pensions and Putnam

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More Pensions Yank Billions from Putnam
Reuters
Friday, October 31, 2003; 10:54 PM
By Greg Frost

BOSTON (Reuters) - The parade of public pension funds pulling billions of
dollars from Putnam Investments grew longer on Friday as the fifth-biggest
U.S. mutual fund firm continued to hemorrhage business following
accusations of civil securities fraud.

Pension plans in Iowa, New York, Pennsylvania and Rhode Island said Friday
they had decided to fire Putnam, taking more than $2.6 billion of their
money away from the Boston-based firm.

The Massachusetts state employees' pension fund on Thursday became the
first high-profile client to give Putnam the boot in the scandal's wake,
when its board voted in an emergency meeting to remove $1.7 billion. The
Vermont teachers' pension fund pulled its money from Putnam on the same
day.

By late Thursday afternoon, Putnam said the U.S. Attorney in the Southern
District of New York had subpoenaed its trading documents, raising the
possibility of a criminal indictment.

By Friday, pension funds in Florida, Connecticut, Washington and elsewhere
said they were watching Putnam's situation and may follow Massachusetts'
lead.

The exodus of money from Putnam, a unit of insurance broker Marsh &
McLennan Cos., came mainly from the realm of public employee retirement
systems -- large pools of cash that fund the pensions of government
workers.

But some big corporations also may get in on the act.

General Motors Corp., the world's largest automaker, said Putnam is among
more then 70 external management firms it uses to manage assets for its
defined-benefit pension funds.

GM spokesman Jerry Dubrowski said the company's asset management arm is
aware of the accusations against Putnam and is monitoring developments.

Federal and state regulators this week accused Putnam and two of its
managers of civil securities fraud in a probe into improper mutual fund
share trading. The allegations centered on charges of market timing, which
involves rapid buying and selling of mutual fund shares with intent to
profit from stale prices. The practice, which raises trading costs and
dilutes returns for long-term investors, is not illegal. But it is banned
by many companies, including Putnam.

Since the complaints were filed on Oct. 28, Marsh & McLennan stock has
lost 10 percent of its value on the New York Stock Exchange.

PUTNAM 'DISAPPOINTED'

The accusations against Putnam sent a chill through Boston, a hub of the
$7 trillion mutual fund business, and through the previously squeaky clean
industry itself. For many of the 95 million Americans who invest in the
funds, the funds hold all of their retirement savings, often through
pension plans.

But Putnam's woes also came as a boon for money managers, several of whom
were already lining up like suitors to win new business with the firm's
ex-clients.

For many public pension systems, the very accusation of fraud against
Putnam proved to be too much in an age of increased awareness of
white-collar crime.

Putnam, which denies wrongdoing, said in a statement it was "disappointed"
by the plans' decisions to take their money elsewhere, and that it hoped
to be able to manage investments for them in the future.

The Pennsylvania Public School Employees' Retirement System, a $43.5
billion pension plan, cited the "current troubles" at Putnam as it
announced it was firing the firm as manager of about $1 billion in
international securities.

The New York State Teachers' Retirement System, which on Friday fired
Putnam as the manager of about $370 million, said it took the action "for
the obvious reasons and also because of performance issues."

But not everyone was acting swiftly.

A spokeswoman for the California Public Employees' Retirement System, the
biggest U.S. pension fund, said there was "significant concern" about the
accusations against Putnam. Calpers' chief investment officer was due to
visit Putnam next week, and the Calpers board was set to discuss its ties
to the company next month.

Mississippi's retirement system has $15 billion in assets, of which $550
million are invested with Putnam, and said it was not considering pulling
its money for now.

"We're just going to stay pat to see how this plays out. I'd hate to see
people running and pulling money out. It's a good firm. We should see
what's going on first," said Frank Ready, executive director of the Public
Employees' Retirement System of Mississippi.

"We're not contemplating taking action. We're interested in the topic, but
we're not in a frenzy over here."