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Fund Times: Putnam and MFS May Be Seeking Buyers

Plus, news on Jensen, Hartford, Fidelity, Janus, and more.

Morningstar Analysts, 09/25/2006

The parents of Putnam Investments (Marsh & McLennan Cos. MMC) and MFS Investment Management (Sun Life Financial Services SLF) confirmed last week that they may sell the asset managers. The media have reported that numerous firms are exploring a deal, including Franklin, T. Rowe Price, Ameriprise (parent of the RiverSource funds), and Morgan Stanley.

Putnam and MFS fundholders could benefit from a sale, according to Laura Pavlenko Lutton, the lead Morningstar fund analyst for both firms. Both families have struggled to deliver strong returns from some of their largest, best-known offerings, including MFS Massachusetts Investors Growth Stock MIGFX and Putnam Voyager PVOYX. (Both offerings have trailed the large-growth category average for the one-, three-, and five-year periods.) An acquirer could merge these funds into stronger offerings--a move that also could result in lower fees, Lutton said.

Some of these potential combinations seem to have both positive and negative aspects to them. If MFS, for example, were merged with T. Rowe, the latter firm would finally gain some traction in the advisor world, something it has been seeking for a while, and the firm would nearly double its mutual fund assets under management, from $170 to $338 billion. Additionally, MFS' respectable international fund lineup would add to T. Rowe's offerings in that arena. However, problems could arise involving capacity constraints, particularly in the small- and mid-cap strategies the resulting firm would run.

Whatever combination ultimately results, the merger would follow a couple of other recent high-profile asset manager mergers, such as the Merrill Lynch/BlackRock and Citigroup/Legg Mason combinations. In the case of these two mergers, we think investors have on balance come out ahead, but combining two firms with potentially different cultures can be a tricky business, so we'll be watching closely as information comes out of the Putnam and MFS negotiations.

For now, however, Lutton advises fundholders to stay put until recent acquisition rumors are resolved. If deals are announced, investors can then weigh whether they'll personally benefit from the merger, or whether they'd be better off elsewhere.

Jensen's Hibler to Retire

Jensen Investment Management president Gary Hibler, who also is comanager of the Jensen Fund JENSX, will be stepping down from these duties Feb. 15, after 15 years at the firm. He will remain a director of the fund, which remains in good hands with its four other managers. Robert McIver will become president upon Hibler's departure.

Manager Changes at Hartford

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