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Janus Capital Group Inc. (NYSE:JNS)

Q1 FY08 Earnings Call

April 24, 2008, 10:00 AM ET

Executives

Gary D. Black - CEO

Gregory A. Frost - EVP and CFO

Analysts

Kenneth Worthington - J.P. Morgan

Michael Hecht - Banc of America Securities LLC

Craig Siegenthaler - Credit Suisse

Cynthia Mayer - Merrill Lynch

Marc Irizarry - Goldman Sachs

Operator

Good morning, ladies and gentlemen, my name is Tina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Janus Capital Group First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. In the interest of time, questions will be limited to one initial and one follow-up question. [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 at 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 of these statements were made. Investors should however consult any further disclosures Janus may make in its reports filed with the SEC. Thank you. It is now my pleasure to introduce Gary Black, Chief Executive Officer of Janus Capital Group. Mr. Black, you may begin your conference.

Gary D. Black - Chief Executive Officer

Thank you. Good morning, everyone, and welcome to Janus' first quarter earnings call. With me today is Greg Frost, our Chief Financial Officer. Despite a rough January for us and the rest of the industry, we finished the quarter strong. First quarter earnings were $0.24, which was up from first quarter a year ago, down from fourth quarter. In the numbers there is about $0.03 a share of seed capital losses, which Greg will talk about in more detail.

Net flows were a negative $1.5 billion and Janus flows were negative $0.4 billion that did include a $1.1 billion fixed income separate account redemption. If you look at Janus Equities on a stand-alone basis, they were actually positive $0.7 billion versus the industry, which was down about $16 billion for the quarter. So quite good showing on the equities side.

INTECH flows were negative $1.1 billion, which was due to two large redemptions by two public funds, which I'll talk more about. Assets under management was down about 9%, which was in line with the market; as you know the S&P was down 9.4% during the quarter. Investment performance remains extremely strong over any time period one looks at 85% of our funds are beating their peers, 77% of our products are now rated four or five star by Morningstar. We’ve done extremely well during this market correction.

During the quarter, we bought back another 3% of INTECH, which brings our ownership level to 89.5%. We also bought back another $134 million of Janus stock at a price of $25.75, which reduced shares outstanding by another 2%.

I do want to point out a couple of changes we have made to the presentation format. First, you'll see a footnote on slide two. We're going to show... going forward, we're going to show performance across all of our share classes that the JIF… recall the JIF, which is the Retail class, the Advisor class, which is called JAD, and then the JAS, which is the Aspen Series share class given that an increasing percentage of our flows and our assets come from those channels. The other change, which I'll call out when we get to it, is we've combined, for reporting purposes, our direct business and what we used to call our domestic intermediary business. It is how we run the business internally. And so we wanted to reflect that in the way we show these results.

Turning to slide three, looking over at the chart on the far left, as we've seen before, when equity markets decline as they did in the first quarter, equity flows for Janus and the industry declined, particularly those with retail franchises as investors seek out safety and fixed into the money markets. Our gross flows were down about 16% versus fourth quarter. Our redemptions were up in total about 25%, which I'll talk more about.

Looking at INTECH, middle chart, gross flows were back below $2 billion. This reflected a couple of things. We had reduced RFP activity for domestic equities, not just for INTECH but across the market. And obviously last year's underperformance has had some impact.

It's important to note that INTECH's outflows included two large public fund redemptions that totaled about $1.1 billion. One was a public fund that bought one account in-house, the other was the result of a planned re-allocation, when we... moving money away from domestic equities towards global and alternatives which is the trend we've seen in the industry before. It's important to note that both public funds remained clients of INTECH.

If you look at the Janus side, the far right, the flows were actually pretty good, all things considered and ended the quarter strong. Gross flows actually increased from fourth quarter. The higher redemptions reflected the challenging equity markets which again, especially when you have a retail franchise, you’re going to see a lot more moving into fixed income and money markets. That did reverse somewhat as market rebounded at quarter end. But most importantly, you had about a $1.1 billion redemption. It was a single fixed income separate account closure and importantly, Janus Equities actually posted a positive net flows in the first quarter against… again the market was actually down.

