SINCE COMING ON board in February as chief executive of Janus Capital Group Inc., Richard M. Weil has laid the groundwork for his firm's goals for this year and beyond.
Not surprisingly, the 14-year veteran of Pacific Investment Management Co. LLC has put building Janus' fixed-income business at the top of his to-do list.
Mr. Weil's other top priorities for the firm are building distribution through intermediaries in the United States, developing an institutional business through its Janus Capital Management LLC and Perkins Investment Management LLC subsidiaries and ex-panding its offshore presence and product offerings.
Janus has come a long way from where it was in 2003, after it was laid low by the bursting of the technology bubble and by the market-timing scandals.
For starters, about 84% of its funds ranked in the top half of their Lipper Inc. categories in the three- and five-year periods ended March 31. Janus Capital Management funds brought in $1.4 billion in the first quarter this year, while its Perkins unit brought in $1 billion.
But Janus is still a relatively small player, and whether Mr. Weil can achieve his goals will largely depend on whom he taps to help him, said Geoff Bobroff, a mutual fund consultant.
“The big problem that Mr. Weil has is that the company has a lot of needs, and he is only one person,” Mr. Bobroff said.
Q. Reportedly, your predecessor, Gary Black, had looked into Janus' being acquired or merging with other firms. Do you plan to remain a stand-alone firm, and if so, do you plan to remain public?
A. We think our best future is as a stand-alone company. As a public stand-alone, I am not sure that's the absolute ideal ownership structure in a theoretical sense, but our -success right now isn't dictated by ownership structure. I think we need to focus less energy on those kinds of things and focus more on delivering on the ground where the business is done for our clients.
Q. Janus, the only public asset management company that charges -performance-based fees, is implementing them on eight more funds. Won't this be tough on your earnings?
A. We have just implemented a much more comprehensive set of performance fees [pending shareholder approval], and it does represent some risk that we will have more volatile revenues. On the other hand, it represents greater alignment with our ultimate clients, and so we would ask our Janus Capital Group equity investors to understand that they get better alignment with our ultimate clients in exchange for greater volatility.
Q. Where do you see the distribution challenges over the next five years?
A. The consolidation of distribution in the United States means that a rather smaller number of players are going to get the opportunity to be partners with the key distributors. The distributors used to be closed — using only their own products — then they went wide open and accepted everyone's products. Then they said, “Hey, that's inefficient; I need a smaller number of very high-quality partners who I can work with in a more significant way.” Now the distributors are going to consolidate their partnerships around some key players, and Janus is on the cusp of being qualified to being in that. We are a little small. We are a little underdiversified. We are not as solutions-oriented compared to others. But I think we have the capabilities to develop in those other dimensions so that we can be among one of these 15 strategic partners for this consolidated U.S. distributor.
Q. How do you plan to build your offshore business?
A. Right now, we are looking to hire a head of international, and that will hopefully get wrapped up in the next two months. Then we will em-bark on a strategy with a new leader where we develop our re-sponse to what is a simple truth: The composition of global growth is changing. More of it is going to happen outside of the United States, outside of Europe and outside of Japan. We need to be prepared for that in a 10-year time frame. It's not a one-year time frame because these things take a long time to develop. We need to embark on that soon.
Q. On which geographic areas would you like to see Janus focus?
A. You have to do well in Europe. You have to do well in Japan. And then you have to decide where you are going to place your bets in terms of more-frontier investing. Are you going to Korea? India? What is the strategy for Brazil? You need to constantly be planting seeds which grow a couple of cycles out so you will always have a harvest. The immediate focus has to be largely Europe. The Middle East is probably the most important area for us to focus on and Japan. Then over time China will become more significant, and other Asia markets will rise.
Q. Do you plan to be a niche player in fixed income?
A. I think niche is too narrow, but we are clearly not going to be replacing Pimco either. Right now we have $12 billion in fixed-income assets under management, and our target over the coming years is get that to be $40 billion to $50 billion. We will launch at least one additional fixed-income product this year.
Q. Are you worried that you have missed your window to make a big push into fixed income?
A. Yes, absolutely. And we had this conversation internally. I said, “This fixed-income bull market doesn't go on forever, and eventually we get to higher rates.” My personal opinion is that we don't get to higher rates that quickly because things like Greece slow the inflation train, and before we get to inflation we still need to worry about some deflation. That's just a personal thing, but it informs how I think about this investment in fixed income. We need to develop fixed income as effectively as we can and live with the risk that the market won't be as hot down the road as it is now. We aren't just developing this fixed-income business to be hot. That said, we are obviously very interested in getting as far as we can while the wind is on our back.
Q. Will Janus get into the actively managed exchange-traded fund market?
A. ETFs are a really significant strategic challenge for all of us on the active-equity side. They are a very interesting vehicle for consumers. They respond to the desire for immediacy and ease of transactions that consumers want. So it's important for us to respond. However it's hard because the structure of ETFs requires the disclosure of transactions pretty much on a daily basis. If we are managing a fund and we want to manage that as an ETF, we would have to disclose our buys and sells every day, and we are concerned that might compromise our fiduciary duty to shareholders. I think the actively managed ETF business needs to go through some further structural, generational changes before it's a good vehicle for truly active strategies.
E-mail Jessica Toonkel Marquez at jmarquez@investmentnews.com.
