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Putnam's Manager Turnover Raises Concerns

Manager instability in its foreign funds is an alarming trend.

Gregg Wolper, 04/10/2006

Maybe it's something in the Boston air.

In January, we expressed our concern over the frequency of manager changes during the past couple of years at Fidelity's international funds. Fidelity has company--and it's right in the same town. During the same period, another Boston fund giant, Putnam, has also been dealing with a series of defections from its international teams--a trend that shows no signs of slowing down.

The latest turn of Putnam's revolving door came in mid-March, when the firm announced that two of the three managers of Putnam Europe Equity PEUGX, Heather Arnold and Mark Pollard, would soon be leaving the firm. That news may not seem earth-shattering: After all, Europe Equity, with about $540 million in assets, is not exactly an industry heavyweight, and it has just an average record under those managers. Yet the announcement merits attention. Not only do the circumstances of these departures raise an eyebrow, but they follow a long line of manager changes on Putnam's international funds. In fact, the firm announced yet another departure--Christopher Crawford, a member of the team running International Capital Opportunities PNVAX--the same day it revealed that Arnold and Pollard were headed out the door.

Changes of management can sometimes improve a fund. But we get concerned when we see a seemingly endless series of departures and additions at a broad array of a firm's funds. A string of manager changes is particularly worrisome when it comes at a firm that is trying to reorganize and rebuild itself, as Putnam is after being damaged by the mutual fund trading scandals. Moreover, the international side isn't the only part of Putnam's fund organization that's in flux. Many of Putnam domestic-stock funds have also had changes of management in the past couple of years. What's more, several key higher-level investment personnel have also left the firm.

The Europe Background

Putnam's international-fund operation suffered directly from the mutual fund scandal when Omid Kamshad was dismissed in autumn 2003 for his alleged involvement in inappropriate trading. Kamshad was not only the lead manager for Putnam International Equity POVSX and Europe Equity, but he also served as the overseer of all Putnam's international funds. Putnam chose to abolish the latter position rather than name a replacement.

A closer look reveals that the management of the Europe fund has been unsettled for years now. It lost one comanager in 2002, and another (in addition to Kamshad) the following year. After Kamshad was shown the door, Heather Arnold, who had been brought in from the outside in September 2003, took over as lead manager. Then, about a year after that, Putnam brought in Pollard, who had worked at Putnam for a decade prior to leaving in 2000.

Upon his arrival, Pollard was named the head of the European equity-analyst group based in London--a key position, for that team not only provides research for the Europe fund but for Putnam's other international funds as well. Reflecting that importance, Pollard was also named a comanager on the firm's broadly focused foreign flagship, International Equity. After a brief period of confusion, it was decided that Arnold would remain the day-to-day lead manager of the Europe fund, with Pollard focusing more on directing the research group, which consists of about 10 analysts.

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