Turning to slide four, top left, again I want to note the reformatting of the presentation where we’ve combined our direct business and our domestic intermediary business. If you look at it as one business, gross flows were up in the quarter. The broker-dealer channel was very strong. Gross flows were actually up 21% versus fourth quarter. As you know, we’ve put a lot of resources in building out that business over the last four years. The financial institutions channel, the retirement channel, also showed positive flows. Where we were weak was in the traditional direct franchise, which is most sensitive to the market, which is our supermarket channel and our so-called direct channel. We continue to have strong representation, however, on the so-called select list in the supermarket channel, we have 18 funds that are on the buy list on our supermarket channel’s list.

Redemptions were up sharply across the board, which again I think is a function of the volatile equity markets. I still think it's important when you think about this retail business to look at this over a longer time frame than just three months. And I'll give you just some market share data that if you look over the last 12 months which is how we’d like to look at it, this is 12 months ending March 31st, '08. Janus on a net base was actually 12th in the market in terms of net flows that compared to, if you look back a year ago, we were 559th on a 12-month basis.

And our organic growth rate in this, again retail intermediary business, is about 6.6% versus the industry has been about 1.8% or so over the last 12 months. So I think it's important to take a longer time frame particularly as the markets rebound here. On the institutional side, in the middle chart, again, three accounts represented $2.2 billion of redemptions. So it's the two public funds, which I talked about, and then $1.1 billion fixed income separate account.

On the international side, we had positive flows during the quarter. We had some nice Janus wins during the quarter, a lot of traction behind the Janus Managed Products outside the U.S., and the redemptions here are largely driven by again a continuing trend, it was the decrease allocation of U.S. equity products, particularly by institutions outside the U.S., favoring global, favoring alternative products.

Turning to slide five, top left, most of you know these numbers. Markets were challenged during the quarter. Equities were off 9% to 10% around the world. Growth did a little bit worse than value in the U.S., but did a little better than value outside the U.S. On the top right side, we just show flows now by quarter. So we don't have all the noise from any individual month that you could see. For the quarter, equity flows were negative as retail investors flocked towards safety. That reversed somewhat, as I've mentioned before, toward the end of the quarter as markets stabilized.

If you look at the bottom left chart, you could see that growth returns over one year are still beating value. And interestingly, if you look at the bottom right chart, you could see that, again total equity flows were negative but growth actually did better than value, which along with our strong performance might explain why Janus equity flows were positive during the quarter.

Turning to slide six, and speaking of performance, our investment team continues to put up really exceptional results over all time periods. On the Janus Managed side, so Janus Managed Equity side, 89% beating peers over one year, 89% over three years, 88% over five years. Those numbers rank… as a couple of you have pointed out in some of your recent pieces, they rank at very near at the top of the industry. We're number one, if you look at the top 20 mutual fund firms over the one-year, if you look at our equity performance versus their equity performance. We're number one out of 20 over three years, we're number four over five years and over ten years. 77% of our funds are rated four or five stars by Morningstar.

And I think it's important to point out the depth of our research and investment process, and this goes to that fourth sub-bullet. And I want to make a comment, no one portfolio manager or analyst drives results at Janus. It's one team Janus today and we look at where there has been a PM change, where there is a new product launch, which usually gets new PM. Over the past two years, 82% ranked in the top quartile. So it's a testament to the deep bench that we have and I think it's important to remember that.

INTECH's performance, at the bottom of the page, was challenged in January. As was true of most mathematical and quantitative managers, given the severe short-term volatility, we did have outperformance in February, March, April as they have gotten off to a good start. And it's important to note that long-term performance remains stellar. 100% of the strategies are beating the benchmarks over five and ten years. And it’s also important to note that the underperformance we have seen with INTECH is largely concentrated in our broad large cap growth strategy.

Almost all of our other strategies, even in the short term, have had either okay performance or strong performance. Our global, our international product, our INTECH value product have all had strong performance over the one and three-year periods as well. So it’s really just that broad large cap growth product line that has had some performance issues in the near term but great long-term records.

You could see this graphically on page seven, again, the chart speaks for itself. And again, I just want to point out that this now includes all of our products, not just the direct mutual funds as it includes the JIF, the Adviser series, and the Aspen Series. So it now represents 52 funds instead of... I think before it was about 26 funds. So performance has been very strong during this market correction, it has been very strong despite some changes at the PM level. You can look at the... we’ve buried in the appendix the by product performance. But, you'll see across the board performance remains exceptional, and I'm a big believer in this industry that flows always follow performance is what we've always seen.

It’s also important to note that not only in the growth side performance has been strong, but the value products have been very strong and our fixed-income products, particularly Flex or the Flex Fund or short-term bond also top quartile. So with that let me turn the presentation to Greg.

