A Second Chance for Putnam Investments

Robert Reynolds's new office at Putnam Investments is less than a mile from his old digs at Fidelity HQ-too far to hit with a slingshot, even for an ex-football player like Reynolds. No matter, the CEO hopes to hit the crosstown rival where it counts: right in the assets.

Of course, the attention of his former colleagues would be a bonus, a by-product of Reynolds's first priority, rebuilding Putnam. When he took over the battered fund company a little more than a year ago, a legacy of poor performance and the unshakable ghost of a 2003 trading scandal had hobbled the firm; at $166 billion, assets had shrunk to less than half their tech-bubble peak, and that was before the market crash took another 38 percent from the coffers. The firm had also just been sold; its onetime parent, insurer Marsh & McLennan cut its losses and sold Putnam to Canada's Power Financial in the summer of 2007.

To right the sinking ship, Reynolds has acted swiftly, replacing portfolio managers, adding performance fees to funds and retooling the bonus structure for the stock pickers who manage them. He's closed underperforming funds and launched new ones, including a series of Absolute Return funds, which attracted both fans and critics for their promise of steady returns in markets good and bad. Perhaps most important, in Reynolds's short tenure Putnam's funds are doing better, up 11 percent this year, far better than the average fund firm's 8.1 percent return.

But it's still too soon to give Reynolds a gold star, says Jonathan Rahbar, who covers the fund family for Morningstar. "The funds have only been doing well for a relatively short time. We'd still approach them with caution," he says. And while Reynolds's Fidelity pedigree is impressive-he was the No. 2 at the $1.3 trillion behemoth and left voluntarily-that shop has been challenged by inconsistent stock picking, an area in which Putnam dramatically needs improvement as well. We traveled to Boston to ask Reynolds how he'll fix Putnam, how he'd reform retirement plans and if he's glad he didn't get the nod to become NFL commissioner.

You came here to revive Putnam. What were the problems?

Putnam's problems were a combination of leadership and having the right people. I thought it was all very fixable. It had a 75-year history, and it still had a very good brand position. And quite frankly, situations that really need change are easier to change than companies that think they're doing very well.

One of the challenges, obviously, is closing the door on the 2003 market-timing scandals, when some fund managers allowed illegal trading.

That's an excuse now, not a reality. Other firms had the same issue, and they got out of it through performance. Putnam's problem was that the performance never came back.

You've said you're pleased with the fixed-income teams, less so with the stock picking. How will you improve equity research?

You make a commitment that it's the most important part of the investment process. Prior to the changes we made last fall, Putnam gave equal importance to quantitative [computer-driven] research. That's not the case anymore.