Putnam’s culture shift: Focus is on long term

Putnam Investments LLC is in the midst of a cultural revolution.

Still smarting after bull-market bets on technology shares went bad, the 66-year-old firm is determined to shake its reputation for putting arrogance above common sense.

The man leading the charge is Charles “Ed” Haldeman Jr., a 55-year-old executive with experience in managing money and with a reputation for turning around flailing asset managers.

In the 10 months since joining Putnam, Mr. Haldeman has initiated a bold strategy to change the way the firm’s portfolio managers and analysts think about investing. He’s also spearheading an ambitious effort to revamp Putnam’s corporate culture.

Instead of rewarding shoot-the-lights-out performance over the short term, the firm’s compensation structure has been completely reworked to recognize long-term gains. By linking annual bonuses to the performance of the entire investment group, the new structure also aims to foster a rare sense of teamwork among Boston-based Putnam’s 280 investment professionals.

Mr. Haldeman, who shares his responsibilities as co-head of investments with Stephen Oristaglio, has stripped away much of the red tape that has plagued the nation’s No. 5 fund company in recent years.

restructuring mode

Chief investment officers overseeing various asset classes are empowered to make more decisions, and investment professionals aren’t expected to sit in on as many meetings.

The ultimate goal is to get Putnam to where the majority of its funds rank in the top one-third of their respective categories over the three- and five-year time periods, and to prevent any Putnam fund from falling to the bottom 25% of its category over any time period.

“They are serious about restructuring the investment side of the business,” says Burton Greenwald, a mutual fund consultant in Philadelphia.

But Mr. Haldeman’s ambitions go beyond that. He is trying to change the fundamental nature of Putnam.

The firm has been described as a difficult place to work. Top executives set high expectations and don’t hesitate to punish those who fail to meet them.

That culture can be traced to Lawrence J. Lasser, Putnam’s longtime chief executive who is known for being demanding and heavy-handed. Among other things, insiders say, Mr. Lasser is legendary for firing off “Lassergrams,” which are short, angry missives that take the recipient to task for some sort of infraction.

That may have worked well when times were good, but Putnam’s personality had a dark side.

In their quest for higher returns, and to satiate the demands of their bosses, some Putnam portfolio managers began to reach past their talent. They made huge bets on technology stocks and maintained those bets long after indications began to emerge that the sector was headed for a meltdown.

Putnam, a unit of New York professional services firm Marsh & McLennan Cos. Inc., has paid dearly for its transgression. At the end of August, Putnam managed $271 billion in assets, a 36.2% drop from the $425 billion it had three years earlier.

In typical Putnam fashion, the company reacted by driving its investment staff even harder. Throughout the bear market, nearly every facet of the investment process was put under a microscope.

Predictably, morale suffered. “I’m tired of people saying Putnam is a tough place to work,” Mr. Haldeman says. “I want people to say this is a great place to work.”

To that end, he and Mr. Oristaglio have launched a plan designed to put Putnam in touch with its inner nice guy.

The first sign of that plan surfaced last fall, when Mr. Haldeman and Mr. Oristaglio voluntarily moved out of the firm’s executive suites on the 12th floor of Putnam’s headquarters and into more-modest offices two floors down, where managers and analysts work.

The pair has taken steps to make sure managers and analysts are no longer berated for short-term periods of underperformance. “We’re sending out a lot more congratulatory notes to people,” Mr. Oristaglio says. “We’re trying to see the glass as half full rather than half empty.”

By all accounts, they are making tremendous progress. “A number of managers have told me they are glad Ed is there,” says Laura Lutton, who follows a number of Putnam funds for Morningstar Inc. in Chicago. “They like the fact that he thinks like they do. He has also been a much more sympathetic ear than they were getting before his arrival.”

Even Mr. Lasser, who has been known to berate employees for slouching in the company’s dining room, has apparently bought into Mr. Haldeman’s religion.

“I don’t think there are fewer Lassergrams, but the tone of those going out today is probably a little different than they’ve been historically,” Mr. Haldeman says.

regaining adviser trust

Mr. Haldeman is well aware that there is a lot riding on his ability to turn Putnam around.

If he is successful, the firm could jump to a whole new level of success, and Mr. Haldeman will likely be named as Mr. Lasser’s replacement one day. If he fails, however, Putnam’s fate as a second-rate fund shop will be sealed.

“The marketplace may be able to forgive us once, but it won’t forgive us twice,” Mr. Haldeman says.

He is also aware of the many obstacles he faces. First and foremost is regaining the trust of advisers. “I am not selling Putnam’s funds to new clients, nor am I encouraging existing clients to add to their Putnam funds,” says Roger Kalar, a financial adviser in Avon, Conn.

Mr. Kalar, whose clients hold about $3 million in Putnam funds, says he needs more evidence of improvement before he gives Putnam another try. “They have to go back and resell themselves,” he says.

That’s not going to be easy. Despite the short-term run-up many of Putnam’s funds experienced in the late 1990s, the firm is known for mediocre performance.

Year-to-date through Sept. 11, the average category percentile ranking for stock and bond funds with at least a 10-year track record at Putnam is 43.35%, slightly above middle-of-the-pack performance.

A longer-term look at Putnam’s performance is less flattering, however. Over the one, three, five and 10-year periods, Putnam’s funds earned an average ranking of 52.95%, 59.97%, 64.33% and 62.56%, according to Morningstar Inc. in Chicago.

Investors had pulled $7.3 billion from Putnam stock and bond funds year-to-date through July 31 – more than at any other major fund group. By comparison, the funds had bled $9.2 billion during the same period a year earlier, according to Financial Research Corp. of Boston.

Mr. Haldeman downplays the outflows. “My experience in looking at outflows is that they always lag and are always wrong.”

Gordon Forrester, director of marketing at Putnam, says year-to-date redemptions from Putnam funds through Aug. 31 were down 35% from those a year earlier.

Mr. Haldeman says he is committed to getting Putnam back on its feet. He dismisses the notion that he joined the firm with a promise that he would eventually be named CEO.

“I came here with no promises,” he says. “I like working with Larry, and I hope he doesn’t go anywhere soon. Who knows about the future?”