DAVOS (Reuters) ? Marsh & McLennan has no plans to sell Putnam Investments and expects the beleaguered mutual fund to see positive inflows in the fourth quarter, the US insurance and consultancy group's CEO said.

"The strategy is to keep Putnam, fix Putnam and operate Putnam over the short, medium and long-term," CEO Michael Cherkasky told Reuters.

"It still has negative inflows ? we are hopeful by then (fourth quarter 2006) that the flows will be positive," he said in an interview on the sidelines of the World Economic Forum in Davos.

There had been speculation that Marsh would sell Boston-based Putnam, which has lost more than $81 billion in assets after becoming embroiled in an industry-wide abusive trading scandal in the autumn of 2003.

Since Marsh & McLennan put Charles Haldeman at the helm of Putnam in late 2003 and entrusted him with turning it around, fund returns have improved markedly.

However, the level of assets under management, which drive earnings at money management firms, continue to decline on a monthly basis.

In addition to its unit's woes, parent company Marsh & McLennan also saw a wave of client defections and a sharp drop in profits after a regulatory probe in 2004 dragged its reputation through the mud.

Cherkasky said he was still confident that Marsh, the world's largest insurance broker and one of MMC's two largest businesses, would see higher sales and client retention rates in 2006.

But he admitted that the group had yet to shake off the legacy of the bid-rigging and market manipulation scandal, in which Marsh paid out $850 million as a settlement.

"We are not sick anymore but that does not mean we have returned to full health," he explained.

Cherkasky, a former federal prosecutor, said the disposal programme for some of MMC's small business units was largely complete and he expected to make some small acquisitions in specialist consultancy areas in 2006.

"There will be more acquisitions, not major transformational deals, but more of the smaller acquisitions rather than selling businesses."

Marsh's businesses stretch across insurance broking, consultancy and investment management.

Cherkasky highlighted Asia, and China in particular, as a growth area for the group. MMC would triple its Asian workforce over the next three years.

"We are committed to expanding our business there and doing hundreds if not thousands (of new jobs) over the next three years."

Although India has been lauded as a hot place to do business at the Davos summit, Cherkasky said it was not a priority for MMC. "It's not that we are saying that India is not a substantial opportunity. (Our priority) is to try and focus on where we can get the best return and for us that is China."