By Kirsten Grind
Janus Capital Group Inc. confirmed that the bulk of the money
flowing into the new bond fund of star manager Bill Gross came from
Mr. Gross himself.
On a conference call with analysts on Thursday to discuss the
firm's earnings, Janus Chief Executive Dick Weil told participants
that Mr. Gross had invested "more than $700 million" in his Janus
Global Unconstrained Bond fund at the end of 2014. That represents
a majority of the roughly $1.2 billion that had flowed into the
fund from investors in the past few months of the year, according
to fund tracker Morningstar Inc.
The disclosure confirmed reporting this month by The Wall Street
Journal and stoked some debate within the fund industry about
whether Janus should have been more forthcoming with details of how
Mr. Gross had managed to build such a large fund in a short
period.
Many had assumed Mr. Gross's success at his predecessor, Pacific
Investment Management Co., or Pimco, had lured a loyal following of
investors.
Janus's initial lack of disclosure is "obviously misleading for
people who follow the inflows and assume that it comes from the
public," said Tamar Frankel, a law professor at Boston University
who specializes in mutual funds and corporate governance.
A Janus spokeswoman declined to comment or make Messrs. Gross or
Weil available for comment.
Janus's lack of disclosure until now doesn't appear to violate
Securities and Exchange Commission rules.
But legal specialists said the issue is whether or not investors
were led to believe that most of the assets in Mr. Gross's fund
were raised from other investors.
That is an important point, they said, because new clients in a
fund might be more likely to invest if they thought it had the
stamp of approval from other, similar investors.
On the earnings call Thursday, Mr. Weil said Janus was having
trouble persuading consultants to large institutional clients to
invest in Mr. Gross's fund.
"The consultants are famously slow to adopt new things," Mr.
Weil said. "Candidly, that's a daily battle we fight. They drive us
crazy, we probably drive them crazy."
As for Mr. Gross's investment, Mr. Weil said the manager
"fundamentally believes that investing alongside of clients aligns
interests."
"He believes in eating his own cooking," Mr. Weil said. "Bill's
proud of investing in what we do for a living. We think that should
give clients additional confidence in what we do."
Janus on Thursday reported a 22% increase in fourth-quarter
earnings. Its shares jumped $2.11, or 13%, to close at $18.39. The
company's stock is up 26% from Oct. 6, the day Mr. Gross began
running the fund.
Some investors and analysts have cheered Mr. Gross for the
investment, saying they are happy he has confidence in his
strategy.
When Mr. Gross took over the fund at the end of September
following his abrupt departure from Pimco, the Janus fund had just
$12 million in assets under management.
In October, the first full month under Mr. Gross, the fund had
$360 million in total investor inflows. What wasn't publicly known
until the Journal reported it this month was that more than $300
million came from the Morgan Stanley office in La Jolla, Calif.,
where Mr. Gross's personal financial adviser works. A Morgan
Stanley spokeswoman declined to comment.
In a statement at the time of Janus's October inflows, a company
spokesman said the firm is "encouraged by the level of interest we
are seeing across many of our funds, including our Flexible Bond
fund and Global Unconstrained Bond fund, both of which saw
meaningful inflows during October."
On the company's third-quarter earnings call Oct. 23, the first
after Mr. Gross joined Janus, Mr. Weil spoke of the effects of the
manager's arrival. "Everybody is taking our call, everybody is
calling us," said Mr. Weil. "It's an extremely busy period. It
includes institutional and retail, it includes domestic and
international."
In November, Morningstar reported $770 million in total inflows
into the fund, but the Journal later reported that about $400
million came from the Morgan Stanley office of Mr. Gross's
financial adviser.
"Obviously he's off to a great start raising a lot of attention
and assets," Mr. Weil told the Journal in a Jan. 5 article.
Also in November, Janus reported a $500 million investment from
George Soros's Soros Fund Management, in a separate account
following the same strategy as the Janus fund.
In an analyst note following the Journal's story this month,
Citigroup analyst William Katz questioned why Janus would disclose
the Soros injection and not Mr. Gross's investment.
It is unclear whether the "more than $700 million" that Janus
said Mr. Gross has invested encompasses December investor inflows
into the fund, which Morningstar said totaled a net $176
million.
Mr. Gross's fund has lost 1.05% since he began trading on Oct.
6, lagging behind 52% of peers, according to Morningstar.
Sumit Desai, a fixed-income analyst at Morningstar, said the
disclosure by Janus should have happened right away, as there are
benefits to investors to know that a fund manager is investing
alongside the fund.
"It will at least allow the fund to scale up to a level where he
can do a better job of communicating his investment ideas at the
scale he wants to," Mr. Desai said.
But there also are downsides to investors. If one investor holds
the bulk of the shares, there is concern about how the fund would
be affected if that investor pulls his money, Mr. Desai said.
Gregory Zuckerman contributed to this article.
Write to Kirsten Grind at kirsten.grind@wsj.com
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