Mutual fund scandals haven't affected Permanent Fund

Posted: Thursday, November 06, 2003

ANCHORAGE - A scandal-wracked mutual fund company, Putnam Investments, is managing more than $500 million in stocks for the Alaska Permanent Fund Corp., but managers are confident the state's money is safe.

The Putnam scandal did not affect the state's $26 billion oil wealth savings account and couldn't have, said Bob Storer, permanent fund executive director.

The Putnam allegations involve questionable trading in mutual funds, whereas the permanent fund does not invest through mutual funds. Rather, it owns stocks outright, and they are held in a separate account at the Bank of New York, Storer told the Anchorage Daily News.

The separate account is related to the size of the permanent fund's investment, Storer said. It offers the advantages of lower management fees and more control over how the money is handled.

Putnam is one of four investment firms the permanent fund has hired to buy and sell stocks of large, growth-oriented companies.

Federal officials have accused two investment managers for Boston-based Putnam, the fifth-largest U.S. mutual fund company, of civil securities fraud for engaging in short-term personal trading in Putnam mutual funds using inside information not generally available to fund shareholders.

Mutual fund companies, including Putnam, often have policies forbidding such short-term trading because it can hurt other investors by driving up trading costs and hurting profits.

Putnam, whose chief executive, Lawrence Lasser, lost his job Monday, is one of several companies embroiled in a widespread financial scandal now engulfing the mutual fund industry.

Storer said members of his staff have been talking with Putnam managers about what the company is doing to shore up its policies, and Storer has been passing the information on to the permanent fund's six-member board of trustees.

Some institutional funds, including pension funds in Massachusetts, New York, Vermont, Pennsylvania, Iowa and Rhode Island, as well as some universities, last week pulled billions of dollars of investment cash out of Putnam. Now the company is hustling to reassure and retain other clients like the permanent fund.

Although the permanent fund's investment was not affected by the improper trading practices, fund managers are still on alert, Storer said. The main concerns are ethical questions at Putnam, and what the company is doing to prevent possible improper trading practices, Storer said.

"We do not take these events lightly, but our approach has always been to move forward in a dispassionate manner and make an informed decision," Storer said.

Putnam managers told permanent fund staffers that six portfolio managers were let go, including one who had a minor oversight role for the permanent fund's account. Putnam's parent company also ordered a review of Putnam policies.

Putnam said in a written statement last week that it "did not act fraudulently in any way," and that it would repay any losses suffered by fund shareholders.

Storer said the permanent fund trustees would discuss Putnam at its board meeting Nov. 12-13 in Juneau. The fund also might summon Putnam representatives to the board's Anchorage meeting in early December.

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