Lawrence Lasser has been chief executive officer at Putnam Investments since 1985, when the firm had about $10 billion in assets. Seventeen years and about $250 billion in assets later, Mr. Lasser has turned Putnam into one of the world's largest and most successful money management firms. But it has been hit hard by the bear market: Assets have fallen 23% since June 30, 2001, and 29% since Dec. 31, 1999. In the sober 2000s, is Putnam at a crossroads? Yes and no, says Mr. Lasser in an interview with reporter Dave Kovaleski.
Q Why did Putnam make so many portfolio and portfolio management changes this year?
A Using the team concept, which has been in place at Putnam since 1985, there are always fine-tuning changes. Since our portfolios and our performance are not a function of a single personality, we don't think changing a member of a portfolio team is quite as earth shattering as an organization might where a so-called star system exists. But it would be disingenuous to say that there haven't been new pressures in the last year. Our investment decision-making, (which) succeeded quite well in the 1990s, (has been modified) to reduce the scope of our mutual fund product line. We didn't make changes in the product line to bury bad records. The most disappointing performance results we kept because we think we have an obligation to those investors to make the results better. ... We undertook what you might call an editing of the product line, and we merged 11 funds out of existence. We thought it was better to focus, rather than splinter, our talent and to concentrate our team on fewer things rather than more things. Out of that, which wasn't designed to reduce people, we did have the consequence of reducing the scope of our work, and that, in turn, stimulated reassignments and some actual reductions.
Q In terms of staffing, have there been any efforts to cut back on costs?
A No, but I wouldn't rule it out in the future. We are actively trying to recruit people in certain areas, and we may find that we are overstaffed in certain areas. A well-managed company tries to do that all time. (Editor's note: Putnam laid off 32 workers the week of Aug. week.)
Q Why was Putnam hit harder than most large money managers by the bear market?
A While there are 100 reasons why, there's one that overwhelms all the other 99, and that is our asset mix. If you go back five years or 10 years, you will see that Putnam grew faster than almost all others, and that was a reflection of asset mix too, but in a different way. Our performance was very strong in asset classes, which inherently grew very well. So Putnam grew faster than almost all competitors.
Somehow, in this supercharged period of the 1990s, we became in some people's minds a specialty growth manager, just as, ironically, in the 1980s, in some people's minds we became a fixed-income manager. And although we were pleased with our fixed-income success, we hated being labeled as a fixed-income manager (because) we weren't. We worked hard to reverse that ...
Then we got caught up again in a period when nobody cared about fixed income and nobody cared about value. In the retail part of the business, we enjoyed enormous success in the growth area, and it became too successful. In 1997, we did something which up until that time was unprecedented - we closed to new investments our best-selling mutual fund, the Putnam New Opportunities Fund. Some competitors thought we were nuts because we had given up the hottest thing we had, but our portfolio management team was afraid that the fund was becoming too big. Our communications with shareholders and with their intermediaries during this time intended to diffuse the rush to equities. ... For the most part, we were ignored.
Now we have experienced a decline in the category of assets that advanced the most rapidly. It's a balloon that deflated. So we've done something of a round trip in that asset class: We went up faster and bigger, and we declined faster and bigger.
Q Will Putnam wait out the cycle? If not, what steps are you taking to reverse the decline?
A We, absolutely, in growth will wait out the decline, if by that you mean, would we change styles. We really believe and practice here what we call truth in labeling. It doesn't mean a blind philosophical commitment to something, but it does mean commitment to a category of investing. If we think large cap is going to work better than small cap in a certain environment, for example, we don't take a small-cap fund and make it a large-cap fund. We have a plan, a playbook, a description, for how each fund invests, and we don't change it when the market changes. Within each fund, we certainly don't ignore changes in the market. Every fund portfolio team has a strategy and view (regarding) how these changes are going to impact them, and they respond.
We hope that as investors change their asset mix in reflection of their advisers' sense of where the opportunities lie going forward, we have a product to supply that need too. When blue shirts are in style, we sell blue shirts; when white shirts are in style, we sell white shirts. And we spend as much care on manufacturing the white shirt as we do on the blue.
Q With a new head of the large-cap growth area, what changes should we expect?
A There have been, and will be, changes to the team, changes to the way they do their work, but not changes in philosophy. Changes won't be radical and they won't be immediate.
In the aftermath of the `90s bubble, we realized that changes in the market caught us by surprise at the end, and we need to respond to that. We probably took the new economy too seriously. The high-quality growth part of our work edged into some of the companies on the larger-cap end of the new economy category and we were badly hurt when they declined. We learned some things from that. The application of risk tools and portfolio construction tools are two examples of changes and refinements to the process that we're making.
Q Is Putnam at a crossroads?
A The crossroads is found in the recognition that markets experienced an unprecedented runup in the 1990s. Growth was so strong that many people lost sight of reality. They forgot the fundamental lessons about diversification, they ignored the fundamental lessons about risk, and we've all been hurt by it. To some extent Putnam has been hurt by it as a company. Mostly, we feel terrible that so many retail investors who were unprepared for the risk they were taking, who were under-diversified, whose expectations had been corrupted by the returns of the 1990s, have been hurt and are disillusioned.
We believe that while there remain opportunities for us in the United States ... the opportunities going forward will be stronger, in percentage terms, outside the United States. And we are expanding that part of our business while being cautious about the domestic retail part. We think that the U.S. retail business is going to take a long time to get back to the rate of growth in the 1990s, and we think the U.S. institutional business will continue to grow.
So, no I don't call it a crossroads, but I do call it a time for a serious revisiting of strategic emphasis. You just can't come to work and say `oh, it's business as usual,' when the market has declined from 11,700 to 8,000. That's not business as usual.
Q Have you thought about retiring? Where would you like the company to be when you step down?
A I have had a wonderful career here and I believe I have a lot to contribute to Putnam. I literally give it no thought.