Janus Henderson under pressure as Trian considers consolidation

When Janus Capital and Henderson Global Investors struck a deal in 2016, it was touted as a transformative for the two struggling midsize asset managers.

Andrew Formica, one of the architects of the all-stock merger and former co-chief executive of the enlarged company, said the move would create a “new breed of active managers” with global clout, allowing him to withstand pressures incessant in traditional markets. stock pickers.

Fast forward to four years later and Janus Henderson could be about to be pushed into another deal to allow him to survive. The London-based fund group has been targeted by Nelson Peltz’s Trian Partners, which bought a 10% stake last month and called for a new round of consolidation among underperforming asset managers.

Activist investor targeting of Janus Henderson, who oversees $358 billion in assets, reflects shareholder dissatisfaction with the company since its tie-up.

“Janus Henderson hasn’t prospered for the past three years,” says Will Riley, who holds a position with the group in his Guinness Global Money Managers fund.

The group has been hit by above-average investor outflows, losing $68.8 billion since the start of 2018. This has hit its revenue and affected its share price, which has fallen nearly 14%. since the deal closed in May 2017. The stock price drop was about 30% before Trian disclosed its stake.

Janus Henderson’s woes are a testament to the brutal headwinds facing active managers, as well as examples of the risks inherent in mega-mergers.

As asset management consolidation gains momentum, Janus Henderson’s experience highlights the tough choices facing active managers as they consider how to grow without destabilizing their workforce and their customers.

Bringing together Janus Henderson has been hailed as a way to allow two managers with limited geographic overlap to compete on the global stage. The idea was to help London-based Henderson, whose former CEO Mr Formica grew by buying up undervalued investment boutiques in the aftermath of the financial crisis, to break into America while boosting the profile of Janus in Europe.

However, these results have not yet materialized. According to Morningstar, the combined company’s average organic growth rate was lower than that of its publicly traded U.S. counterparts between 2015 and 2019, and it is expected to continue to struggle over the next four years.

Janus Henderson chief executive Dick Weil, who took over sole leadership of the group in 2018 after leading Janus to the deal, is the first to acknowledge the company’s slow progress. Speaking to the media at a conference this week, Mr Weil said he was confident Janus Henderson was on the right track to establishing a global presence “that no independent business could have afforded separately”. . But he added that this process took “a frustrating time”.

CFRA Research analyst Cathy Seifert says Janus Henderson has been hampered by his position as a mostly active investment firm at a time when investor flight to index funds has accelerated.

“The merger was designed to gain scale and diversification, but what it didn’t address was the age-old trend of passive investing, which has accelerated over the past four years,” Ms. Seifert said.

But Janus Henderson was also affected by specific problems linked to his integration, such as the tensions caused by the cultural differences between the two companies.

A former employee points to the contrast between Mr. Formica’s friendly and relational Henderson culture and the more structured and hands-on way of doing things at Janus under Mr. Weil, a former lawyer.

“On Henderson’s side, there was a core of very loyal people who had worked together for a long time. Blending an organization like that with an American company, which has a more direct means of communication, was a challenge,” the person said.

The divisions have not been helped by the combined company’s unusual geographic structure – headquartered in London, with dual listings in New York and Australia, and an investment center in Denver – and its initial structure of co-CEO.

Another former employee points to the company’s inability to appoint fresh blood to its board – it has only appointed one director unaffiliated with either faction since the merger – as the source of its cultural divisions.

In this tumultuous environment, Janus Henderson lost a number of senior investment staff. The departures included a number of teams, such as the six teams responsible for high yield bonds and emerging market equities.

Meanwhile, several Janus Henderson funds have been performing disastrously, further baffling clients. Intech, the company’s quantitative investment division, was particularly hard hit: at the end of 2019, 84% of assets managed by the unit lagged their benchmarks on a five-year basis.

Investors have taken money out of Janus Henderson since its merger

But Mr. Weil is optimistic about the prospects for the merged group. At this week’s conference, he dismissed suggestions of a divided company, describing the group as “truly global and not dominated by one culture or the other”.

The chief executive also distanced himself from suggestions that Janus Henderson needs to partner with a competitor. “There are lots of good reasons and grounds for being skeptical of mergers,” he said. Most deals don’t go “as well as expected,” he added, pointing out that the Janus-Henderson tie-up was an exception to that trend.

It is not yet known what Trian’s plans are for Janus Henderson or if he will be successful. The asset manager was only made aware of Trian’s stake the day before it was officially disclosed and has not granted board seats to Trian, as Invesco did earlier this month . Trian declined to comment.

Shareholder Mr Riley believes the company has the potential to turn itself around. He wants to see him focus on reducing his costs by 5-10% and buying back shares to increase his share price.

He intends to continue to hold Janus Henderson based on what he sees as encouraging performance potential for the funds – according to Credit Suisse, around 55% of the manager’s assets have top Morningstar ratings, compared to a 32% industry average – combined with its low valuation and a 5.7% dividend yield.

If mergers and acquisitions were necessary, Mr Riley said it would make more sense for Janus Henderson to be acquired by a larger rival, as such deals tend to be less disruptive than mergers of equals, where one does not don’t know who is in charge.

Ms Seifert agrees there are reasons for optimism in Janus Henderson. “If he can stem investor outflows, his headwinds could become a tailwind,” she says.

However, the fact that the company still languishes among the ‘squeezed middle’ of the fund industry means it is ‘not inconceivable’ that it will seek a partner in the future to bolster its assets and gain exposure. to more passive strategies, she predicts.

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