You left Fidelity in June 2007, just as capital markets were coming unglued. Did you have a premonition? I knew it was going to be a tough year (laughing). No, I had just turned 55 in March, and (Fidelity Chairman) Ned (Johnson) and I were having breakfast. I just said I have 10-plus years ... to work, and ... I think I'd like to do something else. As I was leaving, he asked “What do you want to do next?” I said I would take a little time off but I would love to do something like run Putnam.
Why Putnam? It has been a great company. It's gone through a tough period, yet its brand was still very good in the marketplace. I thought a lot of issues they were facing were very, very fixable with the right leadership.
What issues? A lot of things have been performance related, which comes down to having the right people and empowering (them.) There's a big change going on in the marketplace, being led by the move from defined benefit to defined contribution, more individual savings for retirement and then the aging of the baby boomers. There are opportunities offshore, and Putnam has a footprint in Europe and Asia. All that was appealing.
How well did you know Putnam? You don't spend two decades two blocks from a company (in the same business) and not know a lot about "em. What I did not know was their new owner, Power Financial. I wanted to spend time with them on their philosophy of the companies under their umbrella. I was very, very comfortable that they serve as owners, serve on the board, but let the people running the business run the business.
When did you begin talking with Power? January 2008. I made several trips to Montreal.
Did you talk with other firms looking for a CEO at the time, such as Legg Mason or SSgA? There were discussions, but again, I was looking for the right fit. I had made the commitment to myself and my family that the next job ... if I did something else, would be something that I truly wanted to do.
Performance is obviously the key question now. It should be! When you look at the product lineup, there's a world-class fixed-income operation here — which is why five sovereign funds have hired Putnam in the last 12 months — (and) also a world-class asset allocation group. The piece that's broken is domestic equity. We're spending a lot of time on it, trying to bring in additional resources, both on the portfolio management side (and) on the research side. Having a parent like Power Financial allows us to invest at a time when a lot of companies are pulling back.
Putnam was overexposed to tech stocks eight years ago and again to financial stocks in the past year. What's at the core of the performance woes? I'm not going to judge what anyone else did. What I do know is if you get the right people, support them, give them the resources they need, hold them responsible and accountable, they deliver. (One) thing we're doing is changing the whole compensation structure at Putnam. If you perform, you get paid, and if you don't perform ... there's a big difference. To me, that's the way you build an organization. You keep your best people, and if someone is not up to standards from a performance standpoint, they make the decision to go elsewhere.
Are research analysts paid for good ideas, or for getting those ideas into portfolios? We're working on the comp structure now. To me, a good idea that does not reach a portfolio doesn't help us. (Starting Jan. 1, we'll be rolling out eight) industry funds that are globally based — global technology, global health care. That provides analysts (a chance to) put their money where their mouth is. They'll be compensated on how well their portfolios do.
Have you already begun staffing up? (We've brought in) five or six analysts and three fund managers, and we're hiring a lot more, anywhere from 10 to 15 more analysts and three to five fund managers.
Some say an acquisition would let Putnam get on track faster than a rebuilding process. Acquisitions solve some problems, but they also create problems. You have different cultures — there's blending, redundancies. I would not rule it out.
Aren't you trying to restructure Putnam's culture? Yes. I have a vision of the way it should be restructured. We're focused on a lot of things: honesty, integrity. We had our so-called moment of truth two weeks ago (when Putnam responded to a rush of withdrawals from its $12.3 billion Institutional Money Market fund by closing it and transferring its assets to Federated Investors Inc.) That benefited our shareholders, not just the shareholders that wanted out that day. The customer comes first here. Our clients expect more from us than we've been giving them, so we've got to give "em more. We want to start winning as soon as possible.
But on the institutional side, even if everything goes smoothly? People say this will be a two- to three-year project. To me, it's not. We have successful (absolute-return) products on the institutional side (coming out as) retail funds (from January), and that will be an immediate help. If you make strategic hires of experienced people that have great reputations, great track records, they can provide immediate help to a product. I'm looking for a very quick turnaround, and it's OK if our clients have that expectation, because I have the same.
Will Putnam offer 130/30 strategies? That's something we're working on. We'll hold off on that until we get the whole team in place (possibly over the coming weeks.)
Is the current market mayhem hobbling your plans? It's outside anything I've experienced, but I am confident long term. If you need to retool, now's a great time. There are a lot of people on the street, a lot of firms for sale. This gives us an opportunity to retool, and when the markets become better, we're ready to go against anyone.
Contact Douglas Appell at [email protected]
