Janus Capital Group Inc. Business Information, Profile, and History

Company Perspectives:

Based in Denver, Colorado, Janus Capital Group Inc. is a leading asset manager offering individual and institutional clients complementary asset management disciplines through the firm's global distribution network.

History of Janus Capital Group Inc.

Janus Capital Group Inc. (formerly Stilwell Financial Inc.) is a holding company for businesses that offer a variety of asset management, shareowner, software, and related financial services to registered investment companies, retail investors, institutions, and individuals. The company's subsidiaries and affiliates operate in North America, Europe, and Asia. Janus's primary subsidiaries include Janus Capital Management; INTECH; Perkins, Wolf, McDonnell and Company; Bay Isle Financial; and DST Systems.

KCSI and the Mutual Funds and Financial Services Markets: 1960s-80s

The history of Janus begins in 1962 when Kansas City Southern Industries, Inc. (KCSI) entered the emerging mutual fund industry by acquiring Television Shares Management, a mutual fund management company. The company later changed its name to Supervised Investors Services and grew steadily through product expansion and diversification, then evolved into Kemper Financial Services in 1970.

KCSI's entry into the financial services industry afforded the 75-year-old railroad company the opportunity to bring its data processing resources to asset management firms needing more efficient record keeping and information technology systems. In 1968 the company created Data SysTance (later known as DST Systems, Inc.) and began marketing the data processing technology KCSI had developed for the railroad industry. DST became a leading provider of record keeping services and technology for mutual fund firms; as an anchor of KCSI's financial services division, it contributed greatly to its early growth.

KCSI's strategy as it entered the 1980s was to build its financial services division by developing an effective presence in each of the three major segments of the industry: product creation, product distribution, and product technology. In 1979, having already established a strong subsidiary in technology, it broadened its product distribution capabilities by acquiring Pioneer Western, a life insurance and mutual fund company with a nationwide sales force. Pioneer grew rapidly; within five years its earnings had increased more than 240 percent and its sales force had expanded by 50 percent. In 1984, KCSI sought to create a significant presence for itself in product creation with the purchase of a majority interest in Janus Capital Corporation for $11 million. It acquired an additional 1.6 million Janus shares a year later.

Janus Capital Corporation's history also dated back to the 1960s. Thomas Bailey had started Janus Capital Corporation in Denver, Colorado, in 1969 with a few hundred thousand dollars. Bailey's decision to locate his company in Denver rather than New York was deliberate. Bailey wanted to be free from the bounds and conventions of Wall Street--to be able to "think outside the box," according to the company's web site. From the start he emphasized a research-intensive investment approach, focusing on the merits of individual companies rather than market trends. The company engaged in its own proprietary research, building a detailed financial model for each company it followed. By the time KCSI purchased Janus, the latter had earned a reputation for its unconventional style, its preference for technology companies, and its wild success. The no-load mutual fund it advised had assets of $470 million.

Pioneer and Janus soon collaborated to introduce the IDEX series of load funds in a joint venture combining Pioneer's distribution system and the investment expertise of Janus. IDEX expanded into a successful family of funds, managed by Janus and distributed by Pioneer's sales force.

The 1990s: The Formation of Stilwell Financial Inc.

KCSI acquired initial ownership of a second mutual fund company, Berger Associates, in 1992. Two years later, it increased its stake in Berger to 80 percent. Mutual fund trailblazer Bill Berger had founded his company in 1974, with an emphasis on growth-oriented funds. As part of KCSI, Berger introduced additional funds, such as its Small Cap and Mid-Cap Value Funds, and its Information Technology Fund.

With the full acquisition of Berger in 1994, Landon Rowland, KCSI's chairman and chief executive officer, began taking a more active role in the company's money management business. Rowland, a wealthy Harvard-educated lawyer who had joined KCSI in 1980 as a vice-president, would soon clash with Janus's Bailey and other managers, as a result of his aspirations.

Throughout the bull market of the 1990s, Janus funds were marked by their aggressive growth style; fund managers made outsized bets on fast-growing technology companies with little regard to price. By 1997 when KCSI announced its intention to separate its financial services division (consisting of DST, Janus, Berger, and IDEX) from its transportation operations, Janus was generating 85 percent of its parent company's operating profit. It ranked in the nation's top mutual fund families, had $166 billion under management, and four million client accounts. From late 1999 to late 2000 shareholder accounts increased 62 percent from 3.7 million to 6 million, and Janus more than doubled its workforce. It was the year's top-selling mutual fund group for both 1999 and 2000.

KCSI announced its decision in 1998 to form a holding company for its financial services division, to be named Stilwell Financial after a Kansas railroad baron. The management of each of its financial subsidiaries would remain intact and day-to-day operations would remain largely unchanged. In 1998, KCSI sold its interest in IDEX and acquired Nelson Money Managers Plc, a U.K.-based firm that worked with private companies and public agencies in retirement planning. Through Nelson, Stilwell gained an opportunity to build a distribution channel in the United Kingdom.

KCSI's plan was to spin off Stilwell Financial, Inc., consisting of high performer Janus and KCSI's three smaller investment management businesses, Berger, Nelson, and DST. Yet Janus managers pressed the company to spin off Janus--which had become the nation's fifth largest mutual fund company--separately. They argued that with Janus contributing 90 percent of Stilwell's assets and 95 percent of its revenue, it would maximize shareholder value as a freestanding independent company. KCSI's executives rejected the idea and the acrimony between the two companies' chief executives intensified to the point where KCSI officials were not allowed inside Janus's Denver headquarters without prior clearance. KCSI, in turn, spelled out possible steps for firing Bailey in financial documents filed with the Securities and Exchange Commission in 1999.

