Putnam Investments last Tuesday announced a host of initiatives to improve fund transparency and lower costs - which some reports estimate will reduce fees by some $35 million.
The moves were voluntary and not a part of the firm's settlement with the SEC, Gordon Forrester, director of marketing for Putnam's retail funds operations, told MME.
Putnam said it will limit the expense ratios on all of its funds to an amount lower than the average industry ratio in its Lipper peer group. While 95% of its assets already meet this goal, Forrester said, between 11 and 14 fund fees will go lower.
Additionally, Putnam is reducing the front-end sales charges on all A shares, a cut that will apply to equity fund purchases below $500,000 and fixed-income buys of $250,000 or less.
"Putnam is determined to earn back the trust and confidence of the marketplace," said Ed Haldeman, Putnam's CEO, in a statement. Net outflows had been a major problem for the firm, as nearly 12% of Putnam's assets evaporated in November, the month Putnam's deviation hit the news pages.
Six of Putnam's international and global funds involved in improper activity will have their expense ratios capped at Sept. 30, 2003 levels. This is so as not to penalize long-term investors for the misdeeds of Putnam's managers. As for increasing the transparency in the funds, Putnam will disclose the total value of Putnam employee and trustee holdings in all of its funds on both its Web site and in all fund prospectuses. Holdings will be presented in a consolidated manner, as opposed to revealing each manager's individual holdings, Forrester said.
Managers' incentive compensation will also be disclosed in prospectuses in an attempt to bring rewards in line with goals of long-term consistent, dependable performance. Putnam's shareholder reports will also include an actual expense amount paid by shareholders for each fiscal period, shown for a hypothetical $1,000 investment. Brokerage commissions for the trailing 12 months will be disclosed in prospectuses as a percentage of a fund's assets.
"Their hope is to shore up the declines in their asset base," said Lipper research analyst Martin Vostry. Vostry doesn't see a number of the initiatives affecting the firms profits, except for a downward push from lower front-end sales charges on all A Shares. He said that for equity funds, based on gross sales they had on A shares in the latest fiscal period, "If you took away 50 basis points from the equation, it would cost them $100 million."
However, it is still too early to tell what the financial impact will be, since the firm is trying to turn the tide of outflows and keep investors in their shop, Vostry said.
"It all depends on whether this has the effects that Putnam wants. In the long run, they have to do something," he said. "These are steps in the right direction. Are these permanent changes? Are they temporary? How is that going to work? Are they going to rebalance their expense ratio per year? A lot depends on how this is put into place."
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