Amid companywide layoffs and speculation about a possible sale, Putnam Investments' chief executive officer says he is confident that the company can get bigger by getting smaller.
Ed Haldeman said in a recent interview the company hopes to gain assets by continuing to downsize in order to create a more "entrepreneurial" environment for money managers.
Putnam, a unit of Marsh & McLennan Cos., had nearly 5,000 employees and managed $209 billion of assets as of Oct. 31, down sharply from 5,700 employees and $263 billion at the end of last year.
Haldeman said he has reduced staff by 11% overall in the past 12 months, including the recent announcement that another 100 would be let go, the largest mass layoff since he became CEO last November.
"The experience over the past year has caused us to pay attention to make sure our expenses are in line with our revenue," Haldeman said. "We are taking a different approach to management, moving away from a highly centralized management structure to one that is flatter." He added: "We want to make Putnam feel more entrepreneurial. We want to empower and build."
Haldeman said there is no plan for another large layoff but that reductions by attrition will continue. So far, no one from Putnam's legal or compliance areas has been laid off, and only a handful of portfolio managers have been let go. Areas where the firm has made the greatest cuts have been in management and back-office support. In fact, only 26 of the 50 highest-paid employees at Putnam as of March 2003 remain with the company. "We have tried not to touch people who manage money or interact directly with clients," Haldeman added.
The staff reductions are part of a strategy to improve the company, he said. Marsh & McLennan announced earlier this month that it would lay off roughly 3,000 people. Haldeman said his 100 layoffs are a part of the 3,000 but that Putnam was not forced by its parent company to make the move.
"It was the decision of senior management that we could be a more effective organization and a more efficient investment management company with less people. We want to flatten this organization, to remove the hierarchy," he said. "We are finding that with fewer people, the effectiveness is improving. We found people were spending too much time in meetings and dealing with bureaucracy and policies. We want to take out the infrastructure and the layers and empower people."
Up for Sale?
Still, analysts continue to speculate that this downsizing is part of a Marsh & McLennan strategy to make Putnam more attractive for a potential sale. "Putnam is trying to groom itself for an acquisition," said Elizabeth Rowe, an analyst at Find/SVP, a New York consulting and employee search firm. "It is a new theme in the industry. There are a lot of U.S. companies that are cutting product lines and getting rid of employees in an effort to look better for a potential acquisition."
Michael Cherkasky, Marsh & McLennan's chief executive officer, said in the company's recent earnings call none of its major businesses is for sale. Putnam has suffered significant asset outflows since the Securities and Exchange Commission sued it for market timing last fall, prompting the ouster of Haldeman's predecessor, Lawrence J. Lasser. The company agreed to a settlement with the SEC last November and to an eventual federal penalty of $40 million. Now Putnam's giant insurance brokerage parent is being sued by New York Attorney General Eliot Spitzer for allegedly rigging insurance bids.
Marsh & McLennan said in its third-quarter earnings report that Putnam's revenue fell 16%, to $429 million, and operating income declined 60%, to $55 million, from the second-quarter levels. Putnam's assets under management have declined 23% since the third quarter of last year and 3.2% since June 30.
But the fund company has slowly been able to bring back investment customers and top investment managers. In September, it announced that it had been rehired by the California State Teachers' Retirement System and the California Public Employees' Retirement System. CalSTERS and CalPERS fired Putnam as a money manager after the allegations about improper trading came out last year. It had managed $1.2 billion of international and domestic equities for CalPERS and a $312 million large-cap growth account for CalSTERS.
Haldeman said he is confident the company will be able to attract and retain investment professionals who like to work in a flat organization. For example, he said, it rehired Mark Pollard, who left Putnam in 2000 to run the European equity investment team for Jura Capital in London.
"He came back, and he said the principal reason he returned was because, before, he could only spend a small amount of time doing investments, but now, in this structure, he is just managing money," Haldeman said. "He returned because this was the right environment now."
Haldeman said he is confident this new strategy will increase assets. "Our No. 1 objective is to produce investment performance that is superior over the long term," he said. "If we do that well, we will be able to produce growth in our retail and institutional businesses."
Matt Ackermann is a reporter for American Banker.