It was an interesting question, worded poorly.
“Will Putnam Investments’ sale to a unit of Power Financial Corp. prompt you to re-evaluate whether to recommend Putnam’s mutual funds to clients?”
Investment News, which covers the securities world for financial advisers, asked the question in a poll on its website. The answer was telling for consumers in several ways.
Thirty percent of the respondents said they would re-evaluate Putnam’s funds. Just under 20 percent of the respondents said they were unsure, while a shade over half of the advisers said they would not change positions on Putnam.
Here’s where the poor wording comes into play.
If you look at the glass as half empty, you see financial advisers thinking they should dump Putnam funds as a result of the deal. Experts suggest that bailing out would be the wrong conclusion to jump to in light of Marsh & McLennan selling Putnam Investments to a subsidiary of Canada-based Power for $3.9 billion.
If you see the glass as half full, you see almost one-third of advisers thinking that it’s time to start buying Putnam funds again. Experts suggest that the deal should not push anyone to that conclusion either.
But clearly, the Putnam-Power pairing is a terrific deal for the Boston investment firm, even if it is a wait-and-see proposition for shareholders and would-be investors.
To see why that is, consider the basics of the deal.
Unlike most of the rumored suitors for Putnam, Power does not have a big U.S. mutual fund company, meaning that it will not displace management or merge current funds or the entire firm into oblivion.
Putnam will survive the deal relatively intact.
“There are no integration and no overlap problems, and a lot of people are seeing that we have had a pretty significant turnaround in investment performance,” says Gordon Forrester, managing director and head of marketing at Putnam. “The feedback we’re getting from financial advisers is that they are very comfortable with what’s going on and with Power as the new parent company, so now that the uncertainty is over they might want to reconsider our funds.”
The downside of the deal might be that Power is not a “name” company, so that investors still dissatisfied with performance or with the hangover from the firm’s involvement in the rapid-trading scandals of 2003- 04 don’t immediately come away confident in the new management.
Still, an investor with Putnam this long presumably would not find anything in the merger that would make them pull the rip cord.
“It’s certainly no reason to sell if you’ve been hanging in there with Putnam, but it’s also no reason to buy their funds if you weren’t investing with them before,” says Reg Laing, who covers Putnam’s equity funds for research firm Morningstar. “Knowing who the buyer is brings in some stability and dispels some uncertainty, but a change of corporate parent is no guarantee that things will improve and no sign that things will get worse.”
For anyone left on the fence after the deal – and I tend to agree with Forrester’s assessment that the Investment News survey was really about advisers starting to include Putnam in their plans again – the key issue may be whether the perceived continuity is real or an illusion.
Putnam must continue to make strides with performance, and retain its key managers once the merger is complete. If investors – or financial advisers – see those things happen, they could find themselves getting to where that re-evaluation makes sense.
Says Forrester: “We need to keep moving in the right direction, but if we can keep things moving, we will have a positive story to tell.”
Chuck Jaffe is senior columnist for MarketWatch. He can be reached at jaffe@marketwatch.com or at Box 70, Cohasset, MA 02025-0070.