Jim Craig, second in command at Janus, departed in August 1999. He had been with the company since 1983 and left to create a large foundation run by his wife amid speculation that his departure was really motivated by the forthcoming spinoff. Craig's departure was a great loss to Janus. Along with Bailey, he was responsible for the creation of a remarkable corporate culture at Janus, one based on teamwork and camaraderie.

The 2000s: The Spinoff and Market Downfall

In June 2000 federal regulators gave their approval to the tax-free spinoff and within two weeks of the initial public offering (IPO), Stilwell shares had risen 18 percent. In July, Standard & Poor's added Stilwell Financial to its S&P 500 index. Yet neither Janus nor KCSI fared well as the year wore on. KCSI's stock price dropped by half and Stilwell's by about 20 percent, both paradoxically because of their relationship to Janus. Shareholders who knew KCSI's performance to be tied to that of Janus jumped ship, not believing the company could stand on its own, while Stilwell suffered the effects of Janus's suddenly lagging fund performance.

By early December 2000 Stilwell's shares had fallen 28 percent, more than double the S&P 500's overall drop. Throughout October and November it had shed more than $1 billion a day in assets as sliding stock prices cut into the value of its holdings. For its part, Janus suffered a pounding as the technology bubble burst; it posted a dismal performance in 2000 with 14 of its 16 equity funds suffering a decline. Still, the company retained its title as the nation's best-selling mutual fund family in 2000, topping its 1999 investment inflows.

Yet from the start of 2000 through 2001, Janus became the emblem of the "tech wreck." It fared worse than many of its peers because its assets were not widely diversified and invested largely in growth equities. Further compounding its decline were its large stakes in Enron and Tyco. In 2001 Janus was forced to cut its staff in half; it laid off 15 percent more of its workforce in early 2002. The fund, which lost its four-star rating from mutual fund research firm Morningstar for the first time since 1985, also began to shift its focus from technology to the pharmaceutical, media, and financial services sectors. Janus unloaded some of its tech shares in favor of stocks such as Boeing while adding more "value" funds to its roster along with blue chips such as Citigroup, Exxon, and Pfizer. Through it all, Janus investors remained remarkably loyal.

Janus assets fell $90 billion in 2001, with most of the decline due to plunging stock prices and investors pulling their fund shares. Even founder Thomas Bailey appeared to be jumping ship; in late 2001 he arranged to sell his remaining 6.2 percent stake in the company to Stilwell under a provision negotiated in 1984 that he receive significantly more than the stock's current market value. After the sale, Stilwell owned 97.8 percent of Janus.

Berger, too, was hurt by the market freefall that began in 2000. The fund, which also specialized in growth companies, attempted to attract customers with the idea of dollar cost averaging--advising them to continue to invest steadily regardless of market swings to remain ahead of the curve. To help lower-income investors do so, it slashed its monthly minimum investment. In 1998 Berger acquired Bay Isle Financial LLC, a San Francisco-based asset manager, and in 2002 it acquired Enhanced Investment Technologies Inc. (INTECH), a company with more than a decade's experience in using a mathematical investment strategy called quantitative analysis. INTECH's innovative system capitalized on the random nature of stock price movement rather than relying on estimates of future stock performance. In mid-2002 Berger Financial Group filed with the SEC to launch three new funds managed by INTECH.

By the summer of 2002 when Bailey retired from the company he had built into the sixth largest American mutual fund house, assets for Janus--which had peaked at $330 billion in 1999--had declined to less than $200 billion. In order to retain top managers, Stilwell rewarded key Janus employees with a percentage of their company's shares and appointed Helen Young Hayes as Bailey's successor. According to KCSI executive Rowland, the markets had humbled even the most ardent backers of the New Economy. He was quoted in a July 2002 Denver Post article saying, "We were carried away by our confidence that we knew something our predecessors did not. For the moment, it is enough to say that we believe in these professionals and their investment strategies. We believe in their mastery of this new investment world."

By January 1, 2003, the Stilwell name had disappeared as the company merged operations with its more famous subsidiary, Janus. The new company, which was headed by new CEO and Vice-Chairman Mark Whiston, was renamed Janus Capital Group Inc. Whiston, who had worked at Janus for over a decade, had formerly served at the firm's retail and institutional services.

Principal Subsidiaries: Janus Capital Management LLC; INTECH; Perkins, Wolf, McDonnell and Company (30%); Bay Isle Financial LLC; DST Systems, Inc. (33%).

Principal Competitors: AMVESCAP; FMR Corp.; The Vanguard Group, Inc.

Chronology

• Key Dates:
• 1962: Kansas City Southern Industries (KCSI) acquires Television Shares Management.
• 1968: KCSI founds Data SysTance, later known as DST Systems, Inc.
• 1969: Thomas Bailey founds Janus Capital Corporation.
• 1974: Bill Berger founds Berger Financial Group LLC.
• 1979: KCSI acquires Pioneer Western.
• 1984: KCSI buys a two-thirds stake in Janus Capital Corporation and Janus Management Corporation.
• 1994: Berger sells Berger Financial Group to KCSI.
• 1998: KCSI forms Stilwell Financial Inc. as a holding company for its financial services division.
• 2000: KCSI completes the spinoff of Stilwell; Stilwell begins trading as an independent public company.
• 2001: Stilwell buys out Bailey's remaining shares in Janus.
• 2003: Stilwell merges into Janus and the new company is named Janus Capital Group Inc.