(Bloomberg) — When Bill Gross quit bond giant Pacific Investment Management Co. three months ago, almost as stunning as his departure was his choice of employer: Janus Capital Group Inc., a struggling stock fund manager whose assets had shrunk by half from a peak 14 years earlier.
Two chief executive officers had tried and failed to turn around the firm. A third, Richard M. Weil, a former Pimco operating chief who had worked with Gross before moving to Janus, started to diversify, yet redemptions persisted.
When Gross asked to run a new, popular type of bond fund for Janus, Weil knew it may be the break he had been looking for.
“Bill Gross is our Peyton Manning, that game-changing level of talent for us,” Weil said in an interview in Denver, referring to the quarterback of the National Football League’s Denver Broncos. “People are looking at us.”
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Hiring Gross was the boldest step yet in an almost five-year effort by Weil to attract new money and change the public perception of Janus, a firm still known primarily for its growth-equity funds. Earlier this year, he hired Nobel laureate Myron Scholes as chief investment strategist to help develop asset allocation products, which have gained popularity in recent years. And he bought a company that runs exchange-traded funds, a rapidly expanding area of the industry, and plans to start an ETF run by Gross.
Janus shares surged 43 percent on Sept. 26, their biggest one-day gain ever, after Janus announced that Gross would join the firm. They have almost tripled in the past three years as Weil added strategies and slowed the exodus of money managers.
“Since Dick’s arrival, he’s done a number of interesting things and they’re starting to take shape,” said Macrae Sykes, an analyst at Gabelli & Co. in Rye, New York, who recommends investors buy Janus shares. “You’re starting to see some nice fruit from his ascension.”
Turning around an asset manager isn’t easy because investors don’t easily forget when they lose money. It took Legg Mason Inc. seven years to stanch redemptions sparked by poor performance prior to and during the 2008 financial crisis.
Janus has suffered redemptions for 21 straight quarters, and assets, at $174 billion at the end of the third quarter, remain 48 percent below their peak in 2000. While the fourth quarter may be the first in which clients are adding money on a net basis again, Gross so far has only attracted a small fraction of the billions that clients pulled from Pimco after his departure.
Gross is facing a challenging market as slumping oil prices and a crisis in Russia rattle markets. His Janus Global fund has declined 0.8 percent since Gross took over, beating 59 percent of its peers from Oct. 6 through yesterday, according to data from Chicago-based research firm Morningstar Inc.
Gross declined to comment.
Weil’s plans for Janus are ambitious. He has expanded offerings beyond Janus’s traditional focus on domestic stocks, and plans to triple the proportion invested in fixed income and adding asset-allocation products.
Along with Ashwin Alankar, head of asset allocation and risk management, Scholes is running products designed to help clients target how much risk they want to take. Scholes and Alankar are developing quantitative models to indicate when investors should shift their holdings between asset classes.
Scholes, the co-originator of the Black-Scholes options pricing model, shared the Nobel Prize with Robert Merton in 1997 for his work on valuing derivatives. He was a partner in Long- Term Capital Management LP, the hedge fund whose $4 billion loss in 1998 set off a near-panic in financial markets.
Gross on ETFs
In what Weil calls a “happy confluence” of events, Gross joined just as Janus announced the acquisition of VelocityShares, to expand in exchange-traded products, where industrywide assets have more than tripled to $1.9 trillion since 2008, according to the Investment Company Institute.
“Bill has opened the door for us to be very relevant in product wrappers like closed-end funds and ETFs,” Kelly Hagg, the head of product development, said in an e-mail. “Our first ETF will be a Bill Gross-run strategy and we are currently working with our internal product development team and the new VelocityShares team to develop the most compelling strategy for the market.”
VelocityShares will open ETFs in strategies including fixed income, asset allocation and volatility management, said Hagg. The first strategy probably won’t replicate Gross’s Unconstrained fund, he said.
Janus’s first ETF may be more of a traditional fixed income strategy, according to a person with knowledge of the matter, who asked not to be identified because the details are private. The firm’s sales team met on Dec. 10 to plan how to roll out new products, the person said.
Janus asked the U.S. Securities and Exchange Commission yesterday for permission to “establish certain index based market basket investment products,” according to a filing. The funds would be able to invest as much as 20 percent in index futures, options, swaps or derivatives, according to the filing.
To support Gross, Janus is building its infrastructure, adding as many as eight people to help in pricing and processing derivative and volatility trades, Weil said. The firm is also hiring at least one investment professional to assist Gross.
In addition, Janus plans to hire as many as five people to its fixed-income team over the next year, as client deposits expand funds. October and November made for the first two-month stretch of net inflows since April 2010, the firm said.