The Janus Fund Fee Game

janus fund feeThe Janus Performance Fee Proposal

The Janus fund fee (“performance fee”) recently pitched by Janus Funds is a good example of gamesmanship for higher stakes than seen in your typical RPG or RTS. We don’t usually talk about financial matters here at Game Writer Central, but I believe that it’s important to recognize game elements in all environments, especially when those elements are subtle and insidious.

Just like the manufactured financial instruments that were a large part of our recent economic meltdown, mutual fund fees are arbitrary structures that exist only on paper. Like the rules of a board game, mutual fund fee rules don’t come from any governing body — they’re agreed-upon between the shareholders and the fund management, and they can be changed by a simple vote. Like the Janus fund fee that’s being proposed for their Janus Forty, Janus Fund, Janus Global Opportunities, Janus Overseas, and Janus Twenty Funds.

Janus Funds wants to change the usual percentage management fund fee to a base fee plus or minus a performance-based amount. If they beat their benchmark index (an unmanaged group of similar investments), they get more money; if they don’t they get less.

The Janus Fee: Fair or Fail?

This sounds great until you realize that Janus is never going to pitch something that’s not in their best interests. A little investigation on the Janus fund fee proposal reveals it isn’t really in the shareholder’s best interests:

  • A simple Google search yielded this article from Smart Money that cites a NYU/Fordham study showing that performance-based fund fees actually caused fund managers to take abnormal risks. Unsurprisingly, when given short-term goals, people often sacrifice what’s best for all to grasp at the dangling carrot. If you ask me, this kind of thinking infects Wall Street in general: CEOs sacrifice the company’s well-being for quarterly earnings, because the CEO plans to cash out ASAP and ride his golden parachute away from the smoking ruins.
  • Benchmark indexes are by nature mixed bags. They’re representative of a certain slice of the market, and they contain dogs as well as stars. Although it’s true that many managed funds struggle to beat the S&P 500 on an year-over-year basis, sector indexes are often much more motley. Here’s an example: Janus Overseas Fund is benchmarked to an index that it consistently beats. Of the eight sample periods shown on Janus Funds’ own website, the Janus Overseas Fund beats the index six of eight times, including the entire past decade.

So… this is some interesting game design. If you’re an investor, do you want to change the game rules so that the game scalps up to 15% more off your hard-earned winnings with that kind of frequency? Or do you vote to keep the rules the same?

Of course, if fund management takes abnormal risks and performs badly, the fund could perform worse than its historical tracking and be penalized by the Janus performance fee. But if the Janus fund fee is ticked down, so are your earnings. That’s a lose-lose game, with you holding the bigger share of the risk.

Don’t Play Hooky On Fund Fee Proxies: Your Power Is Your Own

It’s my opinion that we Americans as a nation often fail to look out for our own best interests because it often requires a bit of painful research and thought. Whether it’s investigating the track record of a politician or taking the time to vote on school board elections, we don’t like doing our homework. And as a result, we get “gamed” by the entities we’re supposedly overseeing.

Keep this in mind the next time you get a boring fund fee proxy statement in the mail. If they’re asking for your signature, you have power. Signing blindly isn’t as dramatic as kneeling in fealty to a demonic end-game boss, but the consequences can be more dramatic for you and your family.


Join the Conversation


  1. Thanks very much for this post. It was exactly the sort of shareholder research I was looking for. I found the proxy materials Janus provided to be suspiciously vague about how the fee structure would be changed, essentially giving mangement carte blanche to set fees however they wished.

  2. You’re welcome, Georg! Did you get pestered by their phone calls? They’re very anxious on this vote for some reason…

    I always take a moment to check out the bios of the board members on funds, too. If they have affiliations with unethical institutions (RJ Reynolds, Exxon, Halliburton, Enron) I vote against them.

  3. Thank you. I didn’t want to do a knee-jerk vote an approval of the performance fee adjustment, and had a gut feeling that it was off… This is exactly the kind of analysis I was looking for!

  4. You’re welcome! I got ANOTHER vote request mailing from them yesterday. It’s unprecedented… I’ve never been harassed with this kind of frequency for a proxy vote before.

  5. As a libertarian I never thought I would say what I’m going to say in public. I’m extremely opposed to this “performance-based” management fee structure. Look, it’s the job of these people to try to make good investments, and if they do their jobs, they’re amply rewarded (and can renegotiate their salaries). I think, quite frankly, this is yet another breach of trust that is giving the financial industry a bad name.

    People are putting their hard-earned money in banks, funds, etc. and are expecting to be treated fairly. It’s disgusting to feel that, whenever your back is turned, another scheme pops up to grab yet more of your money. It’s bound to make you think that these people want to make as much money as they can as fast as they can. What, are Janus execs unfairly compensated with the money we’ve entrusted to them? Will they take less money or no salary if they under-perform?

    I find it suspicious that I am constantly getting called to cast my vote. And I think it’s sad that I’m suspicious. I’m not going to vote because my vote is not going to influence the outcome and I’m just going to transfer my money to another family of funds that has a lower management fee and doesn’t make me feel like a sucker.

  6. on page d-7 of the proxy statement it appears the trustees can vote themselves another base for calculating their perfomance adjustment.hmmm

  7. Normally I just vote ‘yes’ to everything and figure “they know best”. This time my suspicions were aroused by the number of mailings Janus sent. It was like being yelled at. Thanks for the post.

  8. Thank you for this analysis. It was very helpful in deciding my vote. I wasn’t initially going to vote, but I couldn’t take the pestering any longer! They were calling my home almost daily.

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