MutualFundWire.com: The Desmarais Put Their Mark on Putnam with Reynolds Hire

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Thursday, June 12, 2008

The Desmarais Put Their Mark on Putnam with Reynolds Hire

The next generation in Canada's Desmarais family put their thumb prints on Putnam Investments Thursday morning by hiring ex-Fidelity honcho Bob Reynolds. What that means for both Power Financial and Putnam Investments may become more clear in the coming months.

Last month Andre Desmarais and Paul Desmarais, Jr. stepped up as co-chairs of Power Financial, replacing Robert Gratton who had led the company since being appointed CEO in 1990. Gratton had succeeded the Desmarais brothers' father, Paul Desmarais, Sr., who continues to control Power Corporation of Canada, which is Power Financial's parent.

Power Financial also controls Great-West Lifeco and the brothers have closely overseen the insurer's strategy in the United States, say industry sources.

For Reynolds, working for the Desmarais brothers may make him feel right at home. At Fidelity, Reynolds spent two decades working with the Johnson family which controls the privately-held fund firm.

Ned Johnson, the family patriarch, was Fidelity's chairman during Reynolds' tenure and is widely known for taking a strong interest in day-to-day strategy. While Reynolds was Fidelity's chief operating officer over the past half decade Abigail Johnson was also placed into key leadership roles at Fidelity and is seen as a possible successor to her father.

One difference between the Desmarais and the Johnsons is seen in the different profiles kept by the two family scions. The 81-year-old Paul Desmarais, Sr. has parlayed his fortune into political influence. He has built friendships with a number of Canadian prime ministers to world leaders from both Bushes in the United States to French President Nicolas Sarkozy.

Those tendencies seem to have followed to the next generation in both cases. Abby Johnson has kept a low profile since taking top jobs at Fidelity, following in the footsteps of her publicity-shy father. Meanwhile, André Desmarais married France Chrétien, daughter of former Canadian Prime Minister Jean Chrétien.

Hiring Reynolds to replace Ed Haldeman as CEO is an interesting first move for the Desmarais brothers. Haldeman had been expected to stay on and had told The Boston Globe that he would sign a new two-year contract when his current contract expires at the end of this month.

Instead, Reynolds will take the CEO job on July 1 and Haldeman will become chairman of Putnam Investment Management.

That shift means that the Desmarais are moving from a management team acquired when Power Financial purchased Putnam last year to one of their own picking.

Haldeman's strength is in the portfolio management side of the fund business. He resigned as CEO of Delaware Investments in 2002 to join Putnam in 2002. At that time, Putnam was suffering from the burst of the Internet bubble and collapse of the growth investing strategy followed by many of its funds. Then-CEO Larry Lasser turned to Haldeman to rebuild the firm's portfolio management and diversify its portfolio management capabilities.

When Lasser was forced out from Putnam following revelations that Lasser's management team had allowed some investors to market time its funds, Marsh & McLennan (which owned Putnam until the sale to Power Financial last year) promoted Haldeman to CEO. His focus on portfolio management and reputation for integrity helped to slow what had become a rush by institutional investors to dump their mandates.

Now under the Power Financial umbrella and with the Lasser era receding, Reynolds brings a skill set that Haldeman lacks.

Still, Reynolds' decision to take the Putnam job is in many ways a surprising one. Industry insiders speculated that Reynolds left Fidelity when it become clear he was not going to get the top job their anytime soon. Even before he left Fidelity he was a finalist to replace NFL Commissioner Paul Tagliabue and some speculated that he would run for the Governor's mansion in Massachusetts.

Since he resigned unexpectedly from Fidelity last year, fund industry insiders have speculated that Reynolds would hold out for a high profile post where he would be able to make his mark outside of the shadow of another. One rumor, which proved false, was that he would take over as CEO of SSgA and be in line to succeed Ronald Logue as State Street's CEO (that job ultimately went to Scott Powers).

Those ambitions, if he does indeed hold them, would seemingly be tough to fulfill at Putnam. The fund firm is directly owned by Great-West Lifeco. The Desmarais just named Allen Loney as Great-West's CEO in May. Loney replaced Raymond McFeetor, who remains as chairman of Great-West Lifeco. Loney's background is also in asset management. Meanwhile, both Desmarais brothers are Reynolds' contemporaries and appear firmly in charge at Power.

Reynolds started in Fidelity in 1984 on the sales side of the fund business. When the company kickstarted its efforts in the 401(k) business at the end of the '80s, Reynolds played a key role in developing the bundled sales strategy that allowed sponsors to use fees generated by mutual funds to offset plan administration costs.

That bundled model quickly shook up the market, allowing the fund firm to quickly expand its recordkeeping capabilities.

Ned Johnson tapped Reynolds to head that effort, placing him in charge of Fidelity Investments Retirement Services Company (FIRSCo). Reynolds later oversaw the expansion of that strategy with the creation of Fidelity Employer Services Company (FESCo), which added total benefit services and even payroll to the mix.

In 2000 Reynolds was promoted to become chief operating officer at Fidelity, a job which marked him as a potential successor to Ned Johnson as the firm's CEO.

While Reynolds spent much of his career in the 401(k) operations and sales of the asset management business, that is an area that Putnam has mostly ceded to others. Putnam's 401(k) recordkeeping business was spun off to Mercer, another Marsh-owned company, after the 2003 fund scandals and before it was sold to Power Financial.

In the past two years Putnam has build its capabilities as a provider of DC investment-only services where it acts as an asset manager in partnership with other plan administrators. That cooperative role is far different than the one pioneered by Reynolds at Fidelity in the early '90s.

Yet, the top job at Putnam could open the door for Reynolds to reinvent fund distribution for the "post-bundled" era. Few mutual fund executives understand the distribution landscape as well as Reynolds. And, freed from a captive recordkeeping arm, the Reynolds-led Putnam would be able to approach existing retirement plan distributors as a credible partner and not the mortal threat that many saw in Fidelity.

At a conference call with reporters Thursday morning, Reynolds said Putnam will play a "major role" in the defined contribution industry and that "We will look at many many ways in which we can participate in defined contribution area, whether it be on the asset management side, on the recordkeeping side."

Unfortunately, he did not give other hints to his plans. How those plans unfold will be something industry insiders will have to watch and wait for.

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