Boston Capital

At last, Putnam has something to crow about

Mutual fund managers can’t sell beans without a good performance record — numbers that are updated every day and measured to a tenth of a percentage point.

This is worth mentioning today because a pretty accurate annual performance report for the fund industry just came out, and it tells you something about what’s going on in one of Boston’s most important businesses. The numbers that really jump out at me come from Putnam Investments.

Putnam finished second among 64 fund families in a competition run jointly by Barron’s and Lipper Inc., measuring investment performance for 2013. More importantly, Putnam also finished second in rankings of performance over the past five years. Financial advisers don’t recommend funds based on one-year returns, but they put a lot of stock in longer-term performance, especially over five years.


Putnam’s familiar business back story resembles a Greek tragedy — a high-flying investment superstar of the 1990s crushed a little over a decade ago by terrible performance and a scandal involving personal trading by two fund managers. As recoveries go, Putnam has been a work in progress for a long time. About 1,800 people work there today, and many more have an interest in the company’s revival.

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So chief executive Bob Reynolds doesn’t pass up a chance to crow about his company’s investment performance of the last half decade. Reynolds, who joined Putnam in 2008, installed many of the people running money there today. A lot of them, including chief investment officer Walter Donovan, were — like Reynolds himself — former Fidelity Investments executives.

But Putnam’s business performance over those five years has been another story.

The company generated a core business loss of about $120 million for its Canadian parent firm, Great-West Lifeco Inc., over the last five years (measuring through Sept. 30 of last year). Over those five years, Putnam recorded an additional $125 million in financing charges related to Great-West Lifeco’s purchase of the company in 2007.

Meanwhile, money managed by Putnam in mutual funds and institutional accounts increased from $137 billion to $141 billion during those five years, as of last September. That amounted to a gain of just 3 percent at the same time the stock market was climbing by about 44 percent.


Putnam’s $195 million in fee income generated during the third quarter of last year was actually less than the amount recorded during the same period of 2008.

I asked Reynolds recently about the good investment numbers and the business losses. He said he went to work at Putnam believing it would take five to 10 years to fix the company. He pointed to big money that had been sunk into the business — an investment for a future that he believes is gaining momentum now.

Reynolds said Putnam had to repair its investment track record first, and then the business would take care of itself. If you build it, they will come, he likes to say.

In fact, assets managed by Putnam are growing. The company’s mutual fund net sales — accounting for new business coming in and old money going out — amounted to $3.7 billion last year, according to Morningstar Inc. It was the first time since 2000 that Putnam produced a positive net sales figure for an entire year.

You don’t have to leave Boston to find another investment business that turned its fortunes around by following the basic strategy employed now by Putnam. MFS Investment Management has been there and done that.


Like Putnam, MFS was a hot mutual fund company known for its growth-stock funds in the 1990s. It also fell hard, after plunging performance and the whiff of a scandal — neither of which was quite so dramatic as the Putnam experience.

MFS also fixed its performance quickly and is now a booming turnaround success. It ranks 10th on that Barron’s/Lipper list for five-year performance.

But MFS places second in the industry over 10 years, based on those rankings. And that long-term record really does translate into business success. MFS brought in net mutual fund sales of $18 billion last year, better than all but three of the 50 largest mutual fund management companies, according to Morningstar.

Putnam still has a long way to go to be called a real turnaround story, and continued improvement in its investment business depends on cooperative markets. But it’s making progress on the most important part of a comeback plan: doing well for customers.

Steven Syre is a Globe columnist. He can be reached at