The Austin-based Employees Retirement System of Texas pulled $800 million in investment funds from troubled financial adviser Putnam LLC, the system confirmed.
Spokeswoman Mary Jane Wardlow says Boston-based Putnam was “terminated for causem” referring to specific actions concerning Employees Retirement System funds. She declines to give further details.
Putnam, a subsidiary of Chicago-based Marsh & McLennan Cos., became the center of a growing scandal in the investment community when the U.S. Securities and Exchange Commission brought civil charges against the investment firm and two employees Oct. 28 for market-timing. Market-timing involves buying and selling mutual fund shares for short-term gain at the expense of long-term investors.
The Employees Retirement System manages $18.1 billion in retirement fund investments for state employees. Putnam advised the agency on $800 million in international investments, charging $2.5 million in fees and garnering the lowest return of all three international fund advisers.
Sheila Beckett, executive director of the retirement system, fired Putnam on Nov. 12.
Last December, the system signed up Putnam, as well as Cambridge, Mass.-based Temple Investment Counsel Corp. and Wilmington, Del.-based DuPont Capital Management Co., to advise the agency on a portion of its international portfolio.
Temple’s return for fiscal 2003 was 23.4 percent, charging the system a significantly lower $1.6 million fee. DuPont’s return was 20.6 percent, charging the system $900,000. The remainder of the international portfolio is managed by internal advisers at the system.
Wardlow says the fees differ because some firms “discount their fees to get our business.”
The system becomes the most recent state entity to terminate Putnam. Texas Comptroller Carole Keeton Rylander says her office was dissatisfied with returns on the $108.5 million in investments Putnam managed.
Texas joined a growing list of states that have fired Putnam as a financial adviser. Putnam disclosed in a recent SEC filing that investors have pulled $14 billion out of Putnam funds since late October.