The Oregon Investment Council on Wednesday fired Putnam Investments as manager of $500 million in state pension funds.
The council unanimously endorsed a recommendation by state Treasurer Randall Edwards to drop Putnam after fraud and improper trading allegations surfaced against the Boston-based mutual fund, part of an unfolding scandal in the industry.
“The mutual fund industry is reeling because of the market timing controversy, and Putnam is at the forefront of this scandal,” said Edwards. “Our responsibility is to grow the fund, and I no longer believe Putnam can help us achieve that.”
Calls to Putnam officials were not immediately returned.
The state hired Putnam in October 2002 to manage investment for the Oregon Public Employees Retirement Fund.
Edwards and the council cited a number of concerns in addition to the allegations, including a recommendation by Frank Russell, an investment consultant to the council, who recently downgraded the Putnam International Core Equity fund to “review,” meaning clients should actively look for a replacement manager.
Pension fund assets under Putnam will be temporarily switched to other investment managers until the council decides on a replacement.
The council oversees investment of $50 billion in assets for several Oregon state funds, including the pension fund, the State Accident Insurance Fund, and the Common School Fund.
Last week, the state fired Strong Financial Corp. as a manager of the Oregon college savings plan following allegations that the company founder, Richard Strong, traded his firm’s mutual funds improperly, earning him at least $600,000 in profits at the expense of shareholders.
Improper trading allegations have rocked the mutual fund industry following an investigation by New York Attorney General Eliot Spitzer.
The growing scandal quickly caught the attention of Congress, and the House overwhelmingly voted Wednesday to toughen penalties for mutual fund abuses and to make sure investors are provided with more information.
Edwards last week urged tougher scrutiny of the industry by the Securities and Exchange Commission.