A true pioneer
Pioneer Investments is the global asset manager that was created in 2000 when Italian banking group UniCredito acquired the US investment firm Pioneer Group and merged it with its own asset management company, EuroPlus Research and Management.
The acquisition gave UniCredito’s asset management arm a global reach, since Pioneer brought with it operations not only in the US, but also in Germany, Ireland, eastern Europe and Asia. Its share of institutional business remained relatively small. Of e135bn assets under management, only e35bn are in institutional assets including insurance mandates.
Now it plans to change this. Last year, Pioneer set up a global institutional business operation to make a determined push into the institutional market. Matteo Perruccio, Pioneers’s global head of sales and distribution, heads the operation.
Perruccio says Pioneer had always intended to attack the institutional market when the time was right: “We always said that we would entertain the entry into the institutional arena once we felt we had a credible track record and a credible investment process in place. We come out very strongly now in terms of our research capabilities, our performance in a series of asset classes and our ability to raise institutional assets in certain markets.
“We also think that it’s the right moment to enter the European institutional arena in particular, where the performance of many institutional players has lagged significantly. There’s a lot of disappointment out there, and there’s a greater willingness by institutions to look at new counterparties.”
Pioneer already has substantial experience of the European institutional market. It has a strong presence in Italy where it has a market share of 13.76%.
In particular it has won mandates from a number of the new industrywide complementary pension funds, including the leading funds Cometa and Fonchim. Pioneer also received a useful legacy of UK institutional business when it acquired the UK fund of hedge funds manager Momentum in 2002. Momentum is now part of Pioneer’ s Dublin-based alternative investments division, Pioneer Alternative Investments (PAI).
PAI has won a number of UK mandates with Momentum’s flagship AllWeather fund, a long established low volatility fund of hedge funds. This has delivered an annualised return of 8.9% with volatility of 3.2% since it was launched in 1995.
“Momentum products have a long track record of consistent returns with very few down months,” says Perruccio. Clients who have recently bought into the Momentum AllWeather fund include, UK local authorities such as Dorset County Council pension fund and the Clywd pension fund.
Pioneer has shown how serious it about gaining institutional business by reinforcing its centralised database in Dublin to enable it to respond to requests for proposals.
It has had some success globally. Recently Pioneer won a pension fund mandate in Chile. A report by Fitch, the credit rating agency last year observed that “recent successes like the winning of a pension fund mandate in Chile confirms Pioneer’s capacity to service this demanding but low margin market”.
Perruccio says: “In terms of assets, we are ranked number two among active asset managers in the Chilean pension system, and number five if you include passive management.”
The importance of UniCredito’s banking network as a distribution platform for Pioneer retail products means, inevitably, that geographically assets under management have been heavily concentrated in Italy. Currently 77% of Pioneer’s total assets are international of which about 90% are Italian assets. Of the remaining 23%, 20% is domiciled in the US and about 4% in New Europe outside Italy.
Yet Perruccio says that assets tell only half the story. “Assets under management are a just a photograph and not a particularly telling photograph. If you look at net sales the representation is pretty evenly split with Italy about one-third, international ex Italy is about one-third and new markets is about one-third. So clearly our non-proprietary business is growing much faster than our proprietary business.”
In 2004, assets grew by 36% in Pioneer’s international division (excluding Italy) by 10% in the New Europe division, by 9% in the US and by 4% in Italy.
Pioneer increased its share of the Italian market by 37 basis points last year, the only Italian asset manager increase market share. Yet further growth is inevitably becoming harder to achieve. “We already have 13.8% of the market in Italy so the rate of growth cannot be that fast. In contrast, we’re growing very fast internationally. So the dynamic is the right one. We have said that we want a significant proportion of our assets - at least two-thirds of our net sales on a monthly and an annual basis - to come from outside Italy.
“It’s already happening. Four years ago we were exclusively an Italian oriented asset management company in terms of the asset base. Now we’re the third largest player in terms of total assets in the Luxembourg market.”
New Europe is also an important source of business. Last month, Pioneer became the first foreign managers to be allowed to distribute funds in Turkey through a banking network in a partnership deal with the Koc Group conglomerate. Perruccio says: “We’ve partnered with what I believe is the strongest financial group in Turkey. We believe that that is obviously a high growth future area in the European basin.”
This builds on a long record of innovation in Europe, he says. “People tend to think of Pioneer Investments as a somewhat conservative Boston-based company that took off only when it was acquired by UniCredito. But the reality is that even in the years previous to its acquisition Pioneer was being innovative.
“It was the first company to distribute US mutual funds in Germany in the 1960s. It was the first to go into Poland in 1992. It was the first asset manager to open up a rep office in China. So there is a history of being first in places.”
Investment management is spread over Dublin, Boston, Milan and Singapore. European equities, European fixed income and global equities are managed in Dublin, while US equities and US fixed income are managed in Boston. Emerging market assets are managed globally, while Asian equities are managed in Singapore.
“Clearly a big chunk of the assets are managed in Dublin by virtue of the fact that the Italian business was heavily