BOSTON - Putnam Investments has lost $1.6 billion in fixed-income assignments in the last six months due to long-running performance problems and an ineffective reorganization of the bond department.
*The $71.1 billion New York State Teacher's Retirement System, Albany, pulled a $457 million global fixed-income portfolio from Putnam in late October, citing performance problems.
*The $22 billion Massachusetts Pension Reserves Investment Management Board, Boston, this month terminated Putnam's $1.3 billion domestic bond portfolio due to inadequate performance.
*The Detroit Retirement System took a combined $124 million away from Putnam. Putnam had managed $55 million in global fixed income for the $2.8 billion General Retirement System, and $50 million in domestic fixed income and $74 million in global bonds for the $3.5 billion Police & Fire Retirement System. Putnam still manages more than $300 million in equities for the police fund.
The Boston-based money manager was at one time well known for its bond performance, but Putnam doesn't seem to have recovered from a staff upheaval in the mid-1990s. The company began a serious renovation in 1996 to move the business beyond its traditional active duration focus, bringing in William Curtin from New York's Lehman Brothers to lead the effort.
Pension funds were asked to be patient with investment underperformance as the changes took place. In some cases, Putnam is said to have offered reduced fee schedules.
The effort was not a success. Underperformance continued through this year, the group was rearranged in April and Mr. Curtin recently left Putnam.
That was the last straw for several of the pension funds.
"We'd been troubled by Putnam's performance for a while," said Scott Henderson, executive director at Massachusetts PRIM. "They had asked for time in the beginning of 1997 and in January of 1998 they asked for an additional year. When Bill Curtin departed, we saw another year or two of rebuilding."
PRIM is searching for a replacement manager.
The man given the job of straightening out the bond department is Tim Ferguson, senior managing director and head of investments, who moved to Putnam last year from London-based HSBC Asset Management.
"The strategic direction of this group was correct, but the organizational structure didn't allow it to be implemented as thoroughly as it could have been," Mr. Ferguson said. He took the department's separate businesses, such as high yield and global, and funneled them into one unit dubbed core fixed income.
"We had four separate credit research teams and separate trading areas. We are now focused on security selection and our performance in the last month or two has improved," Mr. Ferguson said.
Putnam is meeting with pension funds and consultants to "spend whatever time necessary to take them through the issues," he said.
Specific performance problems can be tracked back three years. Strategy names and job descriptions changed frequently as the group searched for the right position.
Putnam manages $77.9 billion in total fixed-income assets, of which about $25 billion is U.S. institutional tax-exempt.
Many of Putnam's institutional fixed-income strategies have underperformed in the short term, and longer term as well.
Putnam officials confirmed the global fixed-income core strategy returned 2.3% in the third quarter, compared with 8.3% for the Salomon World Global Bond index benchmark. For the year ended Sept. 30, it returned -0.8% vs. 11.6%; for three years, an annualized 5.3% vs. 5.99%; and five years, 3.5% vs. 7% for the benchmark.
According to the EFFRON/PSN database, performance on other strategies was:
Core active fixed-income moderate: quarter, 1.4% vs. 4.2% for the Lehman Brothers Aggregate index; year, 7.3% vs. 11.5%; three year, 8% vs. 8.7%; and five year, 6.8% vs. 7.2%. (All figures for more than one year are annualized.)
High-yield fixed-income: quarter, -9.6% vs. the First Boston High Yield index return of -6.1%; year,
-3% vs. -0.5%; three-year, 9.7% vs. 8.4%; and five-year, 10.2% vs. 8.5%.
U.S. investment grade: 3.5% for the quarter vs. 4.2% for the Lehman Brothers Aggregate; year, 10.6% vs. 11.5%; three years, 8.5% vs. 8.7%; and five years, 6.8% vs. 7.2%.
Low volatility: 3.2% for the quarter vs. 3.7% for the Merrill Lynch 1-5 year Government Corporate index; year, 8.2% vs. 9%; three years, 6.9% vs. 7.3%; five years, 6% vs. 6.2%; 10 years, 8.2% vs. 7.9%.