Gregory A. Frost - Executive Vice President and Chief Financial Officer

Thanks, Gary, and good morning. I'll start with the top on page nine. EPS of $0.24, as Gary said, compared to $0.30 in Q4 and $0.20 a year ago. The $0.24 does include $0.03 of mark-to-market losses on our seed capital portfolio. We discussed this in some level of detail in the Q4 call. I think we do certainly expect increased volatility as we move forward just because of marking the market a big chunk of that portfolio.

Just quickly on the fourth quarter number of $0.30, I know everyone is aware of this, but we did this... we did… on the earnings call we talked about a $0.36 number. Prior to filing the 10-K, we did take an additional $0.06 charge related to our investment in the Stanfield Victoria SIV. I believe everybody has the rationale behind that. We did take another close look at valuation prior to filing the 10-K and felt that another charge was prudent. As of right now, we feel like we have the security valued somewhat conservatively. We don't know what's going to happen ultimately with the security, but we are where we are and we do not make any further adjustments at the 3/31 time frame. So we didn't make any adjustments in the first quarter numbers.

Also, in the fourth quarter number, I'll point out that there is a $0.03 net expense in the number that we talked to last quarter as a result of variety of items that I won't go through in detail here. Average assets and revenue, as Gary mentioned, clearly reflected the choppy markets. Operating expenses were down 13%, although... remember, there is about $12 million of net impact related to some LTI acceleration, and some insurance recoveries in there. So if I kind of back those out, expenses were largely down in line with assets and revenue, which clearly to me demonstrates the variability in our business model.

A couple of points on the line items themselves. Compensation is down roughly 4%. A large part of comp is tied to the business model. So one might expect that to be down a little bit more, but do remember that Q1 has a normal and very seasonal impact of raises for employees here, and there is always an impact for payroll taxes and 401(k) contributions that get reset kind of in Q1 and that’s kind of $3 million to $4 million if you think about it. So if you pull that out, compensation would be down largely in line with revenue in the business model.

G&A, I'll mention quickly, we did talk about some technology and project spend in Q4 that came off in Q1, so you'll see a decline there as well. And outside of that, I would argue that there were no real unusual items in the first quarter to talk about. We're clearly pleased with where the margins ended up at just shy of 32%. Again, it demonstrates to me that the variability in the business model is working and obviously you had lower G&A costs like I talked about.

A couple other points, as I... at the bottom part of the slide, as Gary mentioned, we did purchase an additional 3% stake in INTECH at March 31st. A couple of points here, the purchase was based on some contractual put rights we have with the founders of INTECH. We talked about these before, they are disclosed in our 10-K. We do expect to see this level of activity going forward for the next several years, based on these put and call rights. And then one more point, the value was determined as of 12/31/07. So it doesn't necessarily reflect the choppiness in the market that we saw in January and February of 2008.

Next, we did… early April, we announced the sale of RSG’s digital assets to Bowne. There is a small piece left in that business, the offset printing business, we are working diligently to figure out what happens there. We fully expect this to be fully wrapped up by the end of Q2 and we do not expect any material charges to occur as a result of finalizing these dispositions.

Lastly, as I mentioned before, we obviously continue to closely monitor our SIV situation. The Stanfield securities have been placed with an enforcement manager, I think everyone is aware of that. We are closely monitoring the situation. We participate in conference calls, we get a fair amount of information from the enforcement agent. As I mentioned before, we didn't take a further… we didn’t take any further decline in value at 3/31 from where we were when we filed the 10-K. Clearly further impairments are a possibility, as is a recoupment of some of the loss should market conditions improve. But as of right now, we don't have any further information.

The funds still hold some bank-sponsored SIVs and we talked about those. It is less than 2.5% of overall money market assets at March 31st of 2008. These will all mature over the next four months of the year. So although we are closely watching that, we are optimistic that those will come off with no issues to Janus.

Operating cash flow, quickly, if you look at the press release, you'll see operating cash flow had a big dip in Q1. This is a very normal part of our business. And if you look back at our history, you will see that the big dips in Q1 and a nice recovery in Q2 through Q4. So it is expected, we obviously got a lot of compensation and bonuses in the first quarter and that causes operating cash and EBITDA to come down.

