Will Improper Trading Allegations Against Putnam Investments Shake Member Confidence in Mutual Funds?
BOSTON - What started out as charges of improper trading against Putnam Investments by regulators, quickly spiraled to at least a dozen states pulling billions of dollars in pension funds from the embattled firm to the chief executive stepping down as the scrutiny mounted. In the wake of it all, it remains to be seen what long-term effects the fallout will have on the many CUSOs that have money invested in Putnam mutual funds but some agree that any decision made now must be devoid of hysteria. CUNA Mutual Group is suggesting that CUSOs and other credit union organizations make "appropriate investment decisions which are not based merely on an emotional environment, which news of this nature can create," said Phil Tschudy, CUNA Mutual Group Media Relations Manager. "While clearly significant, this situation does not shake the basic fundamentals of investing or of investing in mutual funds." On Oct. 28, federal and state regulators filed civil fraud complaints against Putnam and two former portfolio managers for market timing trades, which are not illegal but generally hurt investors because the trades are often designed to buy funds ahead of markups in the values of holdings and then sold quickly after the fund's price increases. Days later, public pension funds in Massachusetts, New York, Vermont, Pennsylvania, Rhode Island and Iowa pulled more than $4 billion from Putnam. Putnam is the nation's fifth largest mutual fund company with $272 billion in assets under management, according to company data. On Nov. 2, Lawrence Lasser resigned as chief executive of Putnam in the wake of civil fraud allegations against the company. Credit Union Times contacted a number of CUSOs but most were reluctant to talk or did not return messages. CAP COM Financial Services LLC, the CUSO of Albany, N.Y.-based Capital Communications Federal Credit Union was named to the Putnam's Golden Scale Council in May. The Council consists of investment professionals who have met certain professional standards in serving investors during the previous year. Of the $120 million invested for members, a portion are Putnam mutual funds, said John Shartrand, chief investment officer, CCFCU who would not disclose exactly how much is invested "In general, our allegiance is to the members," Shartrand said. "We have received a few calls from members but for most, no changes are needed. At least three (members) needed a bit more diversification anyway." Shartrand said it is unfortunate that a "few rogue reps" have tarnished Putnam's reputation. Generally speaking, any advisor worth his or her salt, would review an investor's situation and then react, he added. "In a perfect world, two or three (mutual fund) companies allow for different perspectives," Shartrand said. "Mutual funds are doing a great job now and if there's any lesson here it would be to have a well diversified portfolio and be sure your assets are allocated appropriately." CUNA Mutual is encouraged that "Putnam has assured the investing public that the portfolio managers involved in the alleged activities are no longer involved in the management of customer funds," Tschudy said. To Putnam's credit, the company has provided SEC and the Commonwealth of Massachusetts "with thousands of pages of documents and access to our people, toward resolving these issues in an appropriate and expeditious manner," according to a statement on its Web site. Further, Putnam "monitors almost 2,000 retirement plans with over 1.8 million plan participants for potential market timing activity. Among our retirement plans, a small number of plan sponsors and plan participants resisted our efforts to stop their activity," the statement read. Starting Dec. 1, Putnam said it "will initiate a short-term redemption fee across all global and international funds in our retirement business." -