CalPERS Fires Putnam Amid Fund Trading Scandal
The California Public Employees’ Retirement System board voted Monday to fire Putnam Investments as a manager of $1.2 billion of CalPERS assets, the latest blow to a company that was the first to be formally charged in the mutual fund scandal.
The defection adds to billions already pulled from Boston-based Putnam since it was implicated in the scandal involving illegal or improper trading of fund shares.
Sean Harrigan, CalPERS’ president, said the board determined that Putnam’s former senior managers breached their fiduciary duty to clients when they failed to act after in-house compliance officers first raised concerns about trading issues in Putnam funds.
The Securities and Exchange Commission last month charged Putnam with fraud in the unfolding industry scandal over short-term trading tactics by favored clients and industry insiders. Such trading can raise portfolio costs and hurt returns of long-term investors.
The company last week settled the SEC charges by agreeing to extensive oversight reforms and to pay a fine to be determined later. But CalPERS’ decision Monday shows that some investors may not be appeased by the SEC settlement.
CalPERS did not have money in Putnam mutual funds but rather in privately managed accounts. The total included $609 million in foreign stocks and $608 million in U.S. stocks.
The pension fund’s decision also reflected its concern that Putnam managers could be distracted from their jobs in the short term because of the company’s problems stemming from the scandal, said state Controller Steve Westly, who sits on the CalPERS board.
“They may need to recalibrate as a smaller company,” he said.
Putnam said Monday that its total assets under management fell by $7 billion last week, to $256 billion as of Friday. That followed a drop of $14 billion in the previous week.
State pension funds in Massachusetts, New York, Rhode Island and Iowa, among others, also have pulled money from Putnam in recent weeks.
The company remains under investigation by securities regulators in New York and Massachusetts, who last week criticized the SEC’s settlement with the firm.
CalPERS’ board voted to leave Putnam despite meeting Monday in San Diego with the firm’s new chief executive, Charles E. Haldeman, who took over after Lawrence J. Lasser was fired in the wake of the scandal revelations.
Shares of Putnam’s parent firm, Marsh & McLennan Cos., slipped 9 cents to $44.56 on the New York Stock Exchange, before CalPERS made its announcement.
Separately Monday, the Wall Street Journal said brokerage Bear Stearns Cos. fired four brokers and two assistants last week in a move related to mutual fund trading.
The Bear Stearns employees were suspended without pay on Oct. 24 and dismissed Wednesday, the report said.
Calls to Bear Stearns seeking comment were not immediately returned Monday.
