We Lost Our Shirts; He ‘Looked Back’

If you had cashed your retirement savings out of mutual funds as storm clouds gathered over the markets in 2000, you could call yourself a shrewd investor.

But what if you sold off your holdings today and still managed to receive last year’s premium prices? What would you call yourself then?

A shining star of American capitalism?

The greediest man of the moment?

A wartime patriot heeding President Bush’s call to get back to work?

Let’s meet Thomas H. Bailey.

This is turning out to be some year for Mr. Bailey. He steered one of the country’s great mutual funds into a nosedive. His investors suffered far worse than the market itself. And far worse than big mutual funds overall. But not all was lost. He showed a golden touch as far as his own interests. He prospered in the midst of a downturn.

On Oct. 3, with the markets still reeling from terrorist attacks on the U.S., Bailey turned up in the news. He grabbed top dollar for selling his final ownership stake of Denver-based Janus mutual funds--$603 million. That’s $603,000,000.


Losing, you see, is for suckers. That’s for you and me. Not for CEOs like Bailey.

Back in the 1990s, Americans became accustomed to outrageous money grabs by some corporate executives. Bailey now shows that the fun doesn’t have to stop just because rank-and-file investors lost their shirts and the country is at war and facing recession.

We lose; Bailey wins.

If you were an investor in this company that Bailey founded--and I think I am, although, along with many people, I’m afraid to look right now--you lost roughly half of your holdings in the past 12 months. Janus, a popular choice for many working Americans through their 401k plans, went from about $320 billion in assets last year to $170 billion as of recent reports.

There is a variety of funds under the Janus umbrella, but its flagship Janus Fund was down 47% for the 52 weeks preceding Bailey’s sale. That means if you had $1,000 in Janus Fund shares a year ago, you were left with about $530 on Oct. 3.

True, it’s not Bailey’s fault that the markets turned sour. But the man who once set the pace in mutual funds and chalked up huge gains in 1998-99 with the motto “We’re about results” did nearly twice as badly as his average rivals in the last year. Compared to the 47% decline in the Janus Fund, or the 49% drop in Janus Mercury or the 51% loss of the Janus Twenty fund, the average diversified U.S. stock fund was down only 25%, the same as the Standard & Poor’s 500 stock index, a benchmark for big mutual funds.

If Bailey reaped what he had sown, that is, sold his shares based on current performance, the poor man would have pocketed only $200 million to $350 million, according to analysts.

But, ah, he arranged in advance to protect himself against just such a terrible performance by his company. Janus is owned by Stilwell Financial, which is publicly traded--the same as Janus funds. But Bailey’s personal holdings were in the form of private stock that carried something known as a “look back” clause. That is, he didn’t have to live in the mess of the present. He got to “look back” and sell his stake to Stilwell at a price based on last year’s earnings.

It’s a sweet deal not available to ordinary investors in Janus funds. Otherwise, imagine how much happier we’d all feel.

“Honey, I think I liked the markets better last year. Looking back, let’s sell and avoid 2001 altogether.”

“Sounds good, dear.”

During the boom of the 1990s, those chief executives who became notorious for their mega-million-dollar compensation packages, equity stakes and personalized stock plans argued that success deserves its rewards. Why, they were leading their companies and shareholders and the nation to unprecedented prosperity.

Today, with the economy in a tailspin and investors reeling, the continuation of deals like this looks more like looting. And companies have run out of things to say except, “Hey, it’s all legal, you know.”

“This is a rational economic decision for him,” explained a Janus spokesman.

Of course it is. But that doesn’t make it any easier for the rest of us to swallow. Bailey had a good run for most of 31 years building Janus. But when things went bad, the CEO got to hold on to all of his astonishing fortune while investors lost almost half their retirement investments.

“The attack on America brought into question everyone’s personal and financial security at the most basic level,” Bailey said this week in a letter to Janus shareholders. Everyone’s financial security, except his.

I guess that’s what some people mean by business as usual.