Gerth leads the clean-up act at janus

“Where did it all go wrong?” is the question gloating competitors have been asking of the Janus Capital Group, which runs $145bn (e120bn), just under half the assets it was overseeing at the turn of the millennium.

Following the technology crash came the story of “that memo” sent by Richard Garland, who relinquished his role as head of international and US advisory business late last year.

The famous internal e-mail, referring to special arrangements with a hedge fund group allegedly involved in market timing, was a central exhibit in New York attorney general Eliot Spitzer’s wide ranging-mutual funds probe.

Janus agreed to pay fines and investor compensation totalling $225m. The flamboyant Mr Garland, an Englishman known for shooting from the hip, accusing competitors of sharp practices regarding retrocession fees and speeding between European meetings on his Harley Davidson motorbike, has been replaced by the sober-suited, less excitable, American Erich Gerth.

“That [memo] has been firmly consigned to the history books,” says Mr Gerth. “All employees central to those decisions are no longer employed by Janus. They have subsequently left the company.”

Mark Whiston, formerly CEO of the Janus Group, moved on in April, replaced by ex-Schwab retail president, Steve Scheid.

“We are making absolutely sure that the checks and balances are there to make sure nothing like this ever happens again,” adds Mr Gerth.

NEW ROLES

Jill Paitchel has been brought in from Citigroup, into a new role of president of non-US operations, responsible for day-to-day oversight of Janus International. And while all the problems occurred in the US, Mr Gerth contracted cross-border legal specialists Linklaters to make sure Janus had a clean bill of health in Europe, regarding potential market timing issues.

“We hired them to do a full investigation of international practices to address the complaints which Eliot Spitzer made,” reveals Mr Gerth. “We approached them immediately after the US events. They completed the investigation, found no wrong-doing and presented the report to the FSA [the UK regulator].

“We have gone a long way. We cannot just meet the minimum expectation, we must go well beyond that. We are sitting down with the largest clients. I have flown around the globe one and a half times already, taking clients and regulators through what we have done.”

The international business of Janus has enjoyed positive inflows since its inception in 1998, including last year. Janus manages some sub-advisory mandates in Italy, and enjoys a co-branded fund range on the shelves of regional retail institution, Banca Nazionale Del Lavoro (BNL).

But in Europe, the Janus marketing machine has yet to make significant inroads into the distribution market. Mr Gerth still has much to do.

AVERAGE RATING

When a pan-European panel of banks, fund houses and insurance companies – key targets for Janus – was questioned about which third party fund groups they prefer, only 9 per cent gave Janus a “good” rating, 20 per cent an “average” and 7 per cent “below average”. At first glance, this puts them well behind competitors such as Credit Suisse, Goldman Sachs, Schroders, JP Morgan Fleming and Merrill Lynch in the brand popularity stakes.

But there is clearly a trepidation among competitors that the phoenix could once again rise from the flames. Several have been scared to share conference platforms with Janus in the past, worried about trade secrets being revealed by the US house.

“Competitors are wary of us, based on what we have done and accomplished in the US,” says Mr Gerth, who has been busy explaining the research-based Janus philosophy, championed by chief investment officer Gary Black, formerly of Goldman Sachs, to intermediary customers. “They also know that we have commitment and staying power. We have not flitted in and out of Europe, despite our problems.”

Although group assets are down, Mr Gerth’s operation is much better placed to take on new money than the Janus of old, to build on the $6bn already handled for clients outside the US.

An overhaul of product capabilities led to a huge internal shake-up at the beginning of 2003, which coincided with the pooling of resources of Janus and its parent company, Stillwell Financial.

The internal re-think led to a shift in focus from asset management to distribution. The strategists at Janus were coming to the same realisations as their counterparts at European giants BNP Paribas and Crédit Agricole. The lesson of the dotcom debacle, which made the huge dent in asset volumes, was one of diversification. If customers were asking for other styles, then these could be added internally, through buying boutique houses (see box) or through sub-advisers. Swiss manager Vontobel, for example, has been hired to sub-advise for US value. And now the search is on for a European equities manager.

Mr Gerth would not be drawn on which areas – Northern or Southern Europe, the Nordics or the UK – will be prioritised going forward. “It’s like asking a father which child he likes most; you love all your kids and you love them all equally.” But Italy is clearly important.

Janus has distribution agreements with BPU, Banca Lombarda, Banca Intesa’s FundsWorld platform and Cortal Consors. But 90 per cent of their Italian retail fund flows – with assets currently “in the hundreds of millions” come through advisers working for BNL. Numbers of agents are likely to increase from 1000 to 3400 with RAS Bank about to buy BNL Investimenti’s financial planning network.

But with European distributors switching from bonds to equities, Mr Gerth understands there is a serious product gap which must be filled, in order to achieve the success which he craves in the intermediary market.

“We have to provide the products clients want,” he says. “We are still looking for a European equity manager. European equities can represent 40 per cent of net flows for a distributor. We need to provide a full range of products, but we must be selective. It is vital that the product has a good track record.”

Diversifying product lines

Real estate investment trusts (Reits) are bread and butter investments in the US, held by many families, used to the concept of bricks and mortar.

Tony Soprano: serious about Reits

Reits even got a mention during a kitchen table discussion on legitimate investments between fictional gangster Tony and his wife Carmella in the TV hit show, The Sopranos.

Janus has already launched its US Reit fund, managed by Bill Schaff , who came from its Bay Isle subsidiary, into the Asian distribution market, where $250m (e206m) has been raised, and is following with “soft launches” for the Italian and German markets.

“Property is a good diversifier,” says Mr Gerth. “It’s still considered a niche product in Europe, but it generates income. In the US, it is a generally accepted asset class.”

In addition to property, the aggressive growth style of Janus, once so popular among US investors, is now complemented by the mid-cap value expertise of Perkins, Wolf, McDonnell & Co and the quantitative approach of Intech.

“In order to have long-term growth, you cannot be in just one part of the market,” says Mr Gerth. “With $150bn, you cannot work with the mentality of a boutique firm managing just one style. As a major asset management firm, you need a diversified product line.”

Gerth: ‘We must go well beyond the minimum expectation’