By Sam Mamudi
Since announcing the hire of former Fidelity Investments
executive Bob Reynolds in July 2008, mutual-fund firm Putnam
Investments has been grabbing headlines with a serious of
eye-catching moves. On Tuesday, it made another by saying that it
plans to cut fees and change the way it charges investors.
Boston-based Putnam said that from Aug. 1, it will cut
management fees on its bond funds by 13% and on its
asset-allocation funds by 10%, and it will eliminate so-called wrap
fees - the overall advisory fees above fund fees - for its
target-date funds.
Putnam, a unit of Canada's Great-West Lifeco Inc. (GWO.T), also
plans to change the terms of its management contracts to introduce
performance fees for many of its stock funds.
"We want to reiterate the fact that we're a very
shareholder-friendly company," said Bob Reynolds, chief executive,
in an interview. "Over time, managing the firm to do what's right
for the shareholder is the key to being successful."
Under the plans, subject to shareholder approval, Putnam's
growth and international stock funds, as well as its Global Equity
Fund (PEQUX), will see their management fees change depending on
performance relative to each fund's benchmark. The performance will
be judged on a rolling three-year period.
"That's how shareholders would evaluate us," said Reynolds,
explaining the choice of a three-year term.
"We like to see performance tied to the fund's specific
benchmark based on a three-year period for good measure," said
Jonathan Rahbar, fund analyst at Morningstar Inc. "This would be a
good deal for investors because it aligns the fees paid to Putnam
with the performance they experience."
In another change, discounts for fund shareholders based on
rising asset levels - given to reflect growing economies of scale -
will be based on the growth of all mutual-fund assets, rather than
the assets of a particular fund.
"As Putnam grows, that will definitely help shareholders across
the firm," said Rahbar.
Putnam's total fees have been typically higher than the industry
average. The average expense ratio for its bond funds is 1.19%,
compared with the industry average of 1.03%, while its
asset-allocation funds charge 0.9%, compared with the industry's
0.87% average, according to Morningstar.
Expense ratios include administrative and distribution costs of
a fund. Reynolds said that Putnam's management fees - fees that go
directly to the firm - are already below average and that the
changes would place the firm in the lowest quartile of the
industry.
The changes are the latest in a series of moves by Reynolds, who
last year took over a firm struggling with poor performance and the
legacy of its involvement in the mutual-fund scandals of 2003.
Putnam's assets under management have fallen from $272 billion in
late 2003 to just over $100 billion today.
The firm has, however, seen a turnaround in performance this
year, and Reynolds said that flows into its bond funds and new
offerings have been positive. While the stock funds still see
redemptions, "they're half the industry average," he said.
Reynolds said he was confident that the entire fund line will
see net inflows in the second half of the year.
As part of Reynolds' rebuilding effort, the firm has hired
several new fund managers, traders and researchers; put more
emphasis on - and given freer rein to - individual managers;
launched 14 new products, including absolute return mutual funds;
and launched a new defined-contribution platform for plan
sponsors.
"There's been a more sales-focused effort at Putnam" since
Reynolds took over, said Rahbar. "So while we're hopeful [of the
fee changes helping investors], there is an element of coming into
this with your eyes wide open."
But Reynolds said the focus of his changes is Putnam's clients
and insisted that approach was the best way to grow.
"I want us to be very competitive in the marketplace and set us
up for the next three to five years," said Reynolds. "We'd like to
be one of the key players in the industry - not the biggest, but
relevant and one of the top performers."
-By Sam Mamudi; 415-439-6400; AskNewswires@dowjones.com