PA, RI, VT, IA, NY Pensions Fire Putnam

October 31, 2003 ( - Following Massachusetts' lead, Rhode Island, Vermont, Pennsylvania, New York Teachers and Iowa pension funds have terminated their investment management relationships with Putnam Investments.

All five funds said essentially the same thing in announcing their decision, that there was no longer any confidence in the investment company and recommendations were made to terminate business relationships with Putnam.   In total, the four states account for roughly $2.5 billion in funds under management for Putnam, according to news stories.

Rhode Island State General Treasurer Paul Tavares recommended to the pension fund board that manages retirement funds for state workers that the $651 million previously under management by shifted to an index fund managed by the State Street Global Advisers while they search for a new manager.   “I’m sad to say that Putnam has struck out,” Tavares said in an Associated Press report.

In addition, the Vermont State Teachers’ Retirement System (VSTRS) closed its$91 million account with Putnam Investments.   The board of $1.2 billion VSTRS said the decision was made after federal investigators announced they were taking civil actions against the Boston-based mutual fund company.

The New York State Teachers’ Retirement System joined the chorus late Thursday.   “We did it for the obvious reasons and also because of performance issues,” said Robert DeLuca, a spokesman for the retirement system, for which Putnam managed a $395 million international equity fund, about 0.5% of the $73.4 billion fund, according to Dow Jones.   The 10-member board voted unanimously to terminate the relationship, which began with Putnam’s November 2000 hire.   Barclays Global Investors will take over management of the international equity fund for the New York State Teachers Retirement system.

Two More

The teacher’s pension fund in Pennsylvania cited the same “current troubles” at Putnam, when it announced its intentions of terminating its relationship with Putnam, who was managing $1 billion.  Jeffrey Clay, interim executive director of the $43.5 billion Pennsylvania Public School Employees’ Retirement System (PSERS), said in a statement.

Rather, the $1 billion in international securities managed by Putnam will be moved into an international index fund currently managed by PSERS internal investment staff, Dow Jones reports.

Across the fruited plain, the Iowa Public Employee Retirement System (IPERS) decided to end its three year relationship with the investment management company. “As a trustee and fiduciary, I have to protect Iowa’s funds,” said Iowa Treasurer Michael Fitzgerald, according to a Dow Jones report.

Putnam is currently responsible for the management of the state pension fund’s European active-equity account, which represented 3.7% of the overall value of the pension fund.   The pension fund notified Putnam Thursday that the management of the account is terminated effective November 30; yet trading in the account is prohibited without written approval from IPERS as of today.

Starting It All

The latest moves by the four pension funds come after the first punch was thrown by 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 ).

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.

Elsewhere, the Washington State Investment Boardis planning on meeting with Putnam today, the same course of actionCalifornia pension officials are planning for next week.   Following today’s meeting, Washington state officials said Putnam would be placed on a “watch list” as the state determines what course of action to take with the $ 556 million international equity allocation Putnam currently oversees, according to a Dow Jones report.

Connecticut and Florida have also placed the company on its “watch list.”   Joining the states in that course of action was N ew York City , which said plans could be in the works to shift $725 million in pension fund investments currently managed by Putnam to other investment managers, a spokeswoman for city controller William Thomson told the New York Daily News.