CEO on Apr. 20, he has hatched plans to usher them in. To woo back clients, he plans to launch a high-profile TV-and-print advertising campaign in September that will invoke the 35-year-old Janus tradition of in-depth investment analysis. With the help of recently appointed Chief Investment Officer Gary D. Black, formerly chief investment officer at Goldman Sachs (GS ) Asset Management's global equities business, he is adding seven analysts to the firm's corps of 36, including several to cover more foreign stocks.
While promising to hew closely to the firm's growth-stock tradition, he is raising the number of companies his analysts cover from about 1,000 to 1,200, moving Janus well beyond tech -- toward the likes of Procter & Gamble Co. (P&G ) and Starwood Hotels & Resorts Worldwide. (HOT ). And to drive home the message that results matter, he is tying portfolio managers' pay more closely to performance. He has also reshuffled management of the underperforming Janus Worldwide Fund (JAWWX ), moving out Laurence Chang, designated successor to the well-respected Helen Young Hayes.
In hopes of delivering consistent long-term performance, Scheid is taking steps to ensure a solid mix of growth-oriented nontech stocks in the funds, avoiding the surfeit that damaged Janus in the Internet bust. And he has told portfolio managers to avoid loading up on the same stocks in different funds and to make their funds distinctive. "Suitably diverse," he says. "A mid-cap fund stays in the mid-cap space." Finally, he put the word out that underperforming managers wouldn't be around very long.
Scheid is also shaking off Janus' insularity. Unlike reclusive founder Thomas H. Bailey, who declined comment for this story, Scheid has reached out to critics and analysts. For instance, he flew recently to Chicago to mend fences with Morningstar. Scheid's immediate predecessor, Mark Whiston, had lambasted the fund-tracking firm for "recklessness and irresponsibility" last fall when it urged investors to consider selling Janus funds after Attorney General Spitzer made his allegations. Scheid, says Morningstar Managing Director Don Phillips, is "doing a terrific job."
Wall Street mavens echo those sentiments. CIBC World Markets Corp. (BCM ) analyst Ken Worthington, for instance, says Scheid and his managers are "making all the right moves." And yet, along with most analysts, he remains cool on Janus' hard-pressed stock. Nine analysts rate it a hold, four a sell, and none a buy. No wonder the stock trades near 14, a quarter of its 54 peak in the fall of 2000.
Worthington wants to see an end to the net outflows from Janus' funds before he turns bullish, but he fears it may take until 2006 to lure institutional money managers and financial advisers back into the fold. "Fixing [Janus] may just be a matter of a lot of time passing," says Peter F. Lengsfeld, a financial consultant at the Denver area Presidential Brokerage Inc. For now, he's steering clients away from Janus.
Things are improving. Thirteen Janus funds have posted gains brisk enough to rank in the top quarter of their peer groups over the year ending June 30. But the firm's lingering legal and post-bubble baggage, coupled with the departures of a few high-profile execs and portfolio managers, such as Hayes, and earlier, chief investment officer James P. Craig III, seem likely to prolong its turnaround. With $129 billion in assets under management, Janus is well below its all-time high of $310 billion in March, 2000. And it is still hemorrhaging, with monthly net outflows running at $1.1 billion -- the July figure -- or more. ING U.S. Financial Services (ING ), a longtime client, rattled Janus in July by saying it would pull out $5 billion by yearend.
Scheid says his shareholders are "very long-term thinkers," but even they won't be eternally patient. Mutual-fund investors, shunning firms tainted by the market-timing scandals, have been sending their money to powerhouses such as Fidelity Investments and Vanguard Group. As they grow, a shrinking Janus may be hard put to stay independent.
But Scheid is not operating as if he's prepping Janus for sale. He's not cutting staff, but building Janus' operations, much as he helped expand Schwab in its heyday. There he helped preside over breakneck growth, aided by the '90s runup in tech stocks. But as CEO of Schwab's mutual-fund complex, he had to downsize anew once the bubble burst, and laid off some 2,500 staffers. "It was a very, very hard time," recalls Scheid. Friends say he left Schwab after the now-departed CEO David S. Pottruck wouldn't give him the autonomy he wanted. "Ancient history," says Scheid.
Scheid had already retired when the Janus board tapped him. Although he was in the market for a new challenge, he says, wine collecting, running, and enjoying his houses in Northern California and Arizona were the main items on his agenda. With three children in their 20s, the longtime piano and clarinet enthusiast -- who attended Michigan State University on a music scholarship before switching to accounting -- thought he would be free to indulge such passions as supporting chamber music.
Now the question is whether Scheid can orchestrate a winning score for Janus. Besides shareholders and fund investors, there's a big potential payoff for him. Soon after he took the job, he suggested -- and the board agreed -- to pay him a third less than his predecessor and shift more of his compensation into stock options.
By Joseph Weber in Denver