In a recently released report on Janus Henderson, a Morningstar analyst wrote that the research house had had “grave concerns” about the company’s co-chief executive structure following the merger of Janus Capital and Henderson Group in 2016 and was “glad to see Janus Henderson leave this by the wayside”.
“While we understood some of the reasoning behind the co-CEO structure – with each manager more intimately aware of strengths, weaknesses and opportunities in each of his operating segments – we’ve never been big fans of this type of management arrangement, especially coming out of a merger”.
“We’ve seen it create more friction than it’s worth in the long run, and with the asset-management business inherently being a people (and, therefore, a culture) business, and the landscape filled with acquisitions and mergers that have failed to live up to expectations due to a clash of cultures that occurred following a combination, we had grave concerns about the co-CEO structure,” the report said.
Though the issue of company culture can be easily dismissed because it cannot be quantified, the departure of Mr Formica would have an overall positive impact on Janus Henderson in the long-term as a result of more consistency, the research house said.
“We believe that over the long run, asset managers with a single corporate culture dedicated to a common purpose that’s ultimately reflected in the consistency of their investment performance, their rate of organic growth, the focus and importance placed on risk management, and the amount of employee turnover they experience tend to perform better than companies that are operating with less cohesive and/or inconsistent organisations.”
However, the research house also flagged that the departure of Mr Formica meant a host of further departures were likely on the horizon.
“There is also the risk now that with a more centralised management structure in place at Janus Henderson, with one chief executive overseeing the strategy for the whole firm, we could see an acceleration of departures of key personnel (which generally happens when two firms combine).”
Furthermore, the loss of Mr Formica itself will have a broader impact on the business.
Henderson Group’s assets under management doubled during Mr Formica’s tenure as chief executive of Henderson Group between November 2008 to May 2017, the report pointed out.
“Formica had gained a reputation for being an intelligent deal-maker with a talent for integrating troubled businesses so his loss will be felt, especially as Janus Henderson looks for ways to push past the headwinds it faces in both the US and UK/European markets.”
In a previous Morningstar report published in August 2017, the research house said the merged company faced a number of "headwinds posed by the US Department of Labor's fiduciary rule, as well as additional layers of regulation in European markets, which Brexit is likely to make even more complicated".
Janus Henderson head of Asia-Pacific Rob Adams took issue with the report and pointed to its quarterly results at the time which had beaten market expectations.
