UPDATE 3-Janus net income rises, but outflows widen

Thu Jul 21, 2011 12:28pm EDT

* Poor fund records will mean performance fee cuts ahead

* EPS of 23 cents matches expectations

* Rising markets offset investor withdrawals (Adds CEO comments and other conference call details, updates share activity)

By Ross Kerber

BOSTON, July 21 (Reuters) - Janus Capital Group Inc's (JNS.N) second-quarter profit met expectations even as the asset manager reported its eighth consecutive quarter of net outflows.

The Denver-based company said investors withdrew $3.1 billion from its long-term funds during the three months ended June 30. Coupled with $600 million in market depreciation, that left total assets under management at $169.8 billion at the end of June.

That is down from $173.5 billion as of March 31, but up from $147.2 billion at June 30, 2010. Outflows from long-term funds were $2.7 billion in the first quarter of 2011.

Chief Executive Richard Weil was contrite on an investor conference call, saying the outflows were driven by poor performance in flagship equity mutual funds like its $9.2 billion Janus Fund and its $3.4 billion Janus Contrarian Fund. These in turn will reduce some revenue in coming quarters.

The company, Weil said, "will feel some pain in performance fees going forward."

At the same time, Weil said he plans no major changes beyond some tweaks such as new portfolio manager assignments.

"The biggest mistake you can make in this business is to overreact to shorter-term data. We're not changing our process in any fundamental way," Weil said.

Just 8 percent of Janus' actively managed equity fund assets were in the top half of their categories for the year ended June 30, Janus said.

"You have both a macro headwind and more company-specific issue," said Sandler O'Neill analyst Michael Kim. "Both of those factors are going to put pressure on their retail equity fund flows."

Shares in Janus fell as much as 5 percent during the call as analysts grew concerned about future performance-fee drop-offs. They recovered, and were up 1 percent to $9.14 in late-morning trading as investors decided there were few surprises in the results.

LONG WAY DOWN

Weil was brought in last year and has introduced new products to rejuvenate the company. Still, shares have fallen 32 percent for the year, the most of any large fund manager because of concerns about the outflows. Thursday's results do not suggest any immediate improvements are at hand, said Citigroup analyst William Katz.

In a note to investors, he wrote that he is maintaining his "hold" on the company and that he expects others to reduce future earnings estimates.

There were some positives in the results. For the three months ended June 30 Janus reported net income of $41.9 million, or 23 cents per share, compared with $30.2 million, or 17 cents a share, in the same period a year earlier.

Net income rose compared with a year ago because the higher assets drove up investment management fees. Janus also cut expenses, notably its spending on marketing and advertising that fell to $8.2 million from $15.2 million in the same period a year ago.

The results met the average expectations of analysts surveyed by Thomson Reuters I/B/E/S. (Editing by Matthew Lewis and Robert MacMillan)

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