In a conference call Monday, Reynolds reemphasized improving performance at Putnam, which he declared as a goal back in June when taking the helm at Putnam (see “New Putnam CEO Has ‘Winning’ on His Mind“). Reynolds said the changes in both product and process will help Putnam become a bigger equity player. “When I joined Putnam over four months ago it was very clear early on that the fixed-income components of Putnam were world class … The equity side did not say that,” he said.
Since Reynolds started as CEO, he’s reshuffled the management team at Putnam (see “Putnam Continues Effort to Build Up Investment Team,” “Fidelity Alum Carney Joins Reynolds at Putnam“). Now, he has moved on to changing the investment management structure. One of the changes Reynolds outlined is giving more authority to individual fund managers, rather than a team management structure.
The changes also include the elimination of six equity funds, which will merge into larger, lower-priced funds, according to Putnam (see “Putnam Eliminates Six Equity Funds“). “For a mutual fund firm, more is not necessarily better,” said Reynolds in a Putnam news release. “By clarifying the product lineup, Putnam will offer advisers better defined investment choices.”
Reynolds also said on the call that Putnam’s funds will now have a greater emphasis on fundamental research rather than quantitative analysis. As a result, the quantitative research team at Putnam will go from 26 people to nine. Instead of having one quantitative analyst for each portfolio, the analysts will work more in tangent as support for all portfolios, Reynolds explained. He also said the U.S. and non-U.S. analyst teams will be brought together under common leadership. “From here on, quantitative analysts will support Putnam portfolio managers, but the ultimate investment decisions will be made by the portfolio managers,” Reynolds said. He added: “It’s not a repudiation of quantitative, it’s saying that we would rather use quantitative in our funds as a support mechanism rather than as a decision process.”
Further capitalizing on the firm’s goal to improve performance, Putnam is realigning portfolio manager bonuses to reward better performance. Portfolio managers who achieve top-quartile returns, consistent with fund mandates and strong risk controls, are eligible for full bonuses, according to the firm.
In total, the changes will eliminate 35 positions (including the quantitative research) and 12 portfolio managers. Reynolds claimed the move is “primarily driven by performance’ and not cutting costs. He said the moves seek to simplify the firm’s offerings and would be made with or without the financial crisis, from which he believes Putnam will reemerge as a stronger firm.
“This move was totally motivated by “how do we become a better investment management organization?’’ Reynolds said. “I honestly believe we’re going to come out of this period as a better firm than we went in, and this restructuring is a big part of that.”