Posted by: Aaron Pressman on June 12, 2008
I had to check and see if it was April Fool’s Day as I sifted through the morning email today and read a release from slowly dying on the vine mutual fund company Putnam Investments. It seems that Putnam, an ever-shrinking former giant of the Boston money management scene, has hired current giant Fidelity Investment’s former number two top dog, Bob Reynolds.
Investors continue to pull more money out of Putnam’s funds than they put in despite numerous shake-ups, years of overhauls and reorganizations and the $3.9 billion sale of the firm to Canadian insurer Great-West Lifeco, majority-owned by Power Financial Corp., last year. Boston fund watching firm Financial Research Corp says Putnam lost $12.5 billion from mutual fund customers last year, the sixth consecutive year of net outflow.
Reynolds was Fidelity chairman and CEO Ned Johnson’s right hand man for seven years until he quit last April. Reynolds spent the 1990s building Fidelity’s 401(k) operation from nothing into a core business supporting much of the firm’s $1 trillion plus of assets under management. He was rewarded with the number two job, vice chairman and chief operating officer, in June 2000. Many thought he might take over the firm if Ned retired, at least until Johnson’s eldest daughter, Abby, was ready for the top spot.
But following the politics at Fidelity, still privately held and controlled by the Johnson family, would give even a seasoned Kremlin watcher from the height of the Cold War a challenge. As Abby Johnson appeared to rise up the chain, Reynolds seemed to grow dissatisfied, applying to become commissioner of the National Football League in 2006 and then announcing his surprise retirement last April. Since then, the stream of talent out of Fidelity’s top ranks could populate a dozen fund companies’ management suites.
Reynolds is no doubt as highly seasoned and successful a fund executive as Putnam could ever dream of hiring. But I’m not sure whether even Bob Reynolds can save Putnam. The firm, which once managed over $400 billion and was cover story material in major magazines, has fallen on hard times.
Call it a double-play whammy. First, the firm under former dictatorial leader Larry Lasser had a penchant for screwing up by over-committing to investment fads, culminating in staggering losses for its largest funds when the Internet bubble burst. It didn’t help that the firm also frequently opened new funds to capitalize on the short-lived fads. Second, Putnam was nailed in the mutual fund trading scandals when it was discovered that some of its own managers were playing market-timing games with the funds they oversaw. Being a shop that sold most of its funds through company retirement plans and financial advisors, Putnam has proven unable to staunch the flow of money out of its funds over the past six years.
I guess Mister Reynolds feels he needed a new challenge. He’s certainly got a big one at Putnam.