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Monday, November 17, 2008

Reynolds Shakes Up Putnam

News summary by MFWire's editors

Bob Reynolds is shaking up Putnam Investments. The Boston fund firm's CEO will announce the changes later Monday morning. The changes will also include the departure of a dozen portfolio managers and 35 of the mutual fund firm's 2,500 staffers. They will also include the merging of six funds along with plans to launch another 10 funds in January 2009 and making "significant hires" in the coming months.

"We see today's markets as an occasion for renewal," Reynolds said in explaining the moves. "Putnam is back in the game to grow – and to win."

Reynolds, who joined Putnam in July, did not characterize the changes as a cut back, but rather as a shift in focus. He also pointed to "farsighted support" and long term outlook from Great-West Lifeco and Power Financial, Putnam's corporate parents.

"We are reorganizing the way we manage money. We’re actively seeking proven talent in the marketplace, fostering individual managers’ authority, and rewarding top-quartile performers for delivering excellent, long-term results to shareholders," Reynolds stated.

The changes, which are characterized as "a broad restructuring" of Putnam's equity investment unit, include a consolidation of fund offerings and a realignment of manager incentives.

Reynolds explained that the changes in the incentives for portfolio managers are based upon his belief that success in asset management depends on fundamental research, individual manager responsibility and accountability along with retaining and attracting the best people, and rewarding those who deliver sustained, superior results.

"The changes we are making today reflect those beliefs. They lay the groundwork for us to move aggressively toward our highest priority of helping clients succeed by delivering sustained top-quartile investment performance," he added.

Putnam is also streamlining its equity fund lineup by merging half a dozen equity funds. In each case, Putnam officials said that the acquiring fund is the larger of the two funds, and that they expect shareholders in funds to be merged "to benefit from reduced expense ratios."

The fund mergers are already approved by the trustees of the funds are will be completed over the next 30 to 60 days. Putnam officials said that shareholder approval is not required because of the similarity of the combining funds.

Putnam Investors Fund will absorb the Putnam Capital Appreciation Fund; Growth and Income will absorb Classic Equity; New Opportunities will absorb Discovery Growth; Equity Income will absorb New Value; Vista will abosrb OTC & Emerging Growth; Putnam Investors will absorb Tax Smart Equity.

Putnam officials also announced that the International New Opportunities Fund will now be managed by Jeffrey Sacknowitz. That move is unrelated to the reorganization.

Reynolds characterized the changes as moves that he would make in any market.

"We would make these changes whether markets were rising or falling," Reynolds said. "They reflect a drive to simplify our offerings and foster leaner, more rapid decision-making to deliver better results. They enable us to manage our equity unit more efficiently and redirect resources to growth. And even as we make these adjustments, we are in the marketplace actively seeking to hire proven talent. There will be more to report on that front very soon."

Sought for comment by The MFWire, fund industry consultant Burt Greenwald drew parallels between Reynolds' task and and that of President-Elect Barack Obama.

"Bob Reynolds is taking all the right steps to turn around Putnam, but it's a big job and will take some time," Greenwald said in an e-mail. "You could compare it to Obama's task in the wake of the debris left by the current administration, the financial crisis, etc.!"

The key to a Putnam revival, Greenwald said, is "not only better performance -- particularly in the equity funds -- but truly superior performance."

Lou Harvey, president of research firm Dalbar, said Reynolds is "leading a course that every other firm will soon have to follow... re-thinking how investment management works and in particular how to hedge against risk since diversification has failed."  

Edited by: Sean Hanna, Editor in Chief

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