Putnam looks for savior in Reynolds

BOSTON — Fans of Putnam Investments' incoming CEO Robert L. Reynolds say the former Fidelity vice chairman has the industry smarts and first-rate people skills needed to breathe new life into the struggling firm.

Even with his enormous cachet, Mr. Reynolds can't hope to quickly revive a money manager weighed down by eight years of dreadful domestic equity returns. Still, his appointment shifts the debate about Putnam from how bad things are likely to get, to how good they can become.

Some Boston-area money management veterans are unabashedly optimistic. With Mr. Reynolds' following among the industry's “best and brightest, this could turn out to be the biggest turnaround story in the history of asset management,” predicted a former senior Putnam executive, who declined to be named.

“If anybody can do it, it's Bob,” agreed Joseph McCabe, Boston-based vice chairman of executive recruiting firm CTPartners Inc., citing Mr. Reynolds' ability to inspire confidence and recruit effectively. “I think in three to five years, you're going to see a completely energized Putnam.”

Skeptics, while conceding Mr. Reynolds' considerable accomplishments, note that putting together an investment organization hasn't been one of them.

Mr. Reynolds made his name building Fidelity's 401(k) retirement business, rather than on the investment side, where Putnam's main challenges lie, said one consultant, who declined to be named. If fixing Putnam's investment factory is the key, “he has no grades there, no specific points I can look to in his tenure at Fidelity, and say "here's the way he can fix that.'”

Another former Putnam executive agreed, saying a lot will depend on whether Mr. Reynolds can “bring in a really strong head of equities.”

Asked in a June 12 interview if he had figured out why Putnam's domestic equity underperformance has proved so hard to reverse, Mr. Reynolds said he would spend his first 90 days taking an in-depth look at investment operations.

“If there are areas of underperformance, there may be good reasons why that is happening. Part of management is understanding why performance is good or not, and then making a determination from that,” said Mr. Reynolds. He said he's determined to opportunistically hire the right people, wherever needed, and to make whatever changes are required to make Putnam a winner over the long term.

In a June 12 conference call, Jeffrey Orr, chief executive officer of Putnam's Montreal-based parent company, Power Financial Corp., said the passing of the baton from Charles “Ed” Haldeman, who will take on the new title of chairman, to a new leader had been the plan between Power Financial and Mr. Haldeman all along.

With Mr. Reynolds joining Kevin Cronin, chief investment officer, and William T. Connolly, senior managing director of global distribution, “we have a very strong management team to move Putnam forward,” said Mr. Orr.

Mr. Reynolds praised Mr. Cronin, saying “my observation is that everything possible to be done is being done right now” on the investment side, with areas such as fixed income enjoying strong performance. Putnam's June 11 announcement that the firm had hired Gerald Sullivan and Rob Brookby, managers of a top-rated core equity fund at American Century, had been Mr. Cronin's work, Mr. Orr noted.

Still, Messrs. Haldeman and Reynolds concede that Putnam's domestic equity strategies remain a sore point.

For example, the Putnam Investors fund, the $2.8 billion large-cap core equity fund that Messrs. Sullivan and Brookby will help run, has trailed its S&P 500 benchmark by just less than two percentage points a year over the past five years, for a bottom-quintile showing among competitors tracked by Chicago-based Morningstar Inc. The $5.3 billion large-cap growth equity Voyager fund, meanwhile, is in the bottom decile for the five years through June 18, among competitors in that category tracked by Morningstar.

Market veterans most optimistic about Mr. Reynolds' prospects for turning Putnam around predict he'll quickly bring in a number of talented equity staffers — possibly tapping Boston's two biggest alumni networks: people who've worked for Fidelity Investments and people who've worked for Putnam Investments.

“If there's anyone in this business who might be able to attract high-quality talent, it's Bob Reynolds,” said a former Putnam sales executive, adding “I'd go back (to Putnam) with Bob.”

Market watchers say the wrenching restructuring at Fidelity that Rodger Lawson has pursued since becoming president last August could prompt many investment veterans there who remain Reynolds loyalists to reach out to him as well.

Making changes at Putnam as quickly as long-suffering investors might hope could test Mr. Reynolds' diplomatic skills, as he works alongside Putnam's existing leadership, including Messrs. Haldeman and Cronin. Investors who cheered Putnam's announcement about Mr. Reynolds expressed hope that the new boss will move quickly.

There'll be a honeymoon period, but Putnam has “already had a fair amount of time, so I don't know that that honeymoon period is going to be long,” said Michael Travaglini, executive director of the $50.4 billion Massachusetts Pension Reserves Investment Management board. PRIM executives have been satisfied with the Putnam team managing $330 million in domestic small-cap equities for the fund, despite the firm's broader woes.

PRIM executives were happy to hear about Mr. Reynolds because “we think it's going to lead to other meaningful developments in the organization,” said Mr. Travaglini. It's an “open secret that what he needs to do is recruit investment talent.”

While Power Financial's “coup” in hiring Mr. Reynolds should dispel the gloom-and-doom scenarios that have haunted Putnam in recent years, industry watchers say he's going to have to earn his accolades, especially when it comes to reviving the firm's mutual fund fortunes.

Industry trends — with the leading retail firms claiming an ever-growing share of overall industry flows — are making it ever tougher for money managers who stumble to fight their way back into the winner's circle, said the consultant who declined to be named.

Another veteran investment consultant, who declined to be named, concedes Mr. Reynolds is no Lewis Sanders, the AllianceBernstein CEO who brought his firm roaring back from the same market-timing scandal that devastated Putnam in 2003. But Mr. Reynolds and Mr. Haldeman, working together, might yet prove to be a Lew Sanders, he said.

Contact Douglas Appell at [email protected]