Contributed by: Jaclyn Jackson
During the first quarter of 2015, I had the pleasure of attending Putnam Investment’s Research Analyst Meeting. Even though a giant snowstorm hit the area just days before, positive energy seemed to be bursting at the seams in Boston. Admittedly, the Patriots had just won the Super Bowl and the victory parade was the day before the conference started, but the positive feeling at Putnam Investments came from something else. It came from a proud shift in company culture that helped propel the firm back into its rightful spot in the winner’s circle of investment companies.
Putnam’s Fall & Rise
Having had their reputation shattered in 2003 after Securities and Exchange Commission market timing and late trading investigation, Putnam’s net asset level plummeted dramatically through 2008. Fighting to stop the bleeding, Putnam decided to completely revamp. On the first day of the conference, I had a chance to listen to R. Jeffrey Orr (President and CEO of Power Financial Corporation) and Robert Reynolds (President and CEO of Putnam) discuss how they turned the company’s culture on its head. I remember R. Jeffrey Orr saying that when he first came to Putnam, there was a “playing not to lose” attitude and his goal became to shift that to a “playing to win” attitude.
The Changing Culture at Putnam
I was most impressed by the analysts’ panel. In line with the changes Orr and Reynolds set out to accomplish, the analysts talked about how Putnam’s research culture evolved to become more entrepreneurial and team based. These fundamental changes have improved fund performance and subsequently brought Putnam back to life. Many factors helped make that change happen, but here are what I see as the top four reasons Putnam is back in the winner’s circle:
- Shared Research: In the old company culture, credit analysts and equity analysts never crossed the aisle to work with each other. Now, it is common for credit and equity analysts to combine research (as credit research often captures a perspective that differs from equity research performed on the same company and vice versa) to make better assessments of a company.
- Personal Accountability: Each analyst constructs his/her own individual portfolio and is rewarded based on how well his/her portfolio performs. In this way, analysts are acknowledged for all the good calls they make and not just the calls they make that the portfolio manager adapts to the fund portfolio. This encourages good ideas, individual thinking, high conviction, and entrepreneurship.
- Different Compensation Structure: Putnam’s compensation structure differs from other companies in that, typically, analysts fight over a lump sum amount intended to be split among them. The traditional structure often pits researchers against each other; even if more than one person has a good year, only the best researcher is compensated. Putnam’s structure allows everyone to be compensated for the choices they make in their individual portfolios; essentially, everyone can be rewarded when they make positive attributions. Culturally, the compensation structure helps thought sharing and helps build comradery (provided analysts are no longer motivated to hoard good ideas).
- Efficient Communication: Communication has improved between portfolio managers, analysts, and traders. To start, everyone is centrally located - meaning you can physically see when someone is at their desk and consult with them as needed. This informal meeting style has helped Putnam eradicate the long, formal meetings they once had. Check-ins are shorter, but more frequent and have generated more time for everyone to fulfill their job responsibilities.
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