And then lastly, I guess I would say with the last bullet point on the page that Gary and I and the management team are trying to find the balance between being prudent with expenses in this choppy market and… trying to find the balance between that and continuing to reinvest in the business to support our corporate objectives. We're obviously pleased with the results in Q1 but we're going to watch it closely as we go forward and do the right thing in order to meet our corporate and our financial objectives.

And with that, I'll turn it back over to Gary to wrap up.

Gary D. Black - Chief Executive Officer

Thanks, Greg. And so despite some volatility in the markets, we're very focused on delivering to our investors and our shareholders. I think the firm is very well positioned as the market stabilized and as we move into second quarter. We've got exceptional performance across the board over all time periods on the Janus side. And while the INTECH performance, while it was challenging in January, it finished the quarter strong and it has got an excellent long-term track record.

We are executing on our strategic initiatives, which, remember, is to continue to grow out our Advisory business, continue to go Global with global products and getting more global clients in the door. We are expanding our alternatives business. We are rebuilding our brand, we continue to build out our institutional platform, and those are continuing, and we think we're doing well on executing on those initiatives.

As Greg mentioned, the business model is flexible. We think we can maintain 30% margins regardless of the market environment and I think we've shown that in the first quarter that the model does work the way it’s supposed to. And I think the last little point, we do continue to return excess cash to our shareholders, and have maintained our strong balance sheet despite the volatility and despite having bought back another piece of INTECH and another chunk of our stock. And so we think we're well positioned going forward.

With that, let me open it up for questions.

Question and Answer

Operator

[Operator Instructions]. Your first question will come from the line of Ken Worthington with J.P. Morgan.

Kenneth Worthington - J.P. Morgan

Hi, good morning, Gary.

Gary D. Black - Chief Executive Officer

Good morning.

Kenneth Worthington - J.P. Morgan

Not to start off on a dire note but still some manager turnover at Janus. Just address again why the turnover… is there a plan in place to kind of retain your investment professionals? And then I think there is two lawsuits out there, one for Keely, one for Malley. What are they suing… what are they suing over, why are they kind of leaving bitter?

Gary D. Black - Chief Executive Officer

First, it’s important to note that Janus is much more a team culture than I think some folks realize it. It is one investment team, the research process has been the same for many, many years; the investment process has been the same for many, many years. And when we have had turnover and you could go back to mid-90s when we had turnover with some of our former star managers, the performance has always been strong after there has been some turnover, which is a testament to the process. Obviously in 2000-2001, our performance was not great, that was not due to turnover. I think when you look at where we have had turnover the last three years, let’s call it, I think… and we’ve talked about this on the calls before, we’ve changed our business model, we are focusing much more on the institutional world which is more team driven, as you know, and we've gone global. So we’ve got global portfolios that we've invested heavily in our non-U.S. research, which some folks didn't always agree with. We changed the comp model which while it is tied more to towards [ph], it is still very performance driven. Three and five-year performance is more important than the shorter-term performance, that’s going to change. And so I think there are lots of reasons why people leave the firm, but the most important point is that when there has been turnover, we’ve been able to reach deep into our bench and the performance has stayed very strong. I think the statistic I shared with you, if you look over the last two years where there has been a PM change or new product, 82% of those products were in top quartile. That is a testament to the deep research process we have. So while there is a succession plan for every single position, when we have had turnover, the results have been very strong and if you look at the products, even more recently they have turned over. So we had some departures at the end of last year, it’s too soon to brag about it but the performance has remained strong.

Kenneth Worthington - J.P. Morgan

Okay. I think that's all... that's all fair. And then on a more positive note, on the alternatives, you've broken that out for the first time. Can you just flesh out your comments? It seems like given performance that if you are charging for the products at a high level that could be a really big money maker given the strong performance you guys have generated historically, can you flesh a little bit more about what you're doing on the alternatives side, and then how you are charging for it?

Gary D. Black - Chief Executive Officer

Yes. Look, we’re a believer that there will be convergence in this industry. As you know, the hedge fund managers and we have a lot of shareholders who are hedge fund managers, generally charge 2% and then 20% of the alpha over LIBOR or some benchmark and we don't charge anywhere near that. And yet we think our skill set is just as strong and so couple of years ago, we decided we are going to launch a Long-Short product run by David Decker who is one of our best managers and performance has been lights out, as you know. And after 18 months with this product, we've raised $1.2 [ph] billion where we decided it was right to close that product. And to pause and to think about what do we want to do next in that front because our most pressing concern is taking care of our investors. And if the fund got too big, we might start hurting investors and that’s... rule number one is to take care of our investors.

