Recent allegations of fraud against Putnam Investment Management Inc., Boston, and other fund managers should force variable annuity carriers to revise their criteria for selecting funds, experts say.
Carriers investing in funds need to probe beneath each funds reputation and historical performance, they say.
The Securities and Exchange Commission and state of Massachusetts lawsuits charge Putnam with allowing some of its investment officers to engage in illegal market timing. Market timers take advantage of fixed daily fund prices to make quick profits or avoid losses by trading in and out of international funds, using information not available to the general public.
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The lawsuits charge that two former Putnam investment managers traded their personal assets in some of the mutual funds they managed.
In a statement, Putnam said it has launched an investigation into fund trade activities within its firm. The company also stated it has not found any evidence “of late trading in any Putnam fund or of any special arrangement made by anyone at Putnam to allow market timing in any Putnam fund.”
None of the Putnam funds specifically named by the SEC and Massachusetts regulators as illegally traded appeared to be VA subaccounts, VA data from Finetre Corp., Herndon, Va., show. (Until recently, Finetre was known as AnnuityNet/VARDS.)
Charges of fraud against Putnam and other mutual fund companies over the market timing issue should make VA managers rethink their buying of premium-name funds, Rich Carey, director of research for Finetre, suggests.
“The big names do draw capital,” he acknowledges. “But in a new era of heightened due diligence, we need to assess the management situation much more carefully. We need to get into the organizations philosophy.”
In a statement, Hartford Financial Services Group Inc., Hartford, said it will continue its support of Putnam, with which it notes it has had “a long-standing relationship.”