Growth in 401(k)s High On Putnam CEO's Agenda
March 9, 2009
Putnam Investments will waste no time reinvigorating its defined contribution business, and its long-struggling equity funds will have to earn their way into the mix, according to Robert L. Reynolds, its president and chief executive.
"We're going to run an open platform," he said. "Yes, it would be great if Putnam was part of the choices, but if not, for whatever reason, that's fine."
Reynolds, who took over the company in July, started Fidelity Investments' 401(k) business from scratch and turned it into an industry giant. He is now trying to do similar magic at Putnam, even though he later turned his focus at Fidelity to diversifying the company's business into brokerage and broad employee benefits services, as well as to explode Fidelity's international asset base to equal the size of its state-side asset anchor.
"Competing for Fortune 100 companies may not be a goal right out of the chute, but we definitely want to be out there this year with a competitive product offering," Reynolds said. "This is not a five-year game plan; I think we can be a player in a relatively short period of time."
Leading the charge will be Edmund Murphy, a Fidelity veteran Reynolds hired early last month as the head of defined contribution. He will report to Putnam's global marketing and products head, Jeffrey Carney, a Fidelity and Bank of America veteran Reynolds hired in October. "I think the team we've put together thus far is pretty impressive," Reynolds said.
Success in defined contributions would give Putnam some badly needed good news. On Feb. 11, it announced plans to cut 260 jobs, or 11% of its work force, as part of a changed distribution strategy. Its assets have dropped more than 60% in the past six years, to $101 billion as of Jan. 31.
A 2003 market-timing scandal that was largely the result of a far too aggressive push for more assets under management by then-CEO Lawrence Lasser was exacerbated by several years of poor equity mutual fund performance. Altogether, events of the past six years, combined with last year's market meltdown, have left Putnam Investments badly battered and a mere shell of its former self.
Marsh & McLennan Cos. Inc. sold Putnam in 2007 to Canada's Great West Lifeco Inc. for $3.9 billion.
Reynolds, a 23-year veteran of Fidelity who held a top spot as vice chairman and chief operating officer, was widely expected to replace Fidelity Chairman Edward Johnson upon his retirement, but when Rodger Lawson was named president in July 2007, it appeared that was not Reynolds' fate.
He left Fidelity and more than a year later, took the Putnam challenge. Reynolds' earliest initiatives at Putnam were aimed at reversing the losses in its equity funds, which he admits were performing "to no one's satisfaction." A restructuring of the equity investment division announced in November put responsibility for each fund in the hands of a specific manager and created a pay-for-performance system.
Putnam has also hired dozens of fund managers, analysts and others on the investment side. It also pruned its fund lineup, and early this year it announced the industry's first suite of target absolute return mutual funds. The funds, which Reynolds said he envisions as a component of Putnam's 401(k) offering, are designed to provide positive returns over time in rising or falling markets, rather than merely attempt to beat a benchmark. Reynolds believes this no-nonsense approach will be particularly appealing to investors in this prolonged, difficult market.
Tom Modestino, a senior analyst with Cerulli Associates in Boston, said in-house management of a large number of 401(k) assets is increasingly important in the 401(k) business, since asset management, not recordkeeping, drives profits. "Recordkeeping in the 401(k) industry is expensive, and it never gets cheaper," he said.
A spokesman for Putnam said it will target plans with $1 million to over $500 million in assets. It was a power in the 401(k) market in the 1980s and 1990s, but Reynolds said after the dot-com bust, it backed away from the administrative side of the business to focus more on distribution of its funds.
The sinking stock market does not change the fact that 77 million Baby Boomers are set to retire, Reynolds said, and the number of 401(k) administrators is poised to shrink.
Reynolds said Putnam wants to be a major player in asset management and product development, plan administration and education, and service delivery for sponsors and participants. "If you are going be a player in the 401(k) business, you have to have a commitment to all three legs of the stool," he said.
Putnam's association with Great West is now among its advantages, he said. Great West is a leading defined contribution recordkeeper, and its insurance charter will allow Putnam to fashion new annuity products.
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