Denver Fund Biz Down But Not Out
December 6, 2004
With one big bat permanently missing from a once formidable lineup and another nursing a number of nagging injuries, the Denver mutual fund business is undoubtedly short on star power. But with the market rebounding, multiple fraud settlements conceivably behind it and several small shops on the rise, the industry is crawling back from the Styxian depths.
"The worst is over," said Jeff Adams, president of the no-load Westcore Funds, which managed to escape the carnage inflicted upon most of the Denver-area shops. Westcore was able to grow its assets by $300 million during the scourge, bucking the prevailing trend of sizeable outflows. "It hasn't been a fun experience for most people in town, but now it's back to business." Fresh off the completion of its merger of the Aristata Funds, Westcore now has $7.5 billion in assets under management.
The performance and market-timing woes endured at Janus and the now-defunct Invesco prompted massive outflows and the loss of hundreds of jobs in the Rocky Mountain region. As a result, the city has slipped from being the nation's sixth-largest mutual fund hub to No. 15 in the country in less than four years, according to Financial Research Corp. of Boston.
In many ways, Denver is a microcosm of the mutual fund industry as a whole.
For years, the face of the Denver fund marketplace has been Janus and Invesco, both of which pursued aggressive growth strategies in the latter half of the 90's, filling their investment buckets with technology stocks. Ultimately, it was that overemphasis on growth and technology that set them on a downward spiral. On top of that, each firm was slapped with lawsuits for their involvement in market-timing schemes that bilked the savings of long-term shareholders. In other words, things went from bad to worse.
"There are not a lot of jobs in Denver," said Cary Chapman, founder of Rocky Mountain Wealth Advisors, a registered investment advisor that manages wealth for high-net-worth clients using separately managed accounts. He noted that there are a number of qualified people on the street hoping to stay in Denver, but a majority of them may be forced to leave the city to remain in the industry.
Denver was a unique location within the fund community because it afforded people the opportunity to enjoy the outdoors and still have close ties to the securities industry. In other cities, mixing business with pleasure has more to do with personal taste rather than lifestyle. The city also boasts a very young population, which proved ideal for setting up back-office type organizations.
For these reasons, Denver not only became a popular service area but also attracted a lot of talent nationwide. When the market finally tanked and firms began bleeding assets, service jobs were the first to go. Throw in the regulatory mess that ensued, and a lot of the investment talent began fleeing to start their own hedge funds or work in the managed account space.
"Denver is primarily a growth town rather than value, and that puts it at a disadvantage," said Don Cassidy, senior analyst at Lipper's Denver office. "But there isn't any blood running in the streets." In order for Denver to improve its standing among the nation's top mutual fund towns, the rebuilding must start with Janus, since the firm holds roughly 80% of assets in Denver. To do so, Janus must "change the tone and taste of the investor market," a shift that will take some time, Cassidy noted.
Perhaps the biggest challenge for Janus, now that the firm has begun to distance itself from the scandal, is renegotiating employment contracts with its key portfolio managers. If the shop can't hold on to its top talent, it could spell big trouble for Janus, Cassidy said. So, Janus isn't going away, it's just smaller now. And despite the difficulties the company has faced, it has actually increased its analyst base by hiring a lot more junior people. Currently, the only jobs that Janus is looking to fill are in marketing and distribution as it begins to focus on the different channels.
The folding of Invesco is consistent with the larger trend of consolidation in the fund industry. In Denver alone, Invesco, Berger Funds and Founders Funds have all disappeared in recent years, having been consumed by larger entities. With the fund community's profile in Denver shrinking, questions remain as to its staying power. Which firms will step up to fill the void? Will there be another Janus to come out of Denver?