Putnam Woes Continue
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Tuesday, April 23, 2002

Putnam Woes Continue

At the height of the dotcom bubble two years ago, Putnam CEO Larry Lasser told industry officials gathered at the annual ICI General Membership meeting why Putnam was not planning to add Internet funds. Yet, his caution does not mean that Putnam managed to avoid the crackup of the market for growth funds altogether.

Today, the fourth largest fund firm said revenues fall by more than $100 million during the quarter compared to a year ago. Lasser must be even more troubled by the accompanying 19 percent drop in the firm's bottom line.

Putnam reported that investment management revenue in the first quarter fell 14 percent to $590 million from $694 million in the first quarter of 2001. Profit at the firm fell even more than revenues. The firm's net dipped 19 percent to $175 million from $215 million a year ago.

The decline paralleled a dip in average assets under management from $352 billion in the first quarter from $310 billion a year prior. The firm said that retail investors were net redeemers and institutions net purchasers of shares. Assets in retail funds fell 6.1 percent from a year ago while those in institutional funds grew 7.8 percent, according to the firm.

Nearly all of the decline in Putnam's revenue base, and therefore in its revenues, can be traced to the collapse in growth funds. Putnam reported that fund assets in this objective fell nearly 25 percent to $52 billion from $69 billion a year ago. Value equity assets at the firm also declined by 1.2 percent.

Yet the assets in every other objective managed by the firm have grown during the past twelve months.

Like other fund firms, Putnam took steps during the quarter to cut costs. Those steps included the announced closing of 11 of its funds. The firm terminated some investment professionals as a part of the fund closings. It has also lost employees as the momentum at the firm has shifted.

The test for Putnam will be whether it is able to ride the storm out without losing too much muscle in comparison to competitors such as Fidelity and Vanguard. Both of those firms have avoided deep cuts so far during this industry recession.

The second question for Putnam, and Lasser, will be how long Marsh & McClennan stays patient with the firm's performance now that insurance is performing better than investments. During the bull market there were reports that Putnam executives chafed under the stodgy watch of Marsh and that Marsh officials were skeptical of the high compensation structure at Putnam.

Now the tables are turned.

Putnam Investments Assets
Mar-02 Mar-01
Mutual Funds:
Core Equity $62 $59
Value Equity 54 55
Growth Equity 52 69
Fixed Income 49 48
Total Mutal Funds 217 231
Institutional Accounts:
Core Equity 46 42
Value Equity 7 6
Growth Equity 26 26
Fixed Income 18 16
Total Institutional 97 90
Total Ending Assets (March 31) $314 $321
Average Assets $310 $352
Assets from Non-US Investors $30 $27
Source: Marsh & McLennan Companies, Inc.

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