The role of diversity in active equity management

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In this edition of Active Voice, Cathy Saunders talks with Kate Lakin, Putnam’s Director of Equity Research, about the equity analyst team and how diversity plays a role in its success.

Interview with Kate Lakin

• Cathy Saunders, Head of Corporate Sustainability and Public Policy, Putnam Investments
• Kate Lakin, Director of Equity Research, Putnam Investments

CS: Putnam’s global reputation as an active equity manager is on the rise, according to plaudits from recent industry rankings. But before we talk about that, could you share a bit of your history — how you got where you are in the industry?

KL: I’ve been working in equity research since I graduated college 15 years ago, with 11 of those years at Putnam. I was actually a psychology major as an undergraduate, and I thought I would go into clinical or academic research. I didn’t fall in love with either. I was looking for something a little more fast paced.

So, I interviewed at consulting firms, banks, and investment managers. Aaron Cooper — then Managing Director of Research at Fidelity Investments and now EVP and COO at Putnam — hired me at Fidelity. I started in July 2008, just in time for the global financial crisis. The world was imploding, and I remember thinking, “Well, I said I wanted action.”

CS: How did you make the transition to Putnam?

KL: I joined the team here, following Aaron and Shep Perkins, our CIO of Equities, because Putnam was building something and evolving. I was hired to cover the packaged food sector and also to help develop our early career program. The Putnam group was building a team of analysts focused on deep, differentiated research and a strong culture with a goal of growing more diverse.

CS: Tell us about your current role.

KL: I manage a team of 30 global equity analysts in Boston, London, and Singapore. The analysts work in a hybrid research model where they're either part of a sector team, for example, technology or consumer, or they work on a specific product. The team is well tenured, with an average of 16 years of industry experience, and many have more than two decades in the industry.

Shep manages the team of Portfolio Managers and the Head of Equity Trading, and together, our job is to make sure we’re creating an environment that allows for differentiated thinking, collaboration, consistent communication, and continued learning. Shep and I think a lot about alignment and impact as well, ensuring that the team is well positioned to succeed.

CS: Can you tell us something about Putnam’s investment principles?

KL: Our focus is on outperforming our benchmarks — consistently — regardless of the market environment. Risk management is a major focus — we have become even more effective by using an expanded range of tools and models, and through greater collaboration among teams. We invest with the goal of alpha generation, while keeping an eye on downside protection. Over the past year, the S&P 500 was down nearly 20%. It was a tough equity market and the team performed nicely on a relative basis. As active managers, we look to drive performance from stock picking, which we do with confidence given the record of this team over an extended period of time.

CS: Putnam recently got some very good news from Barron’s magazine.

• Putnam was ranked as one of the top 2 mutual fund families in the U.S. over the past 10 years and one of the top 3 fund families over the past 5 years.
• We were ranked among the top 5 firms for U.S. equities and taxable bonds.
• In addition, Putnam was the only firm in our industry to rank in the top 10 in all three time periods — 1 year, 5 years, and 10 years.

How did we do it?

KL: Teamwork! We have a team of excellent managers, with a diverse makeup and a spirit of collaboration. We are focused on fundamental research, and we manage our portfolios with a thoughtful risk framework, allowing for outperformance in a variety of market environments.

CS: Let’s talk about diversity, and specifically, the fact the equity team has grown increasingly more diverse. Today, 40% of Equity Portfolio Managers, 60% of Equity Analysts, and 100% of Equity Associates are women and/or people of color. These numbers are up meaningfully over the last decade. When your team recently met with a very important client and won the business, the presentation described diversity as a strategic priority and competitive advantage.

KL: We think of team diversification in the same way that we think about investment diversification. If you have too many people who think alike, they are likely to pick the same stocks, raising the possibility of risk concentration. A variety of research has shown that diverse teams outperform. This has been a key initiative for us.

To achieve this, we have been very purposeful about recruiting diverse talent. Andy O’Brien, Assistant Director of Research, and Christina Mellinger, our HR Director, and her team have been key supporters of this effort. When a hiring team fully buys into the importance of diversity, you can really move the needle.

In recent years, we’ve prioritized diverse candidates in the hiring pipeline, partnering with target educational institutions and nonprofits to identify people of color and women interested in finance. From there, we continue to educate ourselves on the structural inequities that prevent talent who identify as women and/or racially or ethnically diverse from advancing within organizations. As we have grown more diverse, more candidates can envision themselves building their careers with us. This has been a complete team effort, with support from all our equity management team along with those who support our hiring processes.

CS: Tell us something about Putnam that people outside the firm might not know.

KL: Just how fantastic our people are, and how collaborative and supportive the teams are as they work together. We take great pride in managing people’s investments, and we’re excited to come to work each day. As a woman, I’m especially proud of the outsized number of female analysts and portfolio managers we have on our Putnam team.

CS: Thank you, Kate, for sharing the story of the development of Putnam’s equity analyst team. Clearly, embracing diversity and a culture of collaboration plays a significant role in the success of the team, and ultimately of Putnam. Congratulations on the industry recognition!

To learn more about equity research at Putnam, see Integrated Insights.

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Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

How Barron's ranked the fund families: To be included in the ranking, a firm must have at least three funds in the general equity category, one world equity, one mixed equity (such as a balanced or target-date fund), two taxable bond funds, and one national tax-exempt bond fund. Each fund’s performance is then measured against all the other funds in its Refinitiv Lipper category, with a percentile ranking of 100 being the highest and one the lowest. Results are then weighted by asset size, relative to the fund family’s other assets in its general classification. Finally, the score is multiplied by the weighting of its general classification, as determined by the entire Lipper universe of funds. Weightings for the 1-year results in 2022 were general equity, 36.1%; mixed asset, 22%; world equity, 16%; taxable bond, 21.5%; and tax-exempt bond, 4.5%. Weightings for 5-year results were general equity, 36.1%; mixed asset, 22.7%; world equity, 16%; taxable bond, 21%; and tax-exempt bond, 4.3%. Weightings for 10-year results were general equity, 36.6%; mixed asset, 23%; world equity, 15.9%; taxable bond, 20.1%; and tax-exempt bond, 4.4%.

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