Putnam Investments' sale to Canadian firm leaves many on fence

Your Funds

Your Money

February 20, 2007|By Charles Jaffe | Charles Jaffe,Marketwatch

It was an interesting question, worded poorly.

"Will Putnam Investments' sale to a unit of Power Financial Corp. prompt you to re-evaluate whether to recommend Putnam's mutual funds to clients?"

InvestmentNews, which covers the securities world for financial advisers, asked the question in a poll on its Web site, and while the results were entirely unscientific and the sample was small, the answer was telling for consumers in several ways.

Thirty percent of the respondents said they would re-evaluate Putnam's funds. Just under 20 percent of the respondents said they were unsure, while a shade over half of the advisers said they would not change positions on Putnam.

Here's where the poor wording comes into play.

If you look at the glass as half-empty, you see financial advisers thinking they should dump Putnam funds as a result of the deal.

Experts suggest that bailing out would be the wrong conclusion to jump to in light of Marsh & McLennan selling Putnam Investments to a subsidiary of Power Financial, a Canadian firm, for $3.9 billion.

If you see the glass as half full, you see almost one-third of advisers thinking that it's time to start buying Putnam funds again. Experts suggest that the deal should not push anyone to that conclusion either.

Clearly, however, the Putnam-Power pairing is a terrific deal for the Boston investment firm, even if it is a wait-and-see proposition for shareholders and would-be investors.

To see why that is, consider the basics of the deal.

Unlike most of the rumored suitors for Putnam, Power does not have a big U.S. mutual fund company, meaning that Putnam will survive the deal relatively intact.

"There are no integration and no overlap problems, and a lot of people are seeing that we have had a pretty significant turnaround in investment performance," says Gordon Forrester, managing director and head of marketing at Putnam.

"The feedback we're getting from financial advisers is that they are very comfortable with what's going on, and with Power as the new parent company, so now that the uncertainty is over they might want to reconsider our funds."

The downside of the deal might be that Power is not a "name" company, so that investors still dissatisfied with performance or with the hangover from the firm's involvement in the rapid-trading scandals of 2003-04 don't immediately come away confident in the new management.

Still, an investor who has ridden with Putnam this long - particularly as performance has started to pick up again for the company's funds - presumably would not find anything in the merger that would make them pull the rip cord.

For anyone left on the fence after the deal - and I tend to agree with Forrester's assessment that the InvestmentNews survey was really about advisers starting to include Putnam in their plans again - the key issue may be if the perceived continuity is real or an illusion.

Putnam must continue to make strides with performance, and retain its key managers once the merger is complete.

If investors - or financial advisers - see those things happen, and if they can get over any ill will they might harbor from Putnam's past, they could find themselves getting to where that re-evaluation makes sense.

Says Forrester: "There's a noticeable movement on the dial in our performance, and it has been gradual over the last two or three years. We need to keep moving in the right direction, but if we can keep things moving, we will have a positive story to tell."

3 companies fined

Last week, the NASD fined three fund companies a combined $700,000 for improperly plying brokers with pricey meals and special events, including posh parties at "educational" meetings. (Wink, wink.)

Scudder Distributors - which agreed to pay a fine for playing host to brokers at a party - will not be the only organization to settle charges like this in 2007.

Regulators fear that brokers will push funds based on these kinds of incentives. For consumers investing through advisers, the action is a reminder that one question to add to the buying process is, "Have you received anything extra from the fund company whose funds you want me to buy?"

jaffe@marketwatch.com

Charles Jaffe is senior columnist for MarketWatch. His mailing address is: Box 70, Cohasset, MA 02025-0070.

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