So I think going forward, we are going to look at a couple of things and we could launch true hedge funds in limited partnership form, we could expand that Long-Short platform. To your point, there is a huge mixed grade… mix upgrade opportunity both for Janus and other folks in the long-only side. And I think what we've been able to demonstrate and some other long-only manager, they would demonstrate is, that we can manage Long-Short products quite well and do just as well as some of the hedge fund managers that are charging 2% and 20%. So we will continue to invest in that business and that's why we wanted to show it separately as a business unit.

Kenneth Worthington - J.P. Morgan

Great. Thank you.

Operator

Your next question will come from the line of William Katz with Buckingham Research Group.

Unidentified Analyst

Hi, Gary and Greg. This is actually [inaudible] for Bill. Yes, the first question is, just wondering if you could just comment on the INTECH pipeline and any progress with the JIF product in the institutional channel?

Gary D. Black - Chief Executive Officer

What was the last question?

Unidentified Analyst

The progress with JIF in the institutional channel?

Gary D. Black - Chief Executive Officer

The INTECH product within institutional?

Unidentified Analyst

Yes, if you could just comment on the pipeline.

Gary D. Black - Chief Executive Officer

Okay. Well, the pipeline is good. Again I think most of our investors understand that we don't change our investment process to try to capture the short-term volatility that we saw in the first quarter, we've seen in the past, we... our model is very key to capturing long-term volatility. And so when you have disruptions such as you had in the first quarter and you had some last year, we don't change our investment process. We stay with what's worked, we've got a great long-term track record.

And to your question, our consultant endorsements have not changed, we haven’t seen consultants withdraw their buy ratings. We are still getting into finals. We are still being asked to complete our fees [ph] and the pipeline is good. Would we like it to be better? Sure. But I think as performance rebounds and again it’s important to note that our performance on INTECH in the first quarter, really just a broad large-cap growth product was what I would call for, everything else was okay or good and it was really limited to just January. February and March were strong, April has been good. So I feel that, as... again as I said before, as performance goes, that's where flows go. And as long as we can show that the performance is rebounding as the market stabilizes, we get back to a normal environment. INTECH performance is going to be fine again. Okay. So your second question was trying to roll out INTECH in the retail channel?

Unidentified Analyst

No, the second question is what are your priorities for free cash flow usage going forward?

Gary D. Black - Chief Executive Officer

Okay, different question. Let me turn that over to Greg.

Unidentified Analyst

Right, thank you.

Gregory A. Frost - Executive Vice President and Chief Financial Officer

And I think the story is about the same as we talked about. We obviously continually look for the best use of capital with the long-term goal to return excess cash to shareholders and providing good risk-adjusted returns. And again, we look at on a long-term basis and we feel like we have done a very good job, whether it's in stock buyback program or continuing to invest in our subsidiaries of doing this. And I don't think the philosophy is going to change as we move forward.

Unidentified Analyst

Okay. Thank you.

Operator

Your next question will come from the line of Michael Hecht with Banc of America.

Michael Hecht - Banc of America Securities LLC

Hi, guys. Good morning. How are you doing?

Gary D. Black - Chief Executive Officer

Good morning.

Gregory A. Frost - Executive Vice President and Chief Financial Officer

Good morning.

Michael Hecht - Banc of America Securities LLC

I guess just to follow up on the last question, I was also hoping to get a sense of the gross sales trends for some of the core Janus products outside of INTECH in the institutional channel and what you're seeing there?

Gary D. Black - Chief Executive Officer

We're getting... we don't break that out. But we are getting a lot of traction on the Janus side. And anecdotally, for instance, we have a product called concentrated growth. I think we actually had three finals last week on one product and that's a product that's run by Ron Sachs, and again Scott Schoelzel was running it. So he retired and Ron took it over earlier this year. The performance has been again short term. So bear with it. But top two percentile or so, top five percentile. And as you would expect, the consultants and the plan sponsors, they see the performance and they peel back the layers and they say, okay, let's do some due diligence. And people are finding that a very, very strong product in this market and it really hasn't changed that much from when Scott was running it. So I think we are going to continue to see more and more interest in our institutional product platform, we've made some changes at the management level, and we are getting a lot of traction for the first time, I'd say, in three or four years on the Janus side without breaking out numbers.

