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Saturday, November 01, 2003
Mutual Fund Follies
Larry Lasser, the head of Putnam, has received an expression of "great confidence" from the chairman of Putnam's parent company, Marsh & McLennan. That is usually the kiss of death. Meanwhile, state pension funds are withdrawing (reg. req'd) from Putnam. Even Massachusetts, where Putnam is based, withdrew its $1.6 billion. With that kind of money walking out the door, can Lasser be far behind? Maybe another CEO might survive this, but Lasser is well known for his lavish compensation package and his unforgiving treatment of those employees who fail. You may remember that a good many equity managers were forced out after the funds' heavy investment in technology stocks stopped being a good idea. If he is held to the same standard, he should be scrounging empty copier paper boxes for packing his personal stuff.

When this particular scandal is over, what will be the next one? There could be trouble about the composition of the boards of directors for mutual funds. The position of director or trustee of a mutual fund is the best part-time job on the planet. Most make over $200,000 per year by serving on the boards of many individual funds in the fund family. They are always nominated by the fund management, and because there are seldom large individual holdings of fund shares, proxy fights are nearly nonexistent and alway unsuccessful. If a director proves to be too obnoxious or asks too many questions, what is there to stop the fund managers from leaving him out of the nomination next time? How independent can anyone be when judging the performance of a company paying you so much for so little investment of time and effort?

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