Janus Betting Big on Healtheon/WebMD

Mutual fund giant Janus Capital said Thursday that it will invest nearly $1 billion of its fund holders’ money in stock of fledgling Internet company Healtheon/WebMD Corp.

But for now, Janus fund owners won’t know which of the firm’s 21 retail funds got the stock, or in what quantity. And wherever the 15 million shares end up, Janus can’t sell them for six months.

Janus’ big bet on money-losing Healtheon/WebMD, which links doctors, patients and insurers via the Net, is being made through a so-called private placement of stock.

In return for its significant commitment--which represents almost a 10% stake in Healtheon/WebMD--Janus was able to buy the stock at $62 a share, a 6.5% discount from Wednesday’s close of $66.31. The stock rose $4.75 to $71.06 on Thursday, partly on the Janus news.

Purchases of such “restricted” shares are relatively uncommon for mutual funds. Only 225 of the nation’s 2,662 domestic stock funds recently held any restricted stock, according to fund tracker Morningstar Inc.

For Denver-based Janus--the nation’s fastest-growing fund company--the move is another sign of its managers’ willingness to make large bets for what they hope will be a large payoff in the long term.

Janus may feel as if it has little choice, some fund experts say.

“The last two years have been so glorious for Janus, and some of [its] funds have gotten so big, that unless you make some private-placement investments, you’ll be hard-pressed to continue to produce strong results,” said Geoff Bobroff, a fund consultant in East Greenwich, R.I.

That pressure to post eye-popping returns may also be felt at other fund companies, after a year in which nearly 200 funds more than doubled in value.

For its part, Janus noted that it has made other private-placement investments, and that restrictions are common in such deals. Still, the size of this deal raised eyebrows.

“Usually, it doesn’t happen where [a fund company] ends up with 10% of” a public company via restricted stock, said Bobroff. Janus becomes the fourth-largest investor in Healtheon/WebMD.

The risk, of course, is that if Janus’ outlook for shares in Healtheon/WebMD were to sour in the near term, the money manager would be unable to sell.

Atlanta-based Healtheon went public in February at $8 a share, and soared as high as $126.19 last year. The stock then tumbled to the $30 range by August, where it languished until recently.

Some veteran investors say mutual funds’ purchases of restricted shares are an ominous trend. “It’s another sign of a market top,” said Jim Stratton, president of Stratton Capital Management in Plymouth Meeting, Pa.

“There was a period in the ‘go-go’ era of the late ‘60s where funds made investments in illiquid stock” as the market rocketed, he noted. “This was done in a big way and it blew up in people’s faces” when stock prices crashed.

Still, the $930-million investment is a small piece of the $250 billion Janus manages.

“You’re talking about less than one-half of 1%,” said Michael Lipper, head of fund tracker Lipper Inc. in New York. “I don’t think that’s so substantial that I would be worried.”

Janus shareholders will learn which funds got the Healtheon/WebMD stock as the company periodically discloses fund holdings, Janus said.

For Healtheon/WebMD, the deal clearly is a coup. “This is a significant endorsement of our company by a highly regarded fund company,” spokesman John Runningen said. Other major investors in the firm include Microsoft and News Corp.

The company said it will use the proceeds of Janus’ investment to help pay for its planned $2.5-billion acquisition of Envoy, a health insurance claims processor.