Putnam Funds and MFS Funds May Be Sold or Merged
The trend towards consolidation in the Mutual Fund Industry continued this week as two of the biggest players said they were considering selling or merging their mutual fund operations. Marsh & McClennan Cos. (MMC), the owner of the Putnam Family of Funds, and Canadian based Sun Life Financial, the owner of the MFS Family of Funds, both announced they had hired Investment Bankers to look at strategic alternatives for their money management operations.
Companies seldom sell or merge assets that are doing great, so this is an indication that two of the oldest and largest fund families are having trouble competing with other major players like Vanguard Funds, Fidelity, American Funds, and Franklin Templeton.
Both Putnam and MFS have fallen from grace in recent years. Putnam, founded in 1937, personified the image of the "East Coast Ivy League" money manager. However, they took a hit when the Internet bubble burst as they were over concentrated in certain sectors and lost more money than most of their peers. That was followed by the "after hours" mutual fund trading scandal, of which Putnam was listed as one of the companies being investigated.
Massachusets Financial Services, MFS for short, actually invented the first mutual fund back in 1924. They too were named in the Mutual Fund trading scandal and have been trying to regain their lost luster since. However, MFS is still plagued by declining popularity of some of their flagship funds and below industry profitability.
The "name of the game" now in the Mutual Fund industry is scale, meaning bigger is better, particularly in the marketing area. In addition, bad news spreads quickly so "tainted" funds can experience rapid fund withdrawals and have difficulty attracting new investors. Both of these companies would seem to gain by merging with a larger, cleaner entity, as this would address both scale and reputation issues.
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