Putnam CEO: Performance will win back advisers

Robert Reynolds, president and chief executive of Putnam Investments, is nothing if not an optimist.

Mr. Reynolds, who took over the Boston-based fund company a year ago, sees something of a silver lining in the financial crisis that has left so many of his rivals reeling: the opportunity to woo investors with short-term performance.

“The market we went through was a game-changer,” said Mr. Reynolds, who joined Putnam after a 24-year career at crosstown rival Fidelity Investments.

“A lot of people are looking at how funds have done since the downturn. It has shortened the time for evaluation,” Mr. Reynolds said.

“I don’t think it’s going to take a long time to get advisers back,” he said.

Putnam has earned some short-term bragging rights under Mr. Reynolds’ watch.

This year through July 6, many of Putnam’s funds performed admirably.

Its large-cap equity funds, for example, beat 80% of their peers, according to Morningstar Inc. of Chicago.

Two of the firm’s biggest equity funds — the $4.1 billion Putnam Fund for Growth and Income (PGRWX) and $2.3 billion Putnam Voyager Fund (PVOYX) — trounced their peers.

The growth and income fund was ranked in the 22nd percentile of its category, and Voyager was in the second percentile, according to Morningstar.

Even so, Putnam — like many fund companies these days — lost more assets than it took in during the first quarter.

During the first three months of the year, Putnam experienced net outflows of $1.75 billion from its stock funds and $356 million from its bond funds, compared with net outflows of $2.98 billion and $484 million from its stock and bond funds, respectively, during the same period last year, said Morningstar.

Putnam’s balanced funds experienced $185 million in net outflows during the first quarter, an improvement from net outflows of $329 million during the year-earlier period, Morningstar said.

“There have not been flows into equities across the industry,” said Mr. Reynolds, who left Fidelity in 2007 after seven years as the company’s vice chairman and chief operating officer.

Although he has helped improve Putnam’s performance and slowed the flow of investor redemptions, he continues to face a skeptical audience among advisers, many of whom stopped recommending Putnam’s funds six years ago when the firm was implicated in a scandal that involved improper trading by employees.

But even before the scandal, Putnam’s standing among advisers was shaky. In the late 1990s and early 2000s, many of Putnam’s portfolio managers made huge bets on technology and maintained those bets long after indications began to emerge that the sector was headed for a meltdown.

Putnam, which was purchased in 2007 by Montreal-based Power Financial Corp., has paid dearly for its transgressions. At the end of last month, the company managed $103 billion in assets, a nearly 76% drop from the $425 billion in assets that it had at its peak in August 2000.

“Typically, when people come in with assets in Putnam funds, we take them out of them,” said Michael Gorman, principal at Wiiken & Gorman of Petaluma, Calif., which manages $200 million in assets. “We think there are better choices out there in terms of performance.”

Joe Clark, founder of Financial Enhancement Group LLC of Anderson, Ind., which has $200 million in assets under management, said, “It will take at least another 12 months of the funds doing better than what we can do by buying individual stocks and exchange traded funds in order for us to consider them.”

Putnam has “been bringing in more experienced people, who have proven themselves, to run some of the bigger funds,” said Morningstar fund analyst Jonathan Rahbar.

“Still, it’s a very tight timeline to look at performance for a mutual fund,” he said. “We would want to see more substantial long-term performance before we can get behind the firm again.”

Other analysts agree with that perspective.

“Its going to take something of significance in terms of their performance to bring brokers back to the fold,” said Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I.

“It’s a huge challenge to regain any position in the distribution landscape,” he said. “You have to earn it by demonstrated investment performance of some consistency.”

Putnam, for its part, maintains that it is intent on improving fund performance over the long haul.

“We are seeing a broad-based performance turnaround that we expect to continue,” said company spokeswoman Laura McNamara.

The company is also focused on introducing products that appeal to advisers and their clients.

For example, Putnam recently launched a line of absolute-return funds, which aim to deliver a specific return over a three-year rolling period, regardless of what happens in the market.

“Absolute return is really difficult to promise, but it is something that would appeal to investors after what happened to the [Standard & Poor’s 500 stock index] in 2008,” Mr. Rahbar said. “The strategy is unproven at the retail level.”

Putnam has been offering absolute-return investment strategies to its institutional investors for the past 10 years.

“On the institutional side, these investments have been quite successful,” Mr. Reynolds said.

In addition, Putnam launched a series of global asset allocation funds. It also unveiled the Spectrum Funds, which invest in equity securities of leveraged companies.

The company also plans to introduce hedge funds over the next six to 12 months, as well as some retirement income products, a sustainability fund and a series of quantitative funds.

Also on the drawing board is a major Internet initiative expected to be unveiled in the fourth quarter that has been designed to position the firm as a major competitor in the 401(k) market, Mr. Reynolds said.

E-mail Sue Asci at [email protected].