BOSTON - Putnam Investments Inc., a high-octane growth equity manager in the 1990s that got burned when the bull market ended, is in the process of changing all of its portfolios to include a mix of quantitative and fundamental techniques.
The evolution of the investment management process toward this approach kicked into high gear when Charles "Ed" Haldeman joined Putnam last October as co-head of investments. "We'd like to redefine Putnam as a manager that uses quantitative and fundamental tools in all portfolios," Mr. Haldeman said in a recent interview. "All of our portfolios will use fundamental and quantitative tools. There will not be an exception."
Mr. Haldeman, called a turnaround artist by some, helped right the ship at Delaware Investments Inc., Philadelphia, where he was chief executive officer from 2000-2002. Turning around the fortunes of Putnam is a taller task, observers say; the firm has been bleeding assets since the market went south in March 2000.
Since the end of 2000, total assets have dropped 32% to $250 billion, while institutional assets have fallen 24% to $97 billion according to data tracker eVestment Alliance, Atlanta.
But Mr. Haldeman and Stephen Oristaglio, co-heads of investments at Putnam since last October, hope to turn performance around.
Making his mark
"It looks like he (Mr. Haldeman) is beginning to put his stamp on things," said Jeff Nipp, head of manager research at Watson Worldwide, Atlanta.
Mr., Oristaglio began the process of incorporating quantitative techniques in 1998. The quantitative element already has been inserted with success into a number of asset classes, he said, including international equity, global and domestic core equity and domestic value equity.
Domestic growth, particularly specialty growth, is an area that needs the most work, he said. "One of the things we've got to do is restore our growth performance," said Mr. Oristaglio.
Personnel changes largely have been in domestic growth. Last year, Tim Ferguson, former head of equities, was given a new position focusing on strategic initiatives. Brian O'Toole was hired to lead the large-cap growth team and Walton Pearson was hired as a portfolio manager on the growth team, replacing portfolio managers Beth Cotner and Jeff Lindsey, who retired and left the firm, respectively. In April, Justin Scott, who heads the core growth team, was named to lead the specialty growth team, a new position. Also in April, Joshua Brooks was hired from Delaware Investments, as head of equity research, replacing William Landes, who became head of alternative investments.
The portfolio management teams are largely in place, said Mr. Oristaglio, but there may be some refinements, particularly in the specialty growth area, to make sure quantitative skills are represented equally. "The area we need to see improvement is specialty growth," said Mr. Oristaglio. "We don't want to be overly focused on risk management or overly focused on alpha."
Too fundamentally driven
In the past, some of the portfolios have been too fundamentally driven, said Mr. Haldeman. The quantitative overlay is designed to bring more diversification to each portfolio by ensuring it is not overweight in a particular stock or sector, said Mr. Haldeman. It's all about controlling risk and providing consistent returns, he said.
"We're looking for more dependable growth now," said Mr. Haldeman. "We have to perform more consistently." The goal is to have above-average performance every quarter, which will lead to top quartile performance within three to five years.
The pairing of Mr. Oristaglio and Mr. Haldeman reflects the new focus at Putnam as the former comes from a quantitative background and the latter has a fundamental equity background.
The two also are focused on changing the investment management culture at Putnam and creating "an environment that is attractive to investment professionals," said Mr. Haldeman.
Over the years, observers said, Putnam built up a reputation of being a tough place for portfolio managers to work. "It's a very hard-charging style," said one source. "Two strikes and you're out."
Nonetheless, said David Eager, president of Eager & Davis LLC, Louisville, a money manager consultant, Putnam never had a problem attracting good talent.
In building a more portfolio manager-friendly atmosphere, Messrs. Haldeman and Oristaglio said they a re looking to eliminate the hierarchy structure and even small things like excess, non-investment-related, meetings. The idea is to build teams that operate autonomously, with each having the feel of a separate entrepreneurial operation.
Mr. Haldeman said the idea of making the culture a more attractive place for investment professionals and incorporating the blend into the portfolios are the two things he believes he can offer Putnam and are chief reasons he took the job.
"Putnam is a legendary firm in the industry. I was flattered by the opportunity to play for the Yankees," said Mr. Haldeman.
Whether he can help improve the firm's fortunes remains to be seen.
"You've got to believe that (Mr.) Haldeman has the wherewithal to get the job done," said Burt Greenwald, president of B.J. Greenwald & Associates, Philadelphia, a money manager consulting firm. "I give him high marks in terms of evaluating the caliber of the investment management team..."
While sources say the job of righting the ship at Putnam is much more difficult than it was at Delaware, Putnam does have a history of reinventing itself and changing with the times. In the 1980s, the firm was considered a fixed-income shop; in the 1990s, it became know as an aggressive growth shop.
Mr. Eager said the firm always has been good at evaluating problems and taking corrective action. Still, he believes the firm needs more strategies if it wants to go from a $250 billion firm to the $400 billion to $500 billion level.