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Portfolio > Economy & Markets > Fixed Income

Janus Positioning to Gather Money as Gross Move Reshapes Market

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Janus Capital Group Inc., the firm that hired bond legend Bill Gross last month, is positioned to pick up client deposits as his move sets an enormous amount of money in motion, said Chief Executive Officer Richard M. Weil.

“Bill’s decision to join Janus is obviously bigger than just Janus,” Weil said in an earnings conference call with investors and analysts today. The move changes the “entire fixed income landscape,” and Janus’s funds are “very well- positioned to gather additional assets,” he said.

Janus is in conversations with countless institutions and advisors, Weil said in the conference call, as the firm seeks to capture a chunk of the billions of dollars leaving Pacific Investment Management Co. after Gross’s exit. Weil said it was a “happy confluence” that Gross joined the firm at the same time it announced the acquisition of VelocityShares LLC to expand in exchange-traded products, the fastest-growing part of the fund industry.

Large investors are moving money from PIMCO, the firm Gross co-founded in 1971 and built into a $2 trillion asset manager, after his unexpected exit Sept. 26. Clients rattled by the change pulled a record $23.5 billion in September from the $202 billion PIMCO Total Return Fund he managed, and are moving money to competing funds, or parking it in money-market funds and exchange-traded funds.

“It’s important to note that not everybody is going to make a decision on the first day,” Weil said, and it may be “a one-year-plus kind of transitional period rather than anything that is immediate.”

Net Income

Janus today reported net income that increased 25% to $40.9 million, or 22 cents a share, from $32.6 million, or 17 cents a share, a year earlier, the Denver-based firm said today in a statement. Earnings matched the 22-cent average estimate of five analysts surveyed by Bloomberg.

Janus shares rose 1.5% to $14.49 at 10:55 a.m. in New York. The shares, which jumped a record 43% on the day Gross anounced his decision, have climbed 18% this year, compared with a 2.3% decline in the 18-company Standard & Poor’s Index of asset managers and custody banks.

While Gross’s addition will attract clients as the firm builds its fixed-income unit, third-quarter subscriptions do not yet reflect new money as a result of the hire, Weil said on the call.

Raising Profile

Weil has raised the firm’s profile in the past month, hiring Gross and agreeing to buy VelocityShares to expand in exchange-traded products. Customers pulled a net $2.4 billion from Janus’s equity funds in the quarter, while putting in $300 million into the firm’s fixed-income products. Since taking over in 2010, Weil has struggled to stem defections even as he expanded Janus’s fixed-income team and created a multi-asset investing group.

“There’s a positive halo effect for our fixed-income team but also for the whole firm,” Weil said on the call, highlighting the equity and asset-allocation businesses.

The 70-year-old Gross started managing the Janus Global Unconstrained Bond Fund this month after surprising executives at Newport Beach, California-based PIMCO and its parent Allianz SE with his departure on Sept. 26. He previously managed the world’s biggest bond mutual fund, the $201.6 billion PIMCO Total Return Fund.

The Janus Unconstrained fund, which started in May, received $66.4 million in September, according to Morningstar Inc., and had about $79 million under management at the end of September, according to data compiled by Bloomberg. The fund has lost 0.2% in the past month, trailing 76% of peers. ‘Possible Disappointment’

The market anticipated $25 billion to $50 billion in new assets after Gross joined, which may be “setting up for possible disappointment,” Citigroup Inc.’s William Katz wrote in a report to clients Oct. 3.

“Obviously it’s a little premature for us to call it right now,” Chief Financial Officer Jennifer McPeek said in the call today. “The dramatic range of external forecasts that have come out underline how difficult it is to pinpoint the future.”

McPeek said Gross has been hired under a compensation agreement that’s typical for money managers at Janus, without disclosing details of his pay.

Future Products

Janus has about $174.4 billion in assets, mostly in stock funds. Third-quarter revenue climbed 8.9% to $237 million as fees for managing investor money rose.

The firm is expanding its presence in exchange-traded products by buying the parent company of VelocityShares, which offers products including exchange-traded funds and notes that track swings in market volatility. Janus agreed to pay at least $30 million for the company.

“With Bill’s arrival and the acquisition of VelocityShares, we have an opportunity to develop future products in the exchange-traded product space,” according to a presentation accompanying the earnings.

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