When Robert L. Reynolds took over as president and chief executive of Putnam Investments in June 2008, the once-mighty fund company was sinking fast.
When Robert L. Reynolds took over as president and chief executive of Putnam Investments in June 2008, the once-mighty fund company was sinking fast. Putnam was on its third CEO in five years as it tried desperately to restore its reputation after an insider-trading scandal in 2003 set off years of outflows.
In 2008, the company was ranked 57th out of 61 firms by the Lipper/Barron's Fund Family Survey, based on the investment performance of its funds.
Observers, however, are seeing signs of a resurrection. In the fourth quarter of last year, Putnam had positive inflows in retail-mutual-funds sales through financial advisers for the first time in eight years, bringing in a total of $100 million.
And last month, Lipper/Barron's ranked Putnam Investments the No. 1 fund family, based on its performance in 2009, during which all of the firm's large-cap-equity funds outperformed their Lipper category averages.
Of course, Mr. Reynolds, who turned 58 last Wednesday, still has plenty of challenges ahead, particularly when it comes to convincing advisers to sell Putnam's lineup of funds.
“As strong a start as Putnam has had since Mr. Reynolds started, the firm's focus on one-year performance won't go very far, and a lot of what they have to prove is that these funds can hold their ground and be competitive over long periods of time,” said Jonathan Rahbar, a mutual fund analyst at Morningstar Inc. “When three years and five years come around with some of these portfolio managers at the helm, that will be the real test.”
Q. What are you doing to increase sales through advisers?
A. In the fourth quarter, we created a team of eight professionals focused on home offices. These are people with more of an investment background to face off with the research teams at the broker-dealers. We have also changed compensation for our salespeople to be similar to what we did with the investment management side so that our salespeople will get a base and then they will receive commissions based on everything they sell. Compensation used to be the base salary, with bonuses based on targets. And we created a group focused on the [registered investment adviser] channel, which has 10 professionals right now.
Q. Over the past few years, a number of broker-dealers, including Edward Jones, dropped Putnam funds from its platform. What is the status of your efforts to get your products back on their shelves?
A. The fourth quarter of 2009 was the first positive quarter in flows that Putnam has had in over eight years. We will have positive flows in 2010. At the end of the day, we would like to be one of the top four or five fund companies in the U.S. We are back on most everyone's platforms except for two. One of those we should be on in the next few months.
Q. Isn't the ability to get on more distribution platforms just a matter of producing better long-term track records for the funds?
A. I think the distribution game has changed. We still have wholesalers, but the reliance by firms — all the major broker-dealers — on a research team in the home office is a change.
To get on the preferred list, you need to really have the research team buy in on what you are doing and [prove that] your strategy [is] repeatable.
Q. What are your goals for the registered investment adviser channel?
A. When I got here in 2008, [Putnam] did $70 million in the channel. We started to focus it in late "09, and we did $700 million. This year, we would like to do over $2 billion. So we have a lot of hope for the RIA channel.
Q. The needs of RIAs are different than brokers'. What are you telling wholesalers to do differently for these advisers?
A. That is a work in progress. We are trying to make sure that we have the products and services and web tools they want.
We are committing a lot of money to the web to deliver information to advisers and clients. In fact, one of the projects that is under way is a virtual wholesaler.
If you have a wholesaler in Des Moines, Iowa, that's great. But if a wholesaler couldn't be there, this is a tool that can get information to the advisers. If you ask a question, you can get an answer through an instant-chat tool.
Q. Putnam has spent a lot of time focusing its marketing on its absolute-return funds. What are you doing to manage investors' expectations if these funds don't hit their targets?
A. Everything we say about the targets for these funds is over a three-year period. The reason we put performance fees on them is that there will be periods of outperformance and years where there won't be. But we fully expect to meet the targets over time.
We have really promoted these funds because it's a new concept in "40 Act investing. This is just like having been the one who came out with the Fidelity [Investments] Freedom Funds when no one knew what target date funds were. I think these have that same potential.
Q. You have invested considerable effort and money in turning around the performance of your funds. How much time has your parent company, Power Financial Corp., given you to turn around the bottom line of the company itself?
A. We have met all of their objectives for 2009, and we will do the same for 2010.
Q. What keeps you up at night?
A. Everyone in the mutual fund industry should be worried about what's going on in Washington. Uncertainty is one of the greatest detriments to success in the market, and there are a lot of things up in the air with regard to financial services reform and health care. You can go on and on.
That uncertainty is hindering companies from hiring new people, building a new plant and investing money here, because they have to wait and see what the rules of the game will be.
In terms of our business, I think we are focused on the right things. It's just about execution, and I believe in the people we have in place.
Q. Are you looking at acquisitions?
A. I would never rule it out, but we believe that we can grow this firm organically and be one of the major players in the asset management space.
Q. What are you doing to make sure your portfolio managers don't take on too much risk?
A. The compensation structure is to reward portfolio managers, analysts and traders on meeting the goals of the firm.
We are not trying to look to our compensation structure to manage people; we are looking to people to manage people. And by stating that we want to be in the top quartile of our respective peer groups over rolling three-year periods, that is the objective of the firm.
Our people get reports and we have a risk group that is independent of the portfolio managers to assess risk on a daily basis.
Q. Is Putnam going to launch active exchange-traded funds?
A. I am still looking at it.
While I still have problems with the lack of disclosure, I think there could be a way around that. I am not so sure that on the active side, if mutual funds aren't a better vehicle. I am just not convinced that an active exchange-traded fund that creates a trading vehicle for institutions is necessarily the best thing for the end-investor.
In my opinion, mutual funds are for long-term investors. ETFs are for traders.
Q. What is your market outlook?
A. I am very bullish on the economy and the market. That being said, however, I think that we have gone through a very tough period recently, and we need leadership from Washington.
Q. Why are you bullish with all the uncertainty in Washington?
A. I think that with the demographics of the country, the fact that a lot of money held by individuals is on the sidelines and the amount of stimulus that has come in, it will be a great period for the market. I love stocks over the next 10 years.
E-mail Jessica Toonkel Marquez at jmarquez@investmentnews.com.