Michael Hecht - Banc of America Securities LLC

Okay. Fair enough. And then just to follow up, heavy redemptions kind of across the board seem to be somewhat of an issue. I know you went through a bunch of kind of one-timers on the institutional side. But for the retail business, any color by channel? I mean are redemptions coming more from the direct business versus the financial intermediary and investment-only retirement channels or is that not right?

Gary D. Black - Chief Executive Officer

Certain both. I tried to figure out, it looks like about half of it came from the true direct and supermarket business and half of it came from the advisory business. So I would say, it's a fair statement, it was heavy across the board. But again when you get markets down 9% and it was very concentrated, and it felt like the sky was falling in January for a couple of weeks, that's where we saw a lot of those redemptions. February and March were stronger. April, from a performance standpoint, has been good. I would bet that from an industry standpoint, the flows have gotten better on the equities side. So I think as you talk to the most of the companies, you’re going to find the January really was the first quarter and then February and March and beginning of April, we felt back out. So I am not concerned about if people are focused on one month, so be it. But we are trying to take a longer-term perspective on things.

Michael Hecht - Banc of America Securities LLC

Fair enough. Thank you.

Operator

Your next question will come from the line of Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler - Credit Suisse

Thanks for taking my call. First, can you talk about further opportunities for operating margin expansion here? I'm wondering either from the departure of a number of senior executives over the last year or maybe from the further alignment of compensation with revenues which kind of started last year in the beginning of '07?

Gregory A. Frost - Executive Vice President and Chief Financial Officer

This is Greg. I'll take a crack at it. If Gary wants to add something that’s fine. I think as we talked about the business model over the last year or so, it is more tied to the business model. Our expenses… more and more of our expenses are tied to the business model. So… and if you have a choppy market like we had in the first quarter, we still feel like we are able to maintain an appropriate margin in that business model and that business environment where we may not be able to do that or had not been able to do that in prior periods.

Going forward, I think... it's a balance between reinvesting in your business and doing the right thing for the long term by shareholders and letting [ph] margins... and kind of... and watching margins on the flip side. So… and I think Gary and I both feel that that… is there a room for some expansion? Sure. But, we also don't want to do that at the degradation of non-investing in the business.

Craig Siegenthaler - Credit Suisse

Okay. Thanks. And the second question is, as Janus' free cash flow levels improved here and your debt-to-cap certainly declines a little bit over time, is there any opportunity really to lever off the balance sheet any further and kind of free up some capital on that perspective?

Gary D. Black - Chief Executive Officer

I am not going to talk to any of our future plans. I think the statements we made earlier kind of speak for themselves and we are focused on it. We will continue to focus on the best use of capital for our shareholders, but outside of that, I am not going to speculate.

Craig Siegenthaler - Credit Suisse

Got it. I missed that statement, was that just... I guess, point number one, you're going to invest back in the business; point number two, I guess, dividends; and then your third use is just share buyback, is that --?

Gary D. Black - Chief Executive Officer

I think the point was we're going to continue to look at all of those and we are going to continue to choose those that we feel that provide the best risk-adjusted returns to our shareholders. So… and outside of that, I probably am not going to go further.

Craig Siegenthaler - Credit Suisse

Got it. Okay, great. Thanks for taking my questions.

Operator

[Operator Instructions]. Next we'll hear from the line of Cynthia Mayer with Merrill Lynch.

Cynthia Mayer - Merrill Lynch

Hi, good morning.

Gary D. Black - Chief Executive Officer

Good morning.

Cynthia Mayer - Merrill Lynch

Just a couple of questions on INTECH, where you are seeing outflows, do you think those are performance driven or are you seeing any change in appetite for more quant products?

Gregory A. Frost - Executive Vice President and Chief Financial Officer

It's hard to know, Cynthia, I think... if you say everybody non-fundamental. So include quants and mathematical together, they’ve all struggled over the last 18 months with performance, our performance has actually been better than the peers that are in that group, quants and the other mathematical managers. And again, it's important to note that with the exception of our broad large cap growth strategy, the other products are performing either okay or really, really well. So I would say there has got to be some that’s due to performance because our large cap growth is still 50% of our franchise, if you will. So that's got to be a factor, particularly with reduced RFPs. I would say that might be one factor, but I think a factor that we all have to think about is, we continue to see this shift away from particularly U.S. equity managers as folks decide they want to put a greater allocation of the plans in either global or EFA or into alternatives. And that's affecting INTECH, it's affecting all managers. I think the folks that are actually gaining share are either at the lower end which is... the enhanced index space and we play in that space and at the very high end, the high alpha [ph] managers. Again you see those folks that are in that middle range of tracking or let’s call it, three to five or so, or three to four. They are the ones that… it doesn't seem to be much demand for and those are the ones that are getting reallocated out. So we do play in the... with... as you know, with INTECH, it’s a risk-managed process, it tends to play both in the enhanced space and above that. In the Janus side, we play definitely in that high alpha [ph] space. So we think we're well positioned.

