by Bradley Parsons
Staff Writer
The City fired Putnam Investments Tuesday from its management of two pension funds worth $190 million. The City’s finance director said the decision was made after learning that Massachusetts securities regulators are investigating the Boston–based company’s top legal officer.
Cal Ray said the City’s Finance Department decided to dismiss Putnam following an emergency meeting called Tuesday to discuss new allegations printed in Friday’s Wall Street Journal. Ray said there was no evidence the mutual fund giant did anything improper with City money.
“We have no quibble with them, their funds have performed very well over time,” said Ray. “However, with these new questions, we decided in our role as fiduciary manager of the pension fund that it was imperative we act quickly to move our assets away from Putnam.”
Ray said the severity of the charges against Putnam was in question.
“We still don’t know whether anyone’s been indicted; we don’t know whether or not what they did was illegal,” he said.
Ray said the funds, one domestic, one international, would be moved “within three to five days,” into index funds. The City’s search for a new manager could take a “couple of months,” he said.
The Journal reported that the company’s general counsel,William H. Woolverton, was under investigation for short-term trading of mutual funds in his personal account. The allegations are similar to those made by federal regulators in filing civil fraud charges against four fund managers.
Those charges said that Putnam allowed the managers to take advantage of international time differences to rapidly trade in and out of mutual funds. So–called “market timing” is not illegal, but many mutual funds bar the practice because it hurts long–term performance. Putnam dismissed the managers.
In its management last year of the City’s larger international fund, Putnam oversaw the trading of more than 11 million shares, paying about $500,000 in commissions to a variety of brokers. International funds are particularly susceptible to the rapid trades because trading in U.S. markets continues for hours after their foreign counterparts close.
Ray said the City “tentatively decided” to keep Putnam last week after representatives answered pension board questions relating to the original charges. However, the new allegations necessitated a change, he said.
The City’s decision follows a national trend. Shortly after the original charges became public, Massachusetts pulled about $1.8 billion from Putnam–managed pension accounts. According to Putnam, its investors withdrew about $7 billion from the company’s management in the week following the initial charges.
In a full–page ad taken out in last Friday’s Wall Street Journal — the same issue that alerted the City’s finance department — Putnam said it will “lead the mutual fund industry in reform.”
“Putnam Investments is actively addressing the issue of market timing,” read the ad attributed to new President and Chief Executive Officer Charles E. Haldeman. “We will implement any changes that may be appropriate to improve controls on market timing in all areas of our business and help ensure adherence to the highest possible level of fiduciary standards.”