INSIDE II - Comeback Story

Whom the gods would destroy, they first make mad with fund flows.

Whom the gods would destroy, they first make mad with fund flows. Or so Euripides might have concluded had he been around to observe the rise and fall of Janus Capital Group during the tech stock bubble.

No firm rode the bubble to such delirious heights as did the Denver-based fund family; no firm fell as hard. Billions poured in from eager investors, but Janus lost control of its investment discipline as it chased performance: Pretty soon its portfolios were overly concentrated in large-cap tech stocks and not a few dot-bombs. From a peak of $330 billion in March 2000, Janus’s assets plummeted to $136.7 billion by December 2002, their trough. Today, Janus claims about $176 billion.

It’s a cautionary tale, although one that may yet end in redemption, as Senior Writer Michael Shari writes in this month’s cover story, “Back in the Black,” beginning on page 40. After a long, difficult struggle, Janus finally appears to be turning a corner under the shrewd guidance of CEO Gary Black, the celebrated securities-analyst-turned-investment-executive. January through March marked the first quarter in six years in which the company did not suffer net outflows from its Janus-branded funds. Credit decisive actions on Black’s part since becoming CEO last year: He replaced underperforming executives, instituted tighter risk controls and sharpened the investment process, while adding analysts. He also deemphasized the firm’s traditional direct-sales approach to build its distribution through intermediaries.

Taking risks is one thing, managing them is another, as Janus discovered. Few participants in the markets these days appear to relish risk-taking as much as John Devaney, a bond trader from south Florida, who is profiled in “Trading on the Edge” (page 70). Devaney, writes Staff Writer Pierre Paulden, overcame a rough adolescence to found United Capital Markets, a Key Biscayne, Florida–based brokerage that is small in size (it has just 75 employees and $40 million in equity capital) but an incongruously big player in certain niche asset-backed markets.

Devaney, 36, likes to find hidden, undervalued gems in the market, then bets big, frequently making outsize scores. This spring, Paulden writes, Devaney was pouring money into the ravaged subprime mortgage market, confident that he could pick which segments of the market would recover and which would continue to fall. A cheerful self-promoter, Devaney has been busily building a money management arm; typical of our times, this includes a high-performing hedge fund. His aim is to establish a steadier source of profit than his volatile trading operation produces so that he can build a full-scale investment bank that, in his fondest dreams, he would take public. Moving into this new line of business is a risk he believes is worth taking.

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