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California

Massachusetts Fund Could Fire Putnam

The state treasurer is worried about ethical issues at the mutual fund company accused of civil securities fraud.

October 30, 2003|From Reuters

Massachusetts Treasurer Tim Cahill urged the state's pension fund Wednesday to fire Putnam Investments, becoming the first investor to publicly turn his back on the fifth-largest U.S. mutual fund company one day after it was accused of civil securities fraud.

Cahill, who is the chairman of a nine-member board that oversees the fund, will recommend today that the trustees vote to take away Putnam's mandate, his spokeswoman, Karen Sharma, said. Putnam manages $1.7 billion in international and domestic equities for the $29-billion state fund.

Sharma said Cahill is worried especially about ethical issues at Putnam. The company, which last week denied any wrongdoing, did not return calls seeking comment.

Other state funds, including one in nearby Connecticut, also are considering firing Putnam.

Pressure has been building among the Massachusetts pension fund trustees to oust Putnam since Tuesday, when state and federal regulators filed charges against Putnam and two of its managers for allowing some clients to earn millions of dollars from so-called market timing, a practice Putnam publicly prohibits.

Sharma also said the fund's chief investment officer and his staff would push to throw Putnam out only a few weeks after they voiced concern about the company's performance and high rate of manager turnover.

For the Boston-based company, Cahill's move may suggest that a trickle of investor defections could turn into a flood. Connecticut Treasurer Denise Nappier said her state's $18-billion pension fund put Putnam on a watch list, the first step funds take before firing a manager.

The California Public Employees' Retirement System, the biggest U.S. pension fund, will decide next month whether it will fire Putnam or just keep the company on its watch list, a CalPERS spokesman said.

In addition to managing pension fund money, Putnam also manages $56 billion for the about 2,235 401(k) retirement plans it administers, and industry analysts expect these plans also are mulling over what to do.

"Until now, we were telling clients that there was as much reason to stay with Putnam as there was to go," said Robert McCarthy, president of consulting firm Kanon Bloch Carre in Boston. "But in light of the [accusations] I would say more people are just getting out."

But firing Putnam could be a double-edged sword, industry observers said. The losses that market timers inflicted on other Putnam investors are small, the costs of switching plans are big, and there may be few good alternatives, they said.

"Everyone is outraged about the sweetheart deals Putnam cut some clients, but in truth the losses amount to no more than the cost of a latte at a local coffee shop," said Rick Meigs, president of 401khelpcenter.com, an educational Web site.

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