Putnam Investments LLC hasn't been contributing many profits to parent Power Financial Corp. since the money manager was acquired by the Canadian firm in 2007.
The main reason: compensation to executives brought in to shore up investment performance.
Despite growth in assets under management and improved performance numbers, Boston-based Putnam reported a net loss of $14 million for the quarter ended June 30. All told, Putnam has had only six profitable quarters since Power Financial, Winnipeg, Manitoba, bought the firm from Marsh & McLennan Cos. Inc. in August 2007.
Its last reported quarterly profit was $48 million in the second quarter of 2011; it has sustained losses every quarter since then.
Quarterly net losses attributed to Putnam by Great-West Lifeco Inc., the Power subsidiary that includes Putnam, have ranged from $1 million in the third quarter of 2010 to $37 million in the fourth quarter of 2009.
Meanwhile, AUM as of June 30 was $134.7 billion, up 37% from $98.6 billion on March 31, 2009, the lowest since Power acquired Putnam. Of the June 30 asset total, about $70 billion was for institutional clients.
The gains have mainly come from market performance, because asset flows generally have been negative.
Rob Sedran, equity analyst, CIBC World Markets Inc., Toronto, said, “The company did have performance issues, though they've turned that around. To do that, they've brought in new people with investment experience. But you have to pay the people you brought in to do that. The people that solved the problem are now getting paid for that.”
Robert Reynolds, president and CEO of Putnam, said in an interview that incentive compensation for portfolio managers, analysts and other investment executives was the main reason for the net losses.
Mr. Reynolds, former chief operating officer at Fidelity Investments, Boston, became president and CEO of Putnam in 2008, and recruited several senior people from Fidelity. They included: Walter Donovan, chief investment officer; Shep Perkins, portfolio manager and co-head of international equities; and Aaron Cooper, director of global equity research.
“We pay for performance,” Mr. Reynolds said in an interview. “If a manager performs, they will get paid ... It's an expensive way to do it, but you build consistent performance that way. Great-West understands that to deliver the performance, you have to get the right people. Great-West is totally behind us.”
“The goal is to be profitable,” Mr. Reynolds added, saying $150 billion in AUM would be a “general ballpark” threshold of profitability for the firm. He expects to reach that goal by the end of this year, although he said, “A lot depends on flows and market performance.”