Repeated changes at the firm elevate levels of concern and uncertainty.
Since Morningstar issued its most recent Parent Rating and Stewardship Grade for Janus in late March 2013, that firm has seen big changes. First, firm veteran Jonathan Coleman relinquished his role as the co-CIO overseeing equities to focus on his portfolio-manager duties. Second, the firm hired an outside investor, Enrique Chang, formerly of American Century, to replace him. (Gibson Smith remains as the co-CIO in charge of fixed income.) Third, and of most concern, the firm saw a wave of portfolio-manager defections for the fourth time in the past 11 years. These changes set off a chain reaction at six Janus funds, including three of its largest.
Beyond the specific manager changes (you can read about those here), these developments suggest the firm's corporate culture and incentive programs are not working well enough to encourage good investment managers to stick with the firm for the long haul. As a result, Morningstar has reduced Janus' Parent Rating to Neutral from Positive and its overall Stewardship Grade to a C from a B.
An Unfortunate Pattern
In May 2013, three managers tendered their resignations. Ron Sachs, who had been with Janus since 1996 and who had most recently run Janus Twenty JAVLX and Janus Forty JACTX, left the firm, as did Brian Schaub and Chad Meade. While Sachs had been struggling recently, he was successful in a 2000-07 stint at Janus Global Select JORNX. Meanwhile, Schaub and Meade's charges, Janus Triton JATTX and Janus Venture JAVTX, had been bright spots in an equity-fund lineup that had struggled over the past five-plus years. In fact, Triton and Venture were the only two diversified U.S. equity funds run by in-house Janus managers that landed in their categories' best quartiles. Most of the others landed in their categories' worst quartiles.
Schaub and Meade joined Janus in 2000 and 2001, respectively--the former straight out of college and the latter after working as an equity analyst at Goldman Sachs for two years. They left Janus to join Arrowpoint Partners, an investment firm founded by former Janus portfolio managers David Corkins and Karen Reidy in 2007. (Corkins and Minyoung Sohn, another Arrowpoint manager and former rising star at Janus, left Janus in late 2007, while Reidy left in 2005.) Arrowpoint has primarily managed money for institutions, but it is now making a move into the mutual fund world.
While the fund industry is often characterized by high manager turnover, firms with strong corporate cultures have been successful in hiring, nurturing, and retaining investment talent for the long haul. That this latest wave of manager defections comes amid a steady trickle of one-off departures during the past decade raises concerns about Janus' ability to keep investment strength in-house for the long term. It also raises questions about Janus' succession planning and is consistent with the revolving door to the CEO office since Janus' founder Tom Bailey left the firm in 2002.
More specifically, Janus has employed five CEOs since Bailey's retirement, not including the six-month period between July 2002 and December 2002 when Janus' executive management committee was in charge. Each CEO brought a different perspective and style to the firm. Mark Whiston, for example, was a Janus sales and marketing veteran who had been part of the firm during some of its darkest days, when the tech bubble burst and Janus' involvement in the industry's market-timing scandal was revealed. Gary Black brought his investment background to the CIO job in April 2004, then was promoted to CEO in January 2006; he invested in (and improved) Janus' analyst team and emphasized a performance-driven culture that included changes to compensation.
Today, Dick Weil, who also prioritizes investment performance but came with an operations and management background, wants to balance the family's asset mix among equities, bonds, and eventually liquid alternatives. He also wants to sell more to financial advisors and reach out globally. (For those who are wondering, anus Capital Group's JNS then-chairman Steve Scheid served as CEO between Whiston and Black, and board member Tim Armour, a former Morningstar executive, ran the show during the seven-month CEO search that led to Weil.)
It's not unusual for a company's priorities to change along with its operating environment. However, this level of turnover among senior management has corresponded with turnover in the portfolio-management ranks and has muddled the firm's identity. Janus has worked to educate investors and financial advisors on what the firm has to offer, but it continues to shed assets.