Cynthia Mayer - Merrill Lynch

Great. And on the Victoria, on the SIV, do you have any sense, can you give us any sense of what the timing of a resolution of that is? Is there a point at which you know it will either be money good or not?

Gregory A. Frost - Executive Vice President and Chief Financial Officer

Hi, Cynthia, this is Greg. I think that the short answer is no, we don't have a lot of color there, it’s with the enforcement agent and we're going to watch it closely, but we don't have any further color.

Cynthia Mayer - Merrill Lynch

Okay.

Gregory A. Frost - Executive Vice President and Chief Financial Officer

But, it is important to note that, in the quarter, we kept evaluation where it was and we have this very complicated model for forecasting the cash flows out on it. So it has not changed from where we were originally. And, we don't know exactly when we get [ph], we do believe at some point we'll get some or all of it back.

Cynthia Mayer - Merrill Lynch

Okay. And last question is just on the fixed income class mandates, is there anything in that that would indicate there would be more to go? Is that related to a particular style that's underperforming?

Gary D. Black - Chief Executive Officer

No, it was a single separate account and I think it's a one-time event.

Cynthia Mayer - Merrill Lynch

Great. Thanks a lot.

Operator

Your final question will come from the line of Marc Irizarry with Goldman Sachs.

Marc Irizarry - Goldman Sachs

Oh, great. Thanks, everybody. Gary, if you look at the gross sales and our redemption rates of growth and Global. It seems like for Global and the International products, the sales were down... were down a lot more and the redemptions were maybe up just a little bit in the quarter but it would seem like it mostly was a gross sales issue. And then if you look at sort of the domestic... the growth product, it looks like that was more a function of redemption sort of ticking up rather than sales really falling off a cliff. You may have commented a little bit on performance, but can you just dig a little deeper into that distinction? And then also, what did you see on Global and International in terms of gross sales trends as we moved from January and to March and maybe if you can get a little more color on April as well?

Gary D. Black - Chief Executive Officer

Marc, you talked about the industry or for Janus?

Marc Irizarry - Goldman Sachs

For Janus.

Gary D. Black - Chief Executive Officer

One thing we did do, we closed our overseas product and we do have other international products that we've launched and are getting traction. But whenever you close a product, an overseas close, I guess, fourth quarter... in the fourth quarter, you're going to see that, that was a big flow generator, but we do have other products that are now getting what we think were some of those flows. We have a great international equity product, a great track record that is getting close. And we also have a Global research product that we launched now, I think about three years ago, it has got top-decile numbers across the board that's getting a lot of traction. So while… again, when you close a product to do what's right for the investors in the short term, to get a little bit of a hiccup in terms of the flows stop temporarily but very quickly sales people find other things that they can sell and you have a lot of products with great performance. I don't really have any concerns long-term that we are going to lose that flow that we are getting into our International product that we closed. Does that answer your question?

Marc Irizarry - Goldman Sachs

It does. And then just in terms of the monthly progression for flows, I think you did comment on it. But can you just give me a little bit of sense of how gross sales versus net redemptions have tracked on a monthly basis?

Gary D. Black - Chief Executive Officer

Now you draw a chart and you look at the S&P 500. And the S&P 500 was down 9% to 10% in January, that’s when flows took a big hit and so the models you got to assume it all happened in January and then February, March, we’ve... as performance in the market had stabilized and actually rebounded, the flows have gotten better [inaudible].

Marc Irizarry - Goldman Sachs

And is the driver of the flows, is it sales, gross sales have started to pick up or was the redemption rate slowed?

Gary D. Black - Chief Executive Officer

I think it slowed.

Marc Irizarry - Goldman Sachs

Great. Thank you.

Operator

At this time, I would like to turn the call back over to Mr. Black for any closing remarks.

Gary D. Black - Chief Executive Officer

No, we will see you all next quarter. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation, you may all disconnect.

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Source: Janus Capital Group Inc. Q1 2008 Earnings Call
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