Polishing Putnam's Tarnished Reputation
Until a few years ago, Putnam Investments was one of the most venerable U.S. fund companies. But performance tanked in the 2000 bear market, and in 2003 two Putnam managers were implicated in the rapid buying and selling of their own funds to the detriment of shareholders. Investors revolted, yanking more than $120 billion in assets from the company. Marsh & McLennan (MMC ), a financial-services giant that owns Putnam, then hired Charles E. "Ed" Haldeman away from Delaware Investments (DVEAX ) to clean up the mess. Personal Business Editor Lauren Young spoke by telephone to Haldeman, while he was in London, about Putnam's comeback effort.
What has changed at Putnam in the past three years?
We've done a lot in terms of compliance training -- we do it online and in face-to-face teaching sessions. I know it is working because I recently witnessed a young employee who was just a year out of college talking to a class of college students. When they asked him, "What business are you in?" he said, "I take care of other people's money." Hopefully, all 3,000 of our employees feel that way.
You've pledged to set the industry standard for customer service. What progress have you made?
Last year we won all three Dalbar awards for customer service in variable annuities, mutual funds, and relationships with advisers. As I travel around the country, I talk to advisers and brokers. They tell me how responsive we are. A real person answers the phone when they call Putnam.
Where is there room for improvement?
We strive to have all of our funds in the top third of their peer group for three and five years. In our Putnam Fund for Growth & Income (PGRWX ), which is our largest, performance wasn't bad; it was in the top half of its peer group. But that's not satisfactory, so we changed managers. It's now being co-managed by Eric Harthun, a small-cap value fund manager with a strong long-term record. He's joining Dave King, who has managed the fund since 1993, but two other managers have left. We've made much progress in a whole host of funds. Our international funds are doing well, and that's particularly pleasing because that's an area where some managers did have to leave us three years ago.
How has the public reacted to your decision to cut fees?
We've made two major adjustments in fees since I got the job 30 months ago. We voluntarily reduced loads from 5.75% to 5.25%, and we did that without changing the compensation to the adviser or broker. Now our loads are among the lowest. In addition, all of our funds now have an expense ratio that's below the industry's median. The fee cut has not been as noteworthy as I thought it should be, but it's a thing we add to a list of things that demonstrate we've done a good job with integrity, service, and lower fees.
Yet outflows continue. How will you stop the tide?
It's disappointing. I didn't think it would take this long. We are convinced we have the right strategy. The good news is that the rate of redemptions is slowing down. But we haven't been as successful in new sales. However, sales are much stronger in 2006 than 2005, so that makes us feel we are moving in the right direction.
Do you think things would be different for Putnam today if it wasn't one of the firms named early in the scandal?
If we were the 12th or 20th, it would be very different. There's a much higher level of interest in the first wave. People thought it was one company involved. They didn't realize it was an industry phenomenon.