NYC Funds Sever Putnam Relationship

Three New York City pension funds – New York City Employees Retirement System (NYCERS), the police pension fund and the Teachers’ Retirement System – have decided to stop using Putnam as a fund manager, the city’s comptroller, William Thompson Jr, announced , according to a New York Times report.    In all, Putnam managed $725 million in non-United States equity portfolios for the trio of pension funds.

“After careful consideration and discussion, the boards of trustees of NYCERS , Police and Teachers have concluded that the alleged actions of Putnam Investments are inconsistent with the prudent management of their assets,” Thompson said.

The move by the Big Apple comes after last week’s downpour of public pension relationships dropping Putnam as an investment manager.   Leading the charge was the $29-billion Massachusetts state pension fund after the nation’s fifth-largest mutual fund company was accused of fraud by Massachusetts Secretary of State William Galvin and the Securities and Exchange Commission (SEC) for failing to stop two former money managers from trading shares of funds they managed to generate quick profits for themselves at the expense of their customers (See Putnam Call-Center Rep Says Market-Timing Warnings Were Ignored ).   However, on the Bay State’s heals was a quintet of other state funds that included $370 million withdrawn by the New York State Teachers’ Retirement System (See  PA, RI, VT, IA, NY Pensions Fire Putnam ).

The charges say Putnam failed to stop two former managers – Omid Kamshad and Justin Scott – from trading shares of funds they ran and of allowing members of a New York boilermakers’ union to make market timing trades (See Market Timing Leads to “Late” Departure of Putnam Fund Managers ).  While the practice of quick-paced buying and selling of mutual fund shares is not illegal per se, it is prohibited by many companies, including Putnam, because it drives up trading costs and waters down returns for long-term investors.

Ultimately, the scandal cost Putnam’s Chief Executive Officer Lawrence Lasser his job after Marsh & McLennan Cos., the parent company of Putnam, announced replacement plans for Lasser on Monday (See  Trading Probes Muscle Out Strong, Putnam Chiefs ).