Putnam investors have a right to be angry

Dollars & Sense

April 21, 2002|By CHARLES JAFFE

A FEW weeks ago, investors in Putnam funds should have officially moved from "concerned" about their funds to downright angry over them.

In a situation few investors probably are aware of, Boston-based Putnam stopped identifying its fund managers in regulatory documents it must file with the Securities and Exchange Commission. The firm is not alone in keeping manager names out of prospectuses and quarterly or annual reports, and the practice is legal. But the unmitigated gall and the timing of this decision should make shareholders furious.

It's a perfect example of a fund company forgetting who its bosses are. Worse yet, the move may signal that changes are ahead for the funds, and that those moves will be hard for shareholders to detect.

To see why that is, let's put down the mud flaps and muck our way into Putnam. Before we go, however, a bit of disclosure: It pains me to say that through my employer's 401(k) plan - which offers few investment choices - I invest in two Putnam funds.

Putnam, the nation's fourth-largest fund firm, was ranked 79th out of 85 firms for overall performance in 2001 by Barron's magazine. Putnam ranked 61st out of 69 fund groups over the past five years.

The firm's 10 largest funds - on average among the top third of their peers for the three years ended in 1999 - are in the bottom 40 percent based on the most recent three-year period. Only two of Putnam's 66 funds earn the top rating for performance within their asset category, according to data from Morningstar Inc.

The combination of mounting losses and fleeing investors has sucked about $100 billion out from under Putnam management. (One bit of news shareholders might relish: Putnam chief executive Larry Lasser's obscene annual bonus from parent company Marsh & McLen- nan fell to $17 million last year, down almost 50 percent from 2000. Alas, that decline doesn't quite put him on the same perilous footing his funds have put many buyers on.) All of that misery has led to changes. Last month, Putnam announced plans to eliminate 11 funds. A few managers have been sacked; others voiced their intention to leave.

Amid turmoil and rotten performance, it seems that a fund family should be more forthcoming, not less. Witness the Janus funds, which have endured dreadful results since momentum left the stock market in 2000; the firm has been more open and accommodating to investors and the media alike in an attempt to explain strategy and assuage shareholder fears.

But not Putnam.

In a batch of fund reports filed with the SEC, the firm stated that eliminating manager names "reflects Putnam's beliefs that mutual funds are more effectively overseen by teams rather than individuals."

Hogwash.

I'm not knocking team management, which can be effective. But judging from Putnam's actions - and I have to, because the firm won't talk to me about this - this is not an "all-for-one, one-for-all" place.

The firm has left the names of its managers on its Web site.

There, at least until top management decides to cover its tracks, you will find biographies on the likes of Daniel Miller, described as "lead manager of Putnam New Opportunities." In January, Putnam whacked Steve Kirson, who officially was co-manager of its dismal OTC & Emerging Growth fund; the "team" didn't get the boot.

Furthermore, Putnam is not like some of the other firms - MFS, State Street Global Advisors, Gabelli, Excelsior, and NationsFunds among them - that haven't listed managers in documents for years. Those funds made their no-name move during good times, when results make investors more forgiving, and cut the names in part to ensure that good managers couldn't take top track records with them to the competition.

Putnam managers who leave right now probably aren't going voluntarily, and their performance records hardly are enviable.

Dropping names from required documents means Putnam can ax managers without ever telling the public. Funds can be overhauled with minimal noise and public scrutiny.

Notes Stephen M. Savage, editor of the No-Load Fund Analyst newsletter: "A poor performing fund group that will no longer disclose who is responsible for running the money sure seems to be making a bad public relations move. It's probably reflective of much deeper-seated problems within the management group. And it wouldn't make me comfortable as a shareholder."

Chances are good that Putnam managers should be polishing resumes right about now. Unfortunately, investors who don't track management teams on the firm's Web site - and figure out in the future whose names are missing - will never know precisely how fund management is changing.

That's legal, but it's wrong. And investors should demand better.

Chuck Jaffe is mutual funds columnist at The Boston Globe. He can be reached by e-mail at jaffe@globe.com or at The Boston Globe, Box 2378, Boston, Mass. 02107-2378.

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