In an earnings call with analysts this morning, Janus Capital Group CEO Dick Weil talked about the mutual fund administrative errors that caused the Denver-based company [see profile] to reimburse clients $13.6 million [see article], but did not get into specifics about what exactly went wrong.

"Errors of this order of magnitude are completely unacceptable to me," Weil said at the start of the call. "They are unacceptable to our management and to every person in our firm. We don't expect them to be acceptable to our equity owners, either."

"At this point, the errors look idiosyncratic and have not revealed any deeper systemic problem, but we're taking nothing for granted. We simply must have processes and controls and avoid outcomes like this."

Weil said Janus' newly hired global head of technology and operations, George Batejan, who joined the company on Monday [see article], will work with the head of risk management and the entire management team to "look at our processes and controls across the firm to ensure we've taken every possible step to avoid a repeat of this sort of unacceptable outcome."

The problem

During the Q&A portion, Roger Freeman, an analyst with Barclays Capital, asked what the problem was.

"Maybe I missed it, but what was the problem?" Freeman asked.

"You didn't miss it," Weil responded. "We're describing it as two fund administrative errors and I think that's specific enough."

"Obviously, in fund admin, you're dealing with a high volume of transactions and if you make a mistake on any one, there can be an effect that's widely variant depending on what the market does with whatever the subject matter of the mistake was," Weil continued.

"The important thing is that you know that individuals faced with that flow of transactions.. indviduals are going to occasionally make mistakes and you have to have procedures that catch those mistakes. In our case, in this instance, that didn't work well. And then the unlucky factor that it turned out to be a major penalty for that mistake also came into play," he said.

Weil added: "It looks idiosyncratic to us, but you can't take that for granted. We're going to go strip everything down and take a careful look at processes and procedures and do a risk assessment and build from the bottom because we just cannot accept errors like this."

Insourcing vs Outsourcing

Later, Marc Irizarry, an analyst with Goldman Sachs, asked Weil whether the errors made him think about the possibility of outsourcing some functions.

"I think every few years you need to re-examine those decisions and try and decide whether you have the right structure go get the best result in an efficient fashion," Weil said. "I think all of us in this business are called upon to look at those insourcing/outsourcing decisions periodically as part of managing the business."

"Certainly when you have events like this, you have to question everything and go back to your decision-making processes and I wouldn't say outsourcing is first and foremost amongst the priorities to think about, but everything's on the table and we'll take a hard look at all of our processes and procedures and hopefully make good judgements about how to make sure that we avoid unacceptable outcomes like this," he added. 

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