Putnam sees growth, but profits proving more elusive
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Comvest closes credit fund at $1.3 billion
      Wall Street signage in the Financial District of New York
      Assets in alternative investments set record in 2020
      Non-profit questions dividend recapitalization play at Ares portfolio company
      Walker & Dunlop appoints managing director
    • Philip Pearson
      Hymans Robertson chooses head of LGPS investment
      Daniel Celeghin
      Indefi hires New York-based managing partner
      Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
    • Pandemic takes toll on real estate fundraising in 2020
      Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Insurers taking on more portfolio risk as pandemic ebbs – survey
      American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
    • Pie chart showing different categories of asset allocation with a calculator
      Record keepers answer the call for adviser managed accounts
      Comfortable retirement still on track for most Americans despite pandemic – survey
      Pentegra joins with EPIC to offer 3(16) fiduciary services
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
    • CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
      Yale rolls out 5 principles for endowment on fossil-fuel investing
      Pension funds hear from beneficiaries on ESG – report
    • Riscura stories
      Dystopian tales explore altered retirement reality
      Joel Holsinger
      Ares wants to do good – and profit – with fund
      Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
    • The New York Stock Exchange reflected in a window of Federal Hall
      Infinity Q Capital to liquidate hedge fund due to mispricing
      Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
    • Ilmarinen seeds AXA Investment Managers fixed-income ESG fund
      Edwin Denson
      Wisconsin Investment Board names new executive director and CIO
      A statue of Albert Gallatin outside Treasury Department headquarters in Washington
      Scale of T-bill drought hinges on Biden rescue, income-tax haul
      The seal of the Securities and Exchanges Commission at the agency's headquarters in Washington
      SEC said to review fund disclosure rules after Archegos rout
    • Blackstone AUM climbs 4.9% in latest quarter
      Trillium hires 2 to lead expansion into U.K.
      Credit Suisse logo
      Credit Suisse expects further hit from Archegos scandal
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
    • Edwin Denson
      Wisconsin Investment Board names new executive director and CIO
      Denmark’s ATP plans bid to build North Sea energy island
      Pennsylvania State Capitol in Harrisburg
      PennPSERS taps Verus for oversight consulting services amid probe
      State pension plan funding advances in first quarter – Wilshire
    • Edwin Denson
      Wisconsin Investment Board names new executive director and CIO
      Trillium hires 2 to lead expansion into U.K.
      Walker & Dunlop appoints managing director
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
    • EQT closes latest private equity fund at $18.7 billion
      U.S. $100 bills
      AlpInvest raises $3.5 billion for latest co-investment fund
      ILPA members making diversity a bigger priority in private equity
      European private equity deal value, volume hit records for first quarter
    • Pandemic takes toll on real estate fundraising in 2020
      J. Tomlinson Hill
      Two Sigma takes quant expertise into real estate investing
      BentallGreenOak closes latest European fund at $2.3 billion
      Cohen & Steers adds team for new private real estate business
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Baltimore City Fire & Police allocates $35 million to 2 private credit funds
      Baltimore City Employees commits $20 million to debt fund
      Louisiana Municipal Police collars HarbourVest to run fund of one
      Oregon earmarks $960 million for 5 alts funds
    • Baltimore City Fire & Police allocates $35 million to 2 private credit funds
      Baltimore City Employees commits $20 million to debt fund
      Louisiana Municipal Police collars HarbourVest to run fund of one
      Oregon earmarks $960 million for 5 alts funds
    • Emerging Market Debt Manager Services
      Real Assets Consultant
      Passive Investment Management Services
      Active Extended Global Credit Manager Search
    • High-yield spreads narrow, default rates drop
      Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • Robert Pozen
      Commentary: Maintaining corporate culture in an era of remote work
      John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
    • POLL: Cryptocurrency investing
      POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • High-yield spreads narrow, default rates drop
      By the Numbers for April 2021
      Graphic: Invesco’s bid for performance gains
  • Events
    • Conferences
    • Webinars
    • ESG Investing Virtual Series
      Private Markets Virtual Series
      Retirement Income Conference
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. MONEY MANAGEMENT
August 19, 2013 01:00 AM

Putnam sees growth, but profits proving more elusive

The firm has had only six profitable quarters since Power Financial bought Putnam in 2007

Rick Baert
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Jason Grow
    Investment talent doesn't come cheap, but it drives consistent performance, Putnam CEO Robert Reynolds believes.

    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.”

    Compared to Janus

    “Whether $150 billion or $135 billion (in AUM), a firm that size should have sufficient scale to be run at a healthy profit margin,” said Domonkos Koltai, partner at investment bank PL Advisors, New York.

    Among all publicly traded money management firms, “I am not aware of any that is not profitable,” he said.

    Mr. Koltai compared Putnam to Janus Capital Group LLC, Denver, which had about $164 billion in average AUM last quarter and has been hit with long-term net outflows, yet has managed to produce a 27% operating margin, according to its earnings statement last month.

    He contrasted Putnam's expense base — revenue minus net income — at $200 million in the first quarter vs. Janus' $160 million expense base. “That suggests that Putnam should have room to bring down expenses,” he said.

