Putnam Sale Is Golden for Haldeman

The ailing fund company chief's windfall is nearly $50 million.
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Christmas has come 11 months early for Charles "Ed" Haldeman, the chief executive of the ailing Boston fund giant Putnam Investments.

His company's sale to Great-West Lifeco, part of Toronto-based Power Financial Inc., was finally agreed to for $3.9 billion cash.

And, as I first reported here almost two months ago, Haldeman could make as much as $50 million personally from the deal -- even though Putnam has lost billions of dollars in assets during his three years in charge, while three of its key funds have underperformed.

In brief, Putnam's parent company, New York insurance giant

Marsh & McLennan

(MMC) - Get Report

, said Thursday that it had inked the deal with Power Financial after months of protracted talks.

That's a sharp turnaround from just a few days ago, when Marsh Chief Executive Michael Cherkasky, who was mingling with the Beautiful People in Davos, Switzerland, paused between canapés to tell a reporter the deal might be off.

Apparently playing coy still works, at least with executives north of the border. Power Financial signed.

Putnam will keep its independence and its brand, at least for now, the buyers said. The move is likely to be completed by the summer.

And that is just wonderful news for Haldeman, thanks to a remarkable new contract he signed just a year ago.

In February of last year, just six months before Marsh put Putnam on the block, Haldeman got a new four-year deal that included a grant of $12 million worth of internal Putnam stock. That's on top of the $7.9 million in Putnam stock he had already accumulated during his first two years on the job, Marsh Mac's regulatory filings show.

Putnam stock is not traded publicly but is available as an incentive and bonus for management and staff.

The deal values his stake at more than $27 million.

Regulatory filings show that Putnam stock was valued at less than $29 a year ago, shortly before Haldeman began receiving his latest tranches.

But the $3.9 billion takeover is worth around $39 a share. Cash. (Sources say that there are, in total, about 100 million Putnam shares in existence.)

It doesn't end there. Haldeman's new contract also gives him a generous annual salary and target bonus package of $10.9 million a year. And if he is let go before the end of the four-year term -- say if the new owners decide to install their own CEO before 2010 -- he will get a generous golden handshake. Value: twice his annual salary and "average bonus" for the past three years.

So, depending on how they calculate it, the good people of Canada could find themselves paying Ed another $22 million or so.

Total windfall: nearly $50 million.

This, incidentally, is in addition to the millions Ed has been paid in salary, bonuses and goodies over the past three years. Those goodies range from more than $3 million in Marsh & McLennan stock to $105,000 worth of personal travel aboard Marsh Mac's corporate jets last year alone. That's



The fact that Haldeman signed this marvelous new contract just months before Marsh & McLennan put Putnam up for sale is, of course, pure coincidence.

What has he done for all this money? Since Haldeman took over in November 2003, Putnam's assets under management collapsed from $263 billion to just $191 billion by late last year. That has taken it down the rankings of U.S. mutual fund companies by assets from fifth to 12th, according to data compiled by Financial Research Corp. (The figures exclude money market funds). And revenue has fallen by a third.

You can't say all of this is Haldeman's fault. As a Putnam spokesman notes, Ed took over a company in crisis. He stepped into the CEO's role when the market-timing scandal cost his predecessor, Larry Lasser, his job. Managers at Putnam, as at several other fund firms, had been caught unethically trading in and out of their own funds to take advantage of short-term price anomalies. The practice cost their long-term investors money.

It should also be noted that Haldeman's early steps were the right ones. He tackled a dysfunctional corporate culture that had been built up around Lasser's oversized ego. He kicked out all the managers who had been implicated in the scandal. And he threw himself into the task of shoring up Putnam's battered reputation among institutional money managers, winning back customers from CalPERS to Massachusetts Treasurer Tim Cahill, and stemming the massive outflow of institutional cash.

But then his reforms all seemed to ... slow ... down. For most of the last three years, retail clients have withdrawn their money at the rate of $1 billion a month. Not until this past summer did the outflows seem to stabilize. And financial advisers say the problem hasn't been the scandal, which quickly became old news, but rather investment performance.

Look at three of Putnam's biggest and most important funds during the Haldeman era.


Growth & Income has badly underperformed its Lipper peer group over the period.

(POVSX) - Get Report

International Equity has lagged its own international benchmarks. And


Putnam Voyager has managed to produce less than half the profits of a simple stock market index fund.

Haldeman's allies within the company say he has worked hard, against plenty of internal resistance, to get Lasser's old go-go "growth" managers to invest with greater financial discipline. He's been pushing them to screen equities systematically for everything from cash-flow yields and an improving balance sheet to rising earning estimates and share-price trends. The fact that such rudimentary analyses still need to be adopted more widely at Putnam gives you an idea of the problems he inherited.

But even some of Haldeman's biggest supporters within the company will admit privately that he has taken far too long to change the culture and, where necessary, the personnel. "That's certainly a fair criticism," said one.

There has been good progress at some of the company's smaller funds. The problem: He has allowed the process to take much longer at some of the biggest funds. And those are the ones that Putnam uses to sell its full range of products to investment advisers. When they don't perform, the whole company suffers.

Raymond McFeetors, the chief executive of Great-West Lifeco, now faces a challenge to revamp his latest acquisition and turn it around. Investors in some of the mutual funds are certainly hoping for better times ahead. As for Ed Haldeman, he pretty much wins whatever happens.

In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining TheStreet.com in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.