Tue, Jul 31, 2001 page19

• Putnam aiming to turn pain into gain

  Boston's Putnam Investments has just appointed a new senior managing director. The question now is how well Steven Spiegel will fill the shoes of his predecessor in the US' depressed economy

  • By Beth Healy / NY TIMES NEWS SERVICE
  • • 
    • 
    • 

  There is a painting of a powdered jelly doughnut on the wall of a small private dining room at Putnam Investments. The work is said to be a favorite of Lawrence Lasser, the firm's chief executive. But this room is not about comfort food.

  "This is where Larry takes you to shoot you," Thomas Lucey, the firm's recently retired sales chief, once said during an interview in that room.

  

  Steven Spiegel, above, has been named senior managing director in charge of global distribution and alternative investments at Putnam Investments in Boston. He represents a shift in approach as the firm faces tough competition

  PHOTO: NY TIMESN

  Lucey was a rare breed at Putnam, able to joke about Lasser's often ruthless and domineering style -- and to survive it for 10 years.

  Now, as the Boston mutual fund firm wrestles with a merciless market and poor performance in its largest growth-stock funds, the question is how Lucey's successor, Steven Spiegel, will handle those sticky meetings in the doughnut room.

  Last month, Spiegel was named senior managing director in charge of global distribution and alternative investments.

  The change at the nation's fourth-largest fund group, a unit of the brokerage Marsh & McLennan Cos, was barely noticed on Wall Street. But it represents a distinct shift in personality and approach in the top ranks of Putnam, at a time when the firm and the industry are facing the toughest competitive pressures in a decade.

  To say that Lucey, 57, and Spiegel, 56, are different is an understatement.

  Spiegel has spent the last six years running Putnam's international businesses and new efforts, such as the firm's joint venture with shop Thomas H. Lee Co, the Boston buyout shop. He is a Boston native, educated at Babson College, who spent 27 years in the brokerage business, mostly at Lehman Brothers in New York. He has a low profile within Putnam and is known to keep his thoughts close to his chest. He is comfortable sipping tea with the business elite in Tokyo, where he has learned to negotiate with executives who rarely say what they mean.

  Lucey grew up in South Boston, the son of an MBTA auditor. A former military man who worked for IBM and the Boston Co. (an investment firm now owned by Mellon Financial Corp.), he is described as an open book, a manager who says what's on his mind. He is equally at ease sitting in a diner talking about funds with a broker as he is in a boardroom.

  People who know both men say Spiegel has one thing Lucey did not have at the end of his tenure: Lasser's full backing. That can only help him, these people say, as he strives to become more visible to the managers who report to him -- some of whom were hired by Lucey -- and as he speaks before groups of top brokers who come through Boston this summer to learn, in part, whether they should maintain their confidence in Putnam funds.

  And why shouldn't the brokers wonder what has happened at Putnam? A firm long considered conservative -- and known to stick like glue to the stated investment objectives of its funds -- Putnam nonetheless got caught up in the technology stock frenzy. Even after the market cratered, Spiegel said last week, "We stayed for too long with our tech weighting, and that hurt us."

  For investors, the pain keeps on coming. Nearly all of Putnam's growth-stock funds have declined by double digits in 2001 and are faring worse than their benchmark indexes and at least half of their peers. Voyager, the flagship fund, with US$30 billion in assets, is down 15.6 percent, nearly double the 8 percent loss this year at the Standard & Poor's 500 Index. The fund ranks in the top 37 percent of its peers, according to Lipper Inc, while such funds as OTC & Emerging Growth and Vista rank near the bottom of the mid-cap growth pack.

  A Morningstar Inc analyst, Kelli Stebel, said some funds grew so tech-heavy they were "too hot to handle." The OTC fund became as volatile as a pure Internet fund, Stebel said. "It's just shocking, quite frankly."