    Putnam continues to pay Great-West Lifeco quarterly financing charges of about $6 million as part of Power Financial's agreement to acquire Putnam. Those charges aren't included in the earnings, CIBC's Mr. Sedran said, “so there are probably more negative quarters than disclosed in financials.”

    Mr. Sedran also said Putnam was “built to be bigger” — to have more assets under management — than it is, and that is costing the firm money. “From back office to sales to systems in place at Putnam, asset management is a scale business, but at the end of the day, Putnam is built for more (AUM) than they have.”

    “That's a fair assessment,” Mr. Reynolds said of Mr. Sedran's statement. But he added he believes if Putnam produces good investment performance, “assets will come.”

    Fund returns

    According to data from eVestment LLC, Marietta, Ga., among Putnam's largest offerings is the $4.9 billion Putnam Fund for Growth & Income, a large-cap value mutual fund. It returned 28.48% for the year ended June 30, and an annualized 7.59% for the five years ended June 30. The fund's benchmark, the Russell 1000 Value index, returned 25.32% and an annualized 6.67% for five years.

    Its $3.76 billion Putnam Diversified Income Trust multistrategy fixed-income fund returned 11.75% and an annualized 6.3% for the same time periods, vs. -0.69% and an annualized 5.19% for its Barclays Aggregate Fixed Income index benchmark, according to eVestment.

    Putnam, like most money managers, was hit hard by the financial crisis of 2008-2009. Mr. Reynolds said that while lots of firms cut back as a result, “for Power, it was full steam ahead for Putnam.”

    “We had hirings of equity, fixed-income, asset allocation teams. In equities alone, we did a total restructuring, hiring eight or nine new fund managers and 41 new research people. What everyone was hearing from Wall Street was that the ability to have good research was critical.”

    Although reduced from the $17.17 billion in overall net outflows in 2008, the money manager still is seeing money leaving. Net outflows year-to-date through June 30 were $722 million; they were $1.79 billion for all of 2012. Only one year since Power bought Putnam — 2011, with $181 million — were there net inflows.

    Mr. Reynolds said outflows have come from the firm's institutional investments, attributed in part to reduced flows from pension funds and a shift by them to more liability-driven strategies and less to active strategies, which is Putnam's strong suit. (Neither Putnam nor eVestment breaks out institutional and retail flows.) Retail strategies have seen net inflows, with investors putting $9 billion into Putnam's 25 new strategies since 2009, he said. Putnam “is starting to see some positive signs that we'll be very close to net (institutional) inflows by the end of this year,” Mr. Reynolds said.

    Mr. Reynolds said the defined contribution area has been a boon to Putnam. “We're competing against the best in the (DC) business for new business, winning most of it,” he said. Its defined contribution assets under administration have jumped 57% since December 2010, to $23.34 billion as of June 30, according to data from Putnam. DC assets under management increased 29% since 2010, rising to $7.07 billion as of Dec. 31, according to Pensions & Investments data.

    In it for long haul

    It appears that Great-West Lifeco — and by extension, Power Financial — can be patient with Putnam, given how little Putnam's losses have affected Great-West Lifeco earnings. According to Great-West Lifeco's Aug. 1 earnings call, operating earnings for the quarter ended June 30 totaled US$505 million, while Putnam's net loss was $14 million.

    “Power and Great-West are with Putnam for the long haul,” Mr. Sedran said. “I think five and 10 years down the road, they might demand it to be profitable. But (Great-West Lifeco) is a large firm. In the context of hundreds of millions of dollars in profits, they're not complacent about (Putnam), but they can tolerate it. ... They won't tolerate it long term, but they believe in Putnam.”

    Paul Mahon, Great-West Lifeco's president and CEO, said in an e-mail, “Under the leadership of Bob Reynolds and his management team, Putnam has done a fantastic job in strengthening the firm's products, marketing, distribution and investment management.”

    He didn't answer questions on whether the parent company is satisfied with Putnam's direction and when his company expects to Putnam to be profitable. n

    Related Articles
    Putnam Investments sale a done deal
    Putnam looks for savior in Reynolds
    Revival architect: Face to Face with Robert L. Reynolds
    Putnam signaling comeback
    Putnam Investments promotes national sales manager for adviser-sold DC
    Putnam Investments unveils participant-peer DC saving evaluation tool
    Janney Montgomery Scott chooses Putnam as record keeper
    Smart diversification pays off for managers
    Putnam, Great-West combine retirement businesses
    Putnam/Great-West union gets high marks
    Recommended for You
    Blackstone AUM climbs 4.9% in latest quarter
    Blackstone AUM climbs 4.9% in latest quarter
    Trillium hires 2 to lead expansion into U.K.
    Credit Suisse expects further hit from Archegos scandal
    Credit Suisse expects further hit from Archegos scandal
    Innovations in DC: Helping Supercharge Retirement Outcomes
    Sponsored Content: Innovations in DC: Helping Supercharge Retirement Outcomes
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center