Janus' high turnover hasn't hurt results

James Paton, Rocky Mountain News

Published August 23, 2007 at midnight

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Janus just two years ago touted the stability of its portfolio management team.

Today, it no longer brags about having a cohesive unit.

About half of Janus' fund managers have left since the beginning of 2006, and now one former member, Ed Keely, has sued the company, shedding light on one factor behind the string of departures. Keely's beef is that Janus has cut pay for key personnel.

The managers are not the only ones heading for the exits. Janus announced on Wednesday that John Zimmerman, head of sales to institutional investors, has resigned. The chief financial officer and the general counsel left earlier this year.

Turnover typically makes investors nervous. But Janus clients do not have much reason to complain. Investment performance has improved considerably as the Denver company continues to rebuild its brand. Holders of Janus stock also are happy. The shares are up about 60 percent in the last year.

CEO Gary Black said the line of employees heading out the door is a result of a more demanding culture.

"There is a common thread in the departures," Black said in a phone interview Wednesday. "We are a performance-based culture, and we have set the performance bar high. With many of the people who have left, there have been performance issues."

For now, the exits are clearly not hurting Janus. Funds with fresh blood, including the $11.7 billion Janus Fund now run by David Corkins, have fared quite well relative to rivals in recent months, Black said.

Janus also has stopped the bleeding, with purchases of its core stock and bonds funds exceeding withdrawals for the first time in six years.

The long-term impact as Janus loses all that experience is less clear.

Black declined to discuss any specific individuals and credited Zimmerman with expanding the institutional side of the business, mostly with regard to its Intech unit. Janus said Zimmerman left of his own volition to start a consulting company.

Black said "we could see additional departures" down the road.

Keely, who managed $1.2 billion of assets for institutional investors, did not go quietly.

In a lawsuit filed in Denver District Court, Keely claimed that Black sharply cut compensation for many of the portfolio managers in October, violating their contracts. Keely resigned in May and said in the July 31 lawsuit that Janus owes him about $4 million for breaching the pact.

Janus has not responded to the lawsuit, and Black declined to discuss it.

Eleven fund managers have left since early 2006. Former Janus Fund skipper Blaine Rollins, Mike Lu, Tom Malley, Claire Young and Ron Speaker are among them. A few of the managers ran lower-profile bond and money market portfolios.

Morningstar found in a recent report that fund families that keep their teams intact tend to deliver rosier returns. The Chicago research firm said Janus actually had the fourth-highest retention rate during a five-year period through the end of 2006.

But lately it's hard to deny the turnover.

Keely's lawyer, Glen Summers, said it appears Janus wants to "cut out proven performers and replace them with rookies you can hire on the cheap so the next thing you know you have fatter margins."

Janus' method of paying managers has changed, but it's designed to reward consistently solid returns, not to lower costs, Black said. Janus has linked compensation more closely to long-term performance. In the past, with a sizable portion of pay determined by assets, managers could get rich amid lackluster results.

The departed

• Key Janus executives who have left in 2007:

Dave Martin, chief financial officer

John Bluher, general counsel

John Zimmerman, managing director of institutional asset management

• Portfolio managers who have left since 2005:

Ed Keely, Institutional separate accounts

Mike Lu, Janus Global Technology

Tom Malley, Janus Global Life Sciences

Jeanine Morroni, Janus Government Money Market

Sharon Pichler, Janus Federal Tax-Exempt, Money Market

Karen Reidy, Janus Balanced, Core Equity