What Helen Young Hayes' Departure Means to Janus

When asked to pick the fund manager most similar to Peter Lynch, I usually picked Helen Young Hayes. Like Lynch, she was a fast-trading, go-anywhere growth manager with little regard for macroeconomic analysis. Most significantly, she had continued to put up enormous returns at  Janus Worldwide  even as the fund grew to gigantic proportions. Now that she’s announced her retirement (like Lynch’s, at a surprisingly young age), it’s worth taking a look back to see what she’s accomplished and where Janus is going.

In a 1996 Analyst Report on Worldwide, I wrote, "Will success spoil Janus Worldwide?" The fund had topped $3 billion in assets and I was worried that all those assets would crimp Hayes’ freewheeling style. Shows what I know. Hayes went on the best run of her career with three years of outstanding returns from 1997 to 1999. The fund returned 159% over that stretch, and assets at the fund exploded to $33 billion.

In hindsight, this would have been a superb time to ask my question. The bear market hit the fund hard. Even considering its growth bias, the fund and sibling  Janus Overseas (JAOSX) performed poorly. Equally disconcerting was the fact that asset growth appeared to have caught up with the funds and led to rather bland-looking large-cap portfolios that resembled a lot of international funds’.

Despite that, Hayes leaves behind an outstanding record. Worldwide and Overseas are still miles ahead of the competition since their inception. Still, I’m surprised Hayes didn’t want to stick around for a couple more years so that she could leave after putting up some nice gains.

Her departure leaves a big void at Janus. As chief investment officer and Janus’ best-known manager, Hayes was the leader in Janus’ effort to rebound from a brutal patch. Janus has always had a fairly flat management structure that was pretty thin at the top. Now, nearly all the key players in Janus’ success have left. Tom Marsico, who at  Janus Twenty  built perhaps the best record of any Janus manager, bolted to start up his own firm in 1997. Jim Craig, who ran  Janus Fund  and was the firm's chief investment officer, left in 2000. Last year, founder Tom Bailey hit the road, and earlier this year longtime  Janus Mercury (JAMRX) manager Warren Lammert left.

Janus still has a number of smart managers and analysts, but few have track records or experience rivaling those of the folks who have left. Only Scott Schoelzel, manager of Janus Twenty, comes close to their league when it comes to contributions and experience.

Set against Janus’ poor returns in recent years has been a nasty public spat the firm had with its former parent company  Kansas City Southern . Kansas City Southern wanted to spin out Janus along with Berger funds and make its new parent company Stilwell Financial, but Janus managers wanted to be separate from those groups so they could have control. They lost that battle as they were bundled up with Stilwell, but they later won the war as they gained control and got to swallow up Berger. The surviving firm was renamed  Janus Capital .

Like another famous deal, this one was supposed to guarantee "peace in our time" and keep disgruntled managers in the fold. For reasons that are unclear, though, it hasn’t worked that way. Lammert and Hayes were two of Janus’ best. There are still some good managers left behind, so there’s no need to sprint for the exits. However, the recent departures and overall weak performance make me wary. I don’t know what spurred Lammert and Hayes to leave, but it might lead others to go, too. In addition, it seems certain that more changes are afoot even if no one else bolts.

I’m pleased to hear that Janus will search for an outside chief investment officer because the firm is in dire need of an outsider's perspective and it's just way too thin at the top. Janus has some great stock-pickers, but it has been too slow to apply risk controls, which would provide more protection in a downturn, to its portfolios. Janus been slow to come to grips with the demands of running huge sums of money and how that might require a change in how funds are managed and how the overall lineup is positioned. In short, the next CIO will have a full plate.