Signs of change for Putnam execs

Power Financial Corp. executives insist the turnaround of Putnam Investments, the long-suffering money manager they bought last year for $3.9 billion, remains “on track,” but there are signs they could be looking for new leaders to revive the Boston-based firm.

Industry observers — including investment bankers, private equity investors and money management executives — say Montreal-based Power Financial has retained an executive search firm, possibly New York-based Russell Reynolds Associates Inc., to quietly vet chief executive officer candidates for Putnam.

Current CEO Charles “Ed” Haldeman's contract expires in June, and industry veterans in Boston have expected Kevin Cronin, Putnam's head of investments, to succeed him if and when Mr. Haldeman leaves.

If Power Financial were to bring in an outside CEO, former Putnam executives say it's uncertain whether Mr. Cronin — the executive who built Putnam's respected fixed-income division before assuming oversight of equity investments as well in February 2005 — would stay.

Through a spokeswoman, Mr. Haldeman declined to comment on his plans. Jeffrey Orr, CEO of Power Financial, wouldn't say whether his firm has initiated a CEO search. But he did say Power executives are “very pleased with the work that Putnam's management team” — and Mr. Cronin in particular — has been doing.

Officials at Russell Reynolds said they don't identify clients as a matter of policy.

In a telephone interview, Mr. Cronin said he's very happy with his current job, adding decisions on Putnam's CEO “aren't my call.”

Mr. Orr gave no indication that major changes at Putnam are looming — or needed. “All of the things we set out to do, we have been on track to do,” he said. He didn't elaborate. Mr. Cronin concurred: “I'm happy with the progress that we're making,” he said.

The status quo option — with Mr. Haldeman remaining CEO — can't be ruled out. Two industry veterans reported talk that Mr. Haldeman is getting a three-year extension on his contract. Through a spokeswoman, both Messrs. Haldeman and Orr declined to comment. A former Putnam executive, who declined to be named, said a CEO search could simply mean that, if Power Financial sticks with Mr. Haldeman, “it has got to be a conscious decision, not just a default option.”

One investment banker, who declined to be named, reported that another option under consideration would offer both continuity and change, with Mr. Haldeman staying on as Putnam's chairman, while either Mr. Cronin or an outside candidate grabs the CEO position.

Most outsiders, however, expect a broader housecleaning, to reflect the inability of Putnam's management team thus far to reverse the firm's performance tailspin.

For the latest financial quarter, Putnam's struggling domestic equity strategies have continued to perform poorly and lose clients, with this year's spike in credit market volatility wreaking havoc on the financial companies weighted heavily in the firm's portfolios.

According to data provider eVestmentAlliance, Marietta, Ga., Putnam's midcap growth, opportunistic value, U.S. core, small-cap value and New Value large-cap equity strategies trailed their respective benchmarks by between 2.6 and 7.1 percentage points in the first quarter, expanding their 12-month shortfalls to between 7.1 and 13 percentage points.

Putnam's assets under management, meanwhile, dropped to $168 billion at March 31, down from more than $190 billion when Power Financial announced in Februrary 2007 its agreement to buy the money manager from Marsh & McLennan Cos., New York. According to Boston-based Financial Research Corp., Putnam's U.S. mutual fund assets ended March at $72.3 billion, down 20% from six months before. During the same period, the Standard & Poor's 500 index dropped 13%.

A former Putnam executive noted the parallels between Putnam's recent overweighting of financial stocks and the big technology bet that devastated the firm after March 2000. Mr. Haldeman came to Putnam in 2002 promising risk controls capable of keeping the firm on a more even keel, but “they did it again,” the former executive said.

Mr. Cronin rejected the comparison, noting that Putnam's recent performance woes resulted from “extremely poor security selection,” rather than a risk management failure. “If we had owned five different stocks, we would have outperformed as opposed to underperforming,” he said.

Mr. Orr said performance clearly remains disappointing: “I'm not going to say we're pleased,” but it's been too short a time to make a judgment, he said.

Putnam's institutional and retail clients — suffering through weak five- and 10-year results — might prove to be less patient. In a typical comment, one investment banker, who declined to be named, said that, considering the time it would take to fix those performance records, “only a lift-out or an acquisition” can turn Putnam around over an acceptable span of time.

Mr. Cronin said, rather than “looking for a quick fix,” he's working to build investment teams that can deliver sustainable good performance. He said Putnam's equity strategies have begun to rebound since mid-March, when capital markets “turned the corner” following the implosion of Bear Stearns Cos. Inc.

Industry watchers point to recent appointments at Putnam as evidence that Power Financial has decided to take a more hands-on approach. In March, Douglas L. Wooden, executive vice president-financial services at Power Financial subsidiary Great-West Lifeco Inc., Winnipeg, Manitoba, replaced Richard “Chip” Robey as chief administrative officer at Putnam, and Mitchell T.G. Graye, chief financial officer at Great-West, replaced Amrit Kanwal as Putnam CFO.

Many of Mr. Haldeman's other colleagues have left — such as Joshua Brooks, the deputy head of investments he brought with him from his previous firm, Philadelphia-based Delaware Investments, or are about to leave, such as Sandra Whiston, head of institutional management, whom Mr. Haldeman lured back to Putnam from Boston-based Fidelity Investments.

Headhunters say Mr. Cronin remains firmly in control of Putnam's investment lineup, with several key portfolio manager hires likely in the coming months.

Contact Douglas Appell at [email protected]