Front office outsourcing and a growth in third-party clients are some of the landmarks of Pioneer Investments' unfolding five-year growth plan. Nick Fitzpatrick talks to Sandro Pierri, chief executive of the Unicredit-owned asset manager.
Life was good for asset managers before the financial crisis. Sandro Pierri, the chief executive of Pioneer Investments, says the industry was enjoying 6% flows into fund products in each of the years leading up to the crash. He has a bar chart that demonstrates it. The flows were routine, part of the rhythm of life.
But from 2008 onwards, the blue bars on Pierri’s chart turn red and drop to the floor.
Savings rates plummeted, investment returns fell and banks – crucial to fund distribution – started pushing savings accounts, not funds, to their clients in order to bolster balance sheets.
“The industry has gone from a high growth to a low growth environment,” he told clients at a Pioneer conference earlier this year.
Pioneer, which is owned by Italy’s Unicredit bank, is no exception to the industry’s faltering rhythm. The asset manager’s operating profit of €788 million in 2007, dived over the next few years to €222 million in 2012.
Assets under management fell from €229.5 billion in 2007 to €167 billion in 2008.
Headcount also fell over the period, but the firm has been hiring again in the past two years.
As Pioneer felt the full force of the financial crash, its parent Unicredit also struggled. The bank reported a €10.6 billion loss in its group business in the third quarter of 2011.
By then, Unicredit already had Pioneer under a strategic review and there were expectations that Pioneer, originally an American firm and owned by Unicredit since 2000, would be sold.
But sale rumours ended when the asset manager obtained the bank’s blessing to launch a five-year organic growth drive, which it started implementing in 2012.
The plan came gilded with an agreement for Unicredit to give Pioneer a share of business from its platform as long as performance and service quality held up. With about three years left to run, the plan appears to be working. Pioneer’s assets stood at €174.34 billion at the end of November 2013 and global net sales were €9 billion.
The ‘three peaks’ of the growth plan focus on expanding distribution to widen sources of business, boosting investment management, and optimising operations.
On this last point Pierri says the firm’s investment platform is being outsourced, though Pioneer would not reveal the provider.Adventurous, the plan reflects an asset manager determined to shoot its way out of the financial crisis.
Distribution channels in Europe, the Americas and Asia are being mined more deeply, with the most visible impact so far being in the US. Pioneer has announced that its US distribution force was scaled up by a quarter, and Pierri tells Funds Europe Pioneer is now able to shift products that had not previously sold there.
“We have increased the distribution force in the US, where we were already sizeable, by 25% and made significant changes to the product line. Sixty per cent of net new flows in the US are to products that five years ago we did not have,” he says.
One of these products is multi-asset management, which the firm has focused on this year along with fixed income and dividend equities.
Pierri says Pioneer is selling into the US retail market, including through “wire houses”, and is also finding traction in defined contribution channels.
Assets under management in the US are now €35 billion – though this is still less than in 2007 when US assets stood at €45.3 billion.
Back in 2007, the US represented 19.7% of assets under management. Italy, Pioneer’s expatriate home since its purchase by Unicredit, was at 46%. However, Italy’s share of business crept up over the following years, reaching 53% in 2008, and then settled back to around 51% in 2011.
The growth plan seeks to increase business from non-captive channels – in other words, third-party and institutional clients. For bank-owned third-party asset managers, diversifying sources of business away from a parent is universally seen as necessary, and across all of Pioneer, in 2012 there was a total of 35 distribution hires.
In February this year, then chief executive Roger Yates said the amount of assets from Unicredit’s captive channel was 52%.
Pierri says the figure for Pioneer’s captive business is now 50% and that this reflects an aim of the growth plan to increase non-captive client list.
Pierri says the majority of new business is from markets like Asia, Latin America, and other European countries, including Germany, France and Spain.
The five-year plan has also seen Pioneer tune up its investment engine. A key part of this was the creation of an emerging markets hub in London. It involved the “radical” decision to centralise people from as far as Geneva, the US and Singapore in one place. Pioneer’s two other investment hubs are Dublin and Boston.
Earlier this year, the firm started strongly advocating a return to investing in risk assets. This was the overarching theme of its 2013 client conference. Multi-asset investing was also pushed to the fore. In fact, Pierri argues that multi-asset portfolios are perhaps the only way for investors to deal with a low-return environment and correlations. The multi-asset approach should also satisfy what Pierri sees as a major developing theme in asset management: the desire by asset managers and investors for more freedom to allocate as they wish.
Balanced and flexible funds, as Pioneer terms them, are 18.4% of its assets under management.
Equities’ share of total assets stands at 19%. Fixed income is 60.5%.
At the heart of Pioneer’s fixed income ability lies a matrix structure, which relays the multi-asset philosophy across the fixed income market. It is enthusiastic about the matrix and says it is unique.
Driven by in-house research, the matrix allows specialists to allocate risk to what they expect to be the main sources of alpha within their fixed income siloes – which include a relative value silo, or silos for corporates versus government bonds, and foreign exchange.
Pioneer says that returns from sectors across European fixed income, over the last decade, show that no single sector has consistently delivered above-inflation results every year – a fact that also supports the argument for a multi-asset and multi-theme approach within fixed income.
NOT WATCHING SIZE
Despite being the man in charge of the growth plan, Pierri gives the impression that he’s not watching assets under management figures too closely. “I’m not obsessed with size,” he tells Funds Europe.
“Pioneer can be a successful asset manager whether it has €100 billion or €300 billion of assets under management.”
He has been with the company since 2003 and became chief executive in June 2012. Yates, his predecessor, was the chief executive when the five-year plan was implemented.
His own influence on the growth plan, Pierri says, was to ensure Pioneer did not lose sight of the firm’s strength in fixed income while pushing ahead with the broader plan.
“I just wanted to make sure we could maximise flows in the short-term. This meant making sure we had enough traction with, and could exploit, our fixed income strength.”
About 70% of sales this year have been into fixed income, he adds.
©2014 funds europe