Putnam Investments' top executive said its hiring of Walter C. Donovan as chief investment officer signals its commitment to turning around its performance after years of outflows.

"We at Putnam are an investment firm. That is what we do for a living. That is how we get paid," Robert L. Reynolds, the Boston fund company's president and chief executive officer, said in an interview Monday.

"To change the culture here, we realized we needed to become more performance-driven," he said. "We needed to send the message to the marketplace that performance is the most important thing we do. That starts with our new chief investment officer."

Donovan, like Reynolds, was an executive at Fidelity Investments before joining Putnam. Reynolds, who took over Putnam in July, started Fidelity's 401(k) business. While at Fidelity he promoted Donovan to president of the equity division, where Donovan ran portfolio management, investment research and trading. He also ran Fidelity's high-yield group.

Donovan, 46, succeeded Kevin Cronin, who left Putnam in October for personal reasons, Reynolds said. Even before Cronin decided to leave, Reynolds was looking to hire someone to run equity investments, and "when he left it allowed us to broaden our search to find someone to run equities and be our chief investment officer," the CEO said.

"When you hire a chief investment officer, you are hiring someone to run all the facets of your investment organization," Reynolds said. "That is the most visible part of any investment company."

Donovan, whose hiring was announced Monday, is the latest of a host of former Fidelity executives who have followed Reynolds to Putnam, a subsidiary of Great West Lifeco Inc. of Toronto. (Marsh & McLennan Cos. Inc. sold Putnam in 2007 to Great West Lifeco for $3.9 billion.)

Analysts said Putnam, which had $98.6 billion of assets under management as of March 31, has been leaking assets ever since several of its funds were involved in market-timing scandals in 2002. A year ago it had $175 billion of assets under management.

Reynolds said, though Putnam funds have continued to lose assets since he was hired, there are good indicators for the future. "Our flows are still below the industry average, but I think we have seen some positives from our absolute return funds, and we have had a lot of success on the institutional side of the Street," he said.

"We are at an interesting point in the markets," he said. "We have had a great two weeks after two of the worst months ever. The market is waiting to see how Tarp and Talf work. If they do get a footing, which I think they will, I think the market's in the initial stages of a bull market. If they don't grab hold, we are in for a downturn."

The hiring of Donovan is Reynolds' latest step to energize Putnam's performance. In November he restructured its investment division and realigned manager and analyst incentives to reward executives who delivered top-quartile results. Putnam has hired dozens of fund managers, analysts and others on the investment side.

It also pruned its fund lineup, and early this year introduced the industry's first suite of target absolute return mutual funds designed to provide positive returns over time in rising or falling markets.

Last week Putnam said the funds, which launched Jan. 13, had $149.6 million of assets under management as of March 31.

Reynolds said Donovan will help Putnam move to a fundamental research model. Before Reynolds joined Putnam, the company used both a fundamental and a quantitative research model. In October it adopted a fundamental approach to research.

The CEO said Donovan "thinks about money management the same way we have structured this company, and that is from a bottom-up, investment management approach. He knows that research is key and you have to pay for performance. All of these things are key for us as a company."

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