Fund star Gross arrives too late to halt third-quarter Janus outflows

By Ross Kerber

BOSTON (Reuters) - Janus Capital Group Inc (JNS.N) said on Thursday that third-quarter profit rose 25 percent, but the mutual fund company posted more outflows of investor cash as the arrival of star bond manager Bill Gross came too late to reverse the trend.

Best known for its equity funds, Denver-based Janus late last month hired Gross from Pacific Investment Management Co, or Pimco. The small fund that Gross now manages has already drawn sharply higher inflows for September, according to Morningstar data.

However, for the quarter ended Sept. 30, net deposits of about $300 million to Janus bond products overall were not enough to offset companywide net withdrawals of $2.1 billion, excluding money market funds. Janus last reported quarterly net deposits in 2009.

On a conference call with analysts, Janus Chief Executive Officer Dick Weil said the hiring of Gross was "a game-changer for us," although he and Chief Financial Officer Jennifer McPeek gave few details of just what new products they might build around Gross or how they might handle the eventual retirement of the 70-year-old investment star.

The company may make use of Gross’ reputation in the exchange-traded fund space, Weil added.

Asked if Janus might push initiatives tied to Gross, Weil vowed to maintain cost discipline, but said, "we won't Cheap Charlie it."

The lack of specifics was not surprising, said S&P Capital IQ analyst Erik Oja, since the $79 million in Gross' Janus Global Unconstrained Bond Fund (JUCAX.O) is just a fraction of the $278 billion he managed at Pimco.

Janus executives should expect to be grilled until they fulfill hopes that Gross' arrival will help achieve significant inflows, Oja said. "Those questions have to be asked."

With Janus best known for its equity funds, Gross' hiring drove up the company's shares, which now trade at around 15 times earnings, in line with other asset managers.

Shares were up 3 cents to $14.29.

Weil, himself a former Pimco executive, has made other moves to match Janus' glory days in the late 1990s, when money poured into its equity funds stuffed with high-flying Internet stocks.

During the quarter, the outflows and market declines drove down Janus' total assets under management to $174.4 billion as of Sept. 30, from $177.7 billion at June 30, the company said.

Still, total assets stood higher than a year earlier, when Janus had $166.7 billion under management.

Quarterly net income rose to $40.9 million, or 22 cents per share, from $32.6 million, or 17 cents a share, a year earlier.

REGULAR GUY

Gross has been one of the fund industry's highest-paid executives, earning a reported $200 million a year, has declined to give details about his pay. But McPeek said on the call that Gross would be paid under its regular arrangements for portfolio managers. Analysts should not include in their earnings expectations that Janus will have a major charge for his services, she said.

"There's nothing that you should put in as some giant compensation hit," McPeek said.

McPeek said that sales commission costs could rise if Gross attracts major new inflows, however. In that case the company's ratio of compensation to revenue could rise to about 45 percent from roughly 40 percent currently, she said.

(Reporting by Ross Kerber in Boston; Additional reporting by Richard Leong in New York; Editing by Chizu Nomiyama, Bernadette Baum and Jeffrey Benkoe)