Janus Capital Group (JNS)

Q3 2011 Earnings Call

October 20, 2011 10:00 am ET

Executives

Richard Mac Coy Weil - Chief Executive Officer, Director and Chairman of the Executive Committee

Brennan A. Hughes - Principal Accounting Officer, Vice President and Controller

Bruce Lewis Koepfgen - Principal Financial Officer and Executive Vice President

Analysts

Michael Carrier - Deutsche Bank AG, Research Division

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

William R. Katz - Citigroup Inc, Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Presentation

Operator

Good morning. My name is Michael, and I will be your conference facilitator today. I would like to welcome everyone to the Janus Capital Group Third Quarter 2011 Earnings Conference Call. [Operator Instructions]

Before the company begins, I would like to reference their standard legal disclaimer, which also accompanies the full slide presentation located in the Investor Relations area of janus.com. Statements made in the presentation today may contain forward-looking information about management's plans, projections, expectations, strategic objectives, business prospects, anticipated financial results, anticipated results of litigation, and regulatory proceedings and other similar matters.

A variety of factors, many of which are beyond the company's control, affect the operations, performance, business strategy and results of Janus, and could cause actual results and experiences to differ materially from the expectations and objectives expressed in their statements. These factors include, but are not limited to, the factors described in Janus' reports filed with the SEC, which are available on their website, www.janus.com, and on the SEC's website, www.sec.gov.

Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Janus does not undertake to update such statements to reflect the impact of circumstances or events that arise after the date these statements were made. Investors should, however, consult any further disclosures Janus may make in its reports filed with the SEC. Thank you.

Now, it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Capital Group. Mr. Weil, you may begin your conference.

Richard Mac Coy Weil

Good morning, everybody. Thank you for joining us for the third quarter 2011 earnings presentation of the Janus Capital Group.

Starting with the headlines. In the third quarter of 2011, EPS was $0.15 compared to a $0.18 in the third quarter and $0.23 in the second quarter. Third quarter EPS included importantly $0.06 per share of investment losses, nonoperating investment losses, primarily related to awards of mutual funds we make to our employees as part of their LTI compensation packages. Bruce Koepfgen will tell you some more about that a little later in the call.

Assets under management at September 30 were $141 billion, a decline of 17% versus June 30. Most of that, substantial -- the vast majority of that was a $26.5 billion negative market impact.

Janus' total company long-term flows were down $2.4 billion in the third quarter, which compares to $3.1 billion out in the second quarter.

And finally, operating margin in the third quarter was 31.3%, a little better than the 31% in the second quarter and obviously significantly better than 23.4% in the third quarter a year ago.

Turning the page in the presentation to Page 3. The obvious truth is the underperformance of some of our largest mutual funds continues to be our #1 challenge. As a result of that performance and also very difficult market conditions, especially for active equity managers and particularly for growth managers, we continue to experience net outflows. Fundamental equity net outflows were $3.8 billion in the third quarter as compared to $4.6 billion in the second quarter.

Based on current performance, we're facing headwinds in performance fees, as our mutual funds have significant performance fee structures. In the third quarter, we had $4.2 million of mutual fund performance fees negative versus negative $1.8 million in the second quarter.

Flipping the page to Page 4. While we face up to that central challenge of investment performance in some of our larger funds, some things are also going very well for us. Performance and flows in our fixed-income franchise are very strong, and we're seeing increasing momentum in the institutional channel. 100% of our fixed-income assets are outperforming in 3 and 5 years at September 30, and on a risk adjusted basis, the franchise really continues to keep the promise to our clients. In the third quarter of 2011, we had positive net flows of $2.1 billion in our fixed-income franchise compared to net flows of $1 billion in the second quarter, and we're seeing our pipeline and consultant momentum continue to build.

The majority of our mathematical strategies managed by our subsidiary INTECH have delivered positive relative performance in the last year. As a result, we're seeing a moderation in redemptions, increased interest from consultants and clients, albeit moderate increase still at this point. Primarily, I think Europe is leading a little bit in front in terms of the return of interest; non-US markets, in terms of returns of interest to mathematical strategies compared to the U.S.

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