Gary Black Out as CEO of Janus

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Janus Capital Group JNS announced today that effective immediately Gary Black is out as the firm's chief executive, and the firm is beginning a search for his replacement. Board member Tim Armour will serve as interim CEO and head the search along with Steve Scheid, the board's chairman. Tim Armour was Managing Director of Morningstar Inc. from 2000 until his retirement in March 2008, upon which he joined the Janus board. In other news, Janus also said that it's launching an effort to retire some of its debt through an equity and convertibles offering.

Black had some notable successes at Janus. The former Goldman Sachs executive joined Janus as president and chief investment officer in April 2004, after the firm's funds were battered in the early 2000s' bear market. Black was promoted to CEO in January 2006. He successfully oversaw a revamp of the firm's investment process and elevated the role of the research analyst so the analysts became more closely tied to the portfolio management process. During his tenure as president and CIO, the firm expanded both the breath and depth of Janus' research coverage, and as a sign of faith in their abilities, Black turned over multiple funds directly to the equity analyst staff, beginning in early 2005. Overall, the analyst-run funds have performed well versus their peers.

Still, Black's leadership was not without controversy. Under Black, fund manager compensation was reined in, and Black promised publicly that all fund managers would be treated equally in their employment contracts. Even so, a recent trial regarding the compensation of former manager Ed Keely revealed that Black had negotiated a secret, more lucrative side deal with former Janus Twenty JAVLX manager Scott Schoelzel.

The structure and level of compensation likely contributed to the departures of several of Janus' marquee managers. Among those who left on Black's watch were David Corkins, former manager of Janus Fund JANSX; Minyoung Sohn of Fundamental Equity (now Research Core JAEIX) and Growth & Income JAGIX; Dan Kozlowski of Adviser Long/Short JALSX; and Schoelzel. There are still some good veteran managers around, and we think Janus has some strong analysts to fill the gaps, but the overall bench is weaker. It's also worth noting that there's been turnover elsewhere in the firm: The firm's CFO, general counsel, and head of institutional sales are all new to their jobs within the past couple of years. A new leader at Janus also will need to see the firm through its transition from a direct-sold fund shop to one that sells primarily through advisors, which represents another significant cultural shift at the firm.

We don't expect any of the changes announced today to immediately impact Janus' mutual funds. We'll be watching, though, to see how the firm manages through this transition.

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