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By Murray Coleman
Wall Street Journal
Friday, December 15, 2006
Paul Desmarais, one of the wealthiest men in Canada, has set his sights on the U.S. mutual-funds market and is considered a front-runner in the bidding for Putnam Investments, people familiar with the matter say.
Adrian Mastracci, fee-only portfolio manager at Vancouver’s KCM Wealth Management, says, "The company has a lot to offer Putnam. They're a well-run company with a lot of financial muscle."
Mr. Desmarais is chairman of Power Corp., which controls Canada's biggest mutual-fund company, IGM Financial Inc. At the end of October, the unit had 101.5 billion Canadian dollars (US87.7 million) in mutual-fund assets under management, well ahead of the No. 2 player, RBC Asset Management, which had C$68.5 billion in assets, according to the Investment Funds Institute of Canada.
An acquisition of Putnam, the 12th-largest operator of open-end mutual funds in the U.S., with $123 million of mutual-fund assets and $190 million of total assets under management, would significantly increase Power Corp.'s asset base, increase the depth of its fund lineup and give it a footprint in the $10 trillion U.S. mutual-fund marketplace. Power Corp. declined to comment.
Putnam, a Boston unit of New York insurance giant Marsh & McLennan Cos., has been suffering from heavy redemptions since 2003, when regulators made the money manager an early target of the industrywide probe into improper trading practices by mutual-fund companies. Putnam also has been criticized by analysts for poor relative performance of some of its largest mutual-funds.
Still, there are signs redemption activity is slowing, at least with institutional investors, and new management has streamlined Putnam's fund lineup, beefed up its analyst ranks and put in place more safety measures to protect shareholders.
The result has been improved returns for many of its funds, says Jeff Keil, an industry consultant in Denver. He says major hemorrhaging of Putnam's fund business has been abated for now.
That would be good news for Power Corp.'s shareholders, says Mr. Keil, who previously worked at fund-tracker Lipper Inc. "Historically, parent companies absorbing new asset managers have enjoyed healthy profits from their new subsidiaries." Still, the impact on Power Corp. will depend to a great extent on how quickly Putnam's revamp progresses, he says.
Power Corp.'s IGM is a Winnipeg firm that has been running mutual funds for more than 75 years. For most of that time, IGM was known as Investors Group. In April 2001 it joined forces with Mackenzie Financial, another large Canadian mutual-fund distributor. About three years later, the combined firms picked up a smaller family of funds run by the Investment Planning Counsel.
With these three firms now operating under a combined umbrella, IGM Financial easily outpaces the rest of the field in Canada's C$630 billion mutual-funds marketplace.
Besides building its money-management arm through acquisitions, Power Corp. has moved to increase its hold in insurance. In 2003, it bought Great-West Lifeco Inc., Canada's biggest life insurer, which also helps run pension and 401(k) retirement plans, mostly in Canada.
The company has a lot to offer Putnam, says Adrian Mastracci, who manages private accounts for high-net-worth and institutional investors at KCM Wealth Management from his Vancouver, British Columbia, office "They're a well-run company with a lot of financial muscle," Mr. Mastracci said. "They've certainly got the moxie to successfully bring Putnam into the fold."
At the top of observers' lists of reasons to look favorably on a merger of two of North America's most-established mutual-fund operators is the reputation and track record of Mr. Desmarais himself.
Forbes lists his personal fortune at close to US$3.8 billion, and his political and business ties stretch across several continents.
Power Corp.'s main rival for Putnam appears to be UniCredito Italiano SpA, an Italian financial-services conglomerate that already owns Pioneer Investments, another Boston fund giant.
Marsh & McLennan declined to talk about the bidding. Last week, Marsh Chief Executive Michael Cherkasky told investors proposals for Putnam still were being reviewed. No decision has been made on whether the insurance conglomerate will move forward with a sale or retain ownership of the mutual-fund business, he added.
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