BOSTON -- While most money managers during the past five years have made inroads in the defined contribution area, the defined benefit business of Putnam Investments has tripled.
Thomas Lucey, chief of institutional business for Boston-based Putnam, said the defined benefit business "has always been a performance-based market, always trying to optimize itself by hiring different managers." That means "a number of managers are fired annually and replaced, and we have been the recipient of that."
Putnam's defined benefit assets under management have grown to $46 billion as of June 30 from $15.7 billion in 1992. As of June 30, Putnam managed 950 defined benefit portfolios, up from 271 in 1992.
Institutional assets in 1985 were $6.9 billion, and that figure increased by more than $1 billion each year to reach $12 billion in 1990.
Putnam also made several internal changes in the past five years that Mr. Lucey believes have bolstered its defined benefit business:
*Putnam has added about 12 portfolio advisers since 1994. They travel and visit clients in place of portfolio managers, leaving the investment professionals home, tending the portfolios.
*The firm has bolstered its institutional portfolio management area. It now has 57 portfolio managers compared with 46 at the end of 1995, according to Putnam.
*Putnam spent at least $8 million beefing up administrative staff to handle the ever-burgeoning paperwork of the firm's total business, including accounting and contracts as well as staff to answer the 1,000 telephone calls received each day in the Boston office.
*It energized the 20-person direct institutional sales staff with incentives.
These changes have worked, helping the firm to net $5 billion to $7 billion in new institutional assets each year, Mr. Lucey said.
As further evidence of the growth in the defined benefit arena, Mr. Lucey created the position of managing director of institutional defined benefit. John M. Brown was hired for the new job; he was formerly managing director and chief executive officer at State Street Australia Ltd. Mr. Brown reports to Mr. Lucey.
A similar management tier was created several years ago for the defined contribution side of Putnam's institutional business.
Putnam's four institutional equity products, as of Sept. 30, are: core growth, in which it manages $6.473 billion for 101 clients; midcap growth, $1.541 billion for 28 clients; large-cap value, $819 million for 15 clients; and core international, $7,223 billion for 117 clients.
Its equity performance has been strong in some products and time periods and moderate in others.
The core growth equity products returned 9.7% for the quarter ended Sept. 30, outperforming the 7.5% return of the Standard & Poor's 500 Stock Index. But for the year ended Sept. 30, the portfolio returned 38.2% vs. 40.5% for the S&P 500.
Its five-year compound annual return of 22.9% outperformed the S&P's 20.8%.
The midcap equity return was 11.7% for the quarter ended Sept. 30; its benchmark, the S&P Midcap 400, returned 16.1%. The one-year return was 22.2%, compared with 39.1%. Putnam's five-year annualized midcap return was 24% vs. 20.2% for the benchmark.
Large-cap value equity returns were: 7.7% for the quarter ended Sept. 30 vs. 7.5%; 36% for the year vs. 40.4%; and 21.8% for the five-year period vs. 20.8%.
Putnam's core international equity performance was 5.5% for the quarter ended Sept. 30 vs.
-0.7% for its benchmark, the Morgan Stanley Capital International Europe Australasia Far East index. For the year, the Putnam portfolio returned 30.2% vs. 12.2%. The five-year annualized returns were 17.9% for Putnam and 12.3% for the EAFE index.
Putnam's institutional fixed-income products are high yield, for which it runs $1.309 billion for 17 clients; total return U.S. investment grade, $2.503 billion for 31 clients; core active, $2.3 billion for 22 clients; and global, $2.165 billion for 36 clients.
Its high-yield performance for the quarter ended Sept. 30 was 6.3% vs. 4.7% for its benchmark, the First Boston High Yield Index. For one year, Putnam returned 17.2% and the benchmark, 15.7%. For five years, Putnam's high-yield strategy returned 14.6%; the benchmark, 11.8%.
Its total return investment-grade product returned 3.3% for the quarter ended Sept. 30, matching that of its benchmark, the Lehman Aggregate Index. One-year results for Putnam were 9.7%; 10.2% for the benchmark. For five years, Putnam's strategy returned an annualized 6.9%, matching the benchmark.
Putnam's global fixed-income approach returned 1.9% for the quarter ended Sept. 30, compared with 1.3% for its benchmark, the Salomon World Government Bond Index (unhedged). Its global fixed-income return for the year was 4.8%; the benchmark returned 2.4%. For five years, Putnam's return was 5.7% vs. 6.6%.
Putnam had $3.469 billion in global asset allocation from 34 clients for the period ended Sept. 30. That strategy returned 6.7% for Putnam, compared with 4.7% for the custom index. The one-year return was 27.9% vs. 23.6%.
Putnam's return since the Dec. 31, 1992, inception of the strategy was 16.5% vs. 14.7%.