  Fabian's "Lemon List," a ranking released last week by Maverick Investing, a Huntington Beach, Calif.-based newsletter, put Putnam New Opportunities, Global Growth, OTC, and Voyager II on its list of the 10 worst funds for 401(k) investors to have owned for the recent one-year, three-year, and five-year periods. Others on the list include Fidelity, Vanguard, T.Rowe Price, and PBHG.

  This is hardly the Putnam of old, whose worst sin used to be failing to knock the lights out when rivals were doing so. It's one thing when smaller fund groups rise and plummet with the market, Stebel said. But at Putnam, with US$345 billion under its watch, she said, "It's hard to think that a fund shop that large, with so many resources, could have such extreme performance in a market downturn."

  Spiegel admits managers who were making bold bets and trouncing their peers in 1999 weren't questioned and brought back to earth. What they know now is that doing much too well can be as problematic, ultimately, as lagging the market.

  "In retrospect, they were bad judgments," Spiegel said. "Our risk control failed."

  When the company laid off 256 employees in April, including five mutual fund managers, fund analysts wondered whether the manager firings were related to performance.

  Charles Swanberg, comanager of Voyager, and Anthony Santosus, comanager of Vista, were both respected managers whose departures stunned the industry.

  Spiegel was not directly part of the decision at the time, and Lucey was reportedly the staunchest opponent of any layoffs. People familiar with the decision said performance was not specifically behind the firings, but that Lasser, the CEO, felt it was only fair for fund managers to be part of the cuts.

  The layoffs seemed to carry a particular sting, coming after a year that Lasser had described in January as "extraordinary."

  In a memo posted at the firm's One Post Office Square headquarters, Lasser thanked employees for their hard work, saying the "tough market and intense business climate inevitably resulted in long hours, missed family obligations, and, despite all the best intentions, the blurring of work and life."

  Morale can't have been helped by the fact that incentive pay was cut for employees as well as for brokers who sell Putnam funds as the market continued to sink in the first quarter of 2001. Putnam chopped its expenses by 20 percent in the quarter, according to its parent's latest 10Q filing, even as the investment group's revenue sank 19 percent.

  The firm was managing US$321 billion on March 31, a giant drop from US$422 billion a year earlier. The plunging market stole US$55 billion of that in the first three months of 2001 alone. The main hit came in the firm's growth funds, according to the filing. Assets in growth funds plunged to US$69 billion on March 31, from $166 billion a year earlier.

  The slump at Putnam has been felt in Marsh & McLennan's stock, which is down 15 percent this year, to US$99 last Wednesday.

  "It's a concern," said Cliff Gallant, an analyst with Keefe, Bruyette & Woods in New York. "The stock is moving in tandem with the [NASDAQ] market, and I think it's all because of Putnam."

  Gallant is convinced that Putnam is addressing its problems.

  People inside and outside Putnam, including former employees, say it's a place where mistakes and underperformance aren't tolerated for long. Managers who are underperforming their benchmarks are put through a so-called "4-P" system (examining people, process, philosophy, performance) during which they sit down with investment chief Tim Ferguson.

  Said one former Putnam fund manager, "I think these guys will tackle these problems very quickly, very actively -- and quicker than others would."

  Spiegel said Putnam is spending a good deal of time with brokers, assuring them that the ups and downs of the tech era are in the past.

  That role falls chiefly to Rich Monaghan, a former Merrill Lynch executive whom Lucey hired to oversee sales and relationships with brokers.

  Spiegel, meanwhile, is overseeing a so-called "global integration" as Putnam reviews the way it sells funds around the world. The goal is to see where there are overlaps, Spiegel said. It's possible, he said, that the review could lead to further job cuts by September.
• Most Popular

  • 1

    Can Taiwan keep the talent it invites?

  • 2

    Wickets tumble on first day of first Ashes Test

  • 3

    Taiwan expresses regret after CPTPP does not address its accession

  • 4

    PLA could attack with little warning: US

  • 5

    Taiwan and Japan have ties that run deep, premier says