Friday, Jun 22, 2018
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Sale of Putnam raises questions for investors

It was an interesting question, worded poorly.

Will Putnam Investments sale to a unit of Power Financial Corp. prompt you to re-evaluate whether to recommend Putnam s mutual funds to clients?

Investment News, which covers the securities world for financial advisers, asked the question in a poll on its Web site, and although the results were entirely unscientific and the sample was small, the answer was telling for consumers in several ways.

Thirty percent of the respondents said they would re-evaluate Putnam s funds. Just under 20 percent said they were unsure, and a shade over half said they would not change positions on Putnam.

Here s where the poor wording comes into play.

If you look at the glass as half empty, you see financial advisers thinking they should dump Putnam funds as a result of the deal. Experts suggest that bailing out would be the wrong conclusion to jump to in light of Marsh & McLennan selling Putnam Investments to a subsidiary of Canada s Power Financial for $3.9 billion.

If you see the glass as half full, you see almost one third of advisers thinking that it s time to start buying Putnam funds again. Experts suggest that the deal should not push anyone to that conclusion either.

Clearly, however, the Putnam-Power pairing is a terrific deal for the Boston-based investment firm, even if it is a wait-and-see proposition for shareholders and would-be investors.

Unlike most of the rumored suitors for Putnam, Power does not have a big U.S. mutual fund company, meaning that it will not displace management or merge current funds or the entire firm into oblivion.

The downside of the deal might be that Power is not a name company, so that investors still dissatisfied with performance or with the hangover from the firm s involvement in the rapid-trading scandals of 2003-04 don t immediately come away confident in the new management.

Still, an investor who has ridden with Putnam this long particularly as its mutual funds performance has started to pick up again presumably would not find anything in the merger that would make them pull the rip cord.

For anyone left on the fence after the deal, the key issue may be if the perceived continuity is real or an illusion.

Putnam must continue to make strides with performance and retain its key managers once the merger is complete. If investors or financial advisers see those things happen, and if they can get over any ill will they might harbor from Putnam s past, they could find themselves getting to where that re-evaluation makes sense.

In midmonth, the National Association of Securities Dealers fined three fund companies a combined $700,000 for improperly plying brokers with pricey meals and special events, including posh parties at educational meetings.

Scudder Distributors, Putnam Retail Management, and AllianceBernstein will not be the only firms to settle charges like this in 2007.

For consumers investing through advisers, the action is a reminder that one question to add to the buying process is Have you received anything extra from the fund company whose funds you want me to buy?

Charles Jaffe is a senior columnist for Marketwatch

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