Other fund companies are cutting staff to reduce expenses, Putnam Investments' chief executive said, but he is doing so to eliminate redundancies, improve performance, and hopefully stem the heavy outflows that have plagued the Boston subsidiary of Great West Lifeco Inc. for the past five years.
Putnam announced Monday that it laid off 47 people, or 1.9% of its 2,500 employees. The cuts included a large portion of its quantitative research team and 12 portfolio managers who are leaving as part of the restructuring of its equity investment unit. Putnam also announced plans to merge six equity funds into others.
Robert L. Reynolds, its CEO, said during a conference call Monday that he is a firm believer that "no one cuts their way to greatness," and that the reductions and restructuring are not meant simply to cut costs.
"This was not an exercise to cut heads, but an exercise to get better performance on a more consistent basis," he said.
Putnam plans to continue hiring analysts and adding funds as it moves from a team-based portfolio management approach to a single manager one, he said. He also introduced a new incentive plan to reward the best portfolio managers.
"Our goal is straightforward. We want to clarify and simplify our investment process, so that we can deliver sustained results that we believe our shareholders desire," Mr. Reynolds said.
Other large fund companies, including Fidelity Investments and Janus Capital Group Inc., have contracted this month as a result of the global financial crisis.
Fidelity announced a second round of job cuts last week. It is cutting 3,000 jobs, or 7% of its 44,400-person work force. Janus is eliminating about 115 jobs, or 9% of its staff.
Mr. Reynolds would not say how much Putnam would save through its staff reductions.
Great West Life bought Putnam from Marsh & McLennan Cos. in August of last year for $3.9 billion. In June, Mr. Reynolds was hired to succeed Charles E. "Ed" Haldeman, who was named the chairman of Putnam Investment Management LLC.
Financial Research Corp., a Boston firm that tracks fund flows, said Putnam had outflows of $27.1 billion in 2003 and $28.89 billion in 2004 from its equity and bond funds.
Poor performance has cost Putnam more assets this year. When Mr. Reynolds was hired, it had $175 billion under management, but as of Oct. 31 it had $116 billion.
Mr. Reynolds, who worked at Fidelity for 23 years before joining Putnam, said it "hasn't been immune" to difficult market conditions.
"When we are in a market like this, we have an opportunity to retrench," he said. "In my 30 years in this industry, I have never seen so much talent that is available. We'll come out of this better as a firm than when we went in."
Putnam's restructuring involves changing its approach to portfolio management. Previously, three or four managers, including a quantitative analyst, ran each of its funds, but Mr. Reynolds said it became clear during his first four months on the job that the approach was not working.
"When you deal with a team approach, there is much more complexity, and it is much harder for a stock to get into and get out of a portfolio," he said. "If you hire the right people to manage funds … then what you set up are individuals who are accountable and responsible, and there are no excuses, and you can draw unbelievable talent."
Putnam said it is replacing the team management structure within its equity funds with "a new, more nimble, decision-making process that vests full authority and responsibility with individual fund managers."
Mr. Reynolds did not say how long that transition will take.
It reduced its quantitative research staff by nearly two thirds, to nine people, but Mr. Reynolds said that does not mean Putnam plans to abandon its quantitative approach completely, and that it may introduce a family of quantitative funds in the future.
In January it plans to introduce 10 funds, including global sector and absolute return ones. In the next 30 to 90 days six of its equity funds will be folded into larger, less expensive ones to eliminate redundancies.
The funds that will be folded have failed to keep up with rivals since 2003, according to data from Bloomberg News. The Putnam Capital Appreciation Fund had an annual outflow rate of 4.4% in that time, trailing 77% of rival funds, and the Putnam New Value Fund had an outflow rate of 5.5%, lagging 87% of rival funds.
In the past four months Putnam has hired several portfolio managers for its equity team, including David Calabro from Massachusetts Financial Services Co., Gerard Sullivan and Robert Brookby from American Century Investments, and Nick Thakore and Robert Ewing from RiverSource Investments LLC. It also hired Jeffrey Carney from Fidelity as the head of global marketing and products.
Mr. Reynolds said Putnam will continue to hire research analysts and portfolio managers. In addition, it is combining its U.S. and foreign research teams to create an integrated resource group.
Under the realigned incentive plan, fund managers will be eligible for a full bonus only if they produce top-quartile performance relative to rivals' funds over a three-year period.
Those who generate higher returns will be eligible "for substantially more," Mr. Reynolds said, and those who fall in the bottom quartile will not be eligible for any bonus.
"We want to retain and attract professionals, and that requires industry-leading results," he said.
The new incentive plan also affects research analysts, he said, but he did not give details.
Mr. Reynolds said he hopes these adjustments will help Putnam generate inflows next year. "Results should be evident immediately," because the new structure is a better way to manage money.
"I don't know what the markets will hold, but these markets will turn around, and when it happens, we'll be ready for it," he said.
