ai5000 - May/June 2010

Reynolds, following two decades at cross-town rival Fidelity, was lured to Putnam to turn around the once-ailing firm. With its mutual fund business once again on the rise, the next question is: What can Putnam do for the world’s largest asset owners?

Robert Reynolds
Putnam Rising

The first order of business was, admittedly, to turn around the mutual funds. I came from Fidelity, clearly a rival, and Putnam had had those problems after 2003. I was hired after Power Corporation of Canada purchased Putnam for the express purpose of doing this, but we’re more than mutual funds. We’re a three-legged stool: mutual funds are one leg, the 401(k)/rollover business is one, and then there is the institutional asset management business. Our institutional lineup is driven by two major product lines: fixed-income and absolute return. Our effort in the U.S. has been focused on the pension side of things, both public and private. Internationally, that also includes sovereign funds. In the past two years, eight sovereign funds have hired us. This says a lot—these funds are so big, so prominent in the institutional space, so it’s a nice touch. When you’re competing for their business, you’re competing against the rest of the world. The Putnam brand clearly took a hit in the U.S. after 2003—but the brand outside the U.S. remained quite strong. We have clients from China, Singapore, the Far East, the Nordic area— they’ve all come to us in the last two years. That says that, overall, the Putnam brand has experienced a significant revitalization. I think it’s all about the people and process. The fixed-income team has been together for a decade; Jeff Knight’s team, which does our absolute return strategies, has been together for 15 years. With equity, however, we rebuilt the process. It was a team-accountability approach; we moved it to get back more individual accountability. The most noticeable change to emerge in the institutional market over the last 10 to 15 years has been the increasing demand for non-U.S. and alternative products. Looking at the next 10 to 15 years, I think there will be an expanded use of absolute return strategies by institutions (as a management tool to mitigate volatility). Industry growth—if you take out IRA and 401(k)—will likely come from outside the U.S., including the sovereign wealth space. Everyone fears the unstable environment but, really, everyone will be dealt the same hand. It’s how you play that hand that matters. We feel that, by bringing in new people and supporting our top managers, we can play that hand better than the next guy. There are, of course, still pockets we need to get better at. If you are a top-quartile performer, if you can develop that across the board, then you can ride out fads. We need to be top-quartile in everything we do. We want to put the best team on the field each day. We’re turning around. We went from nearly last to first with our mutual fund rankings. The reason is twofold: We understood what we needed to do well, and we understood what we needed to do to fix it. We’re applying the same logic to our institutional business. It’s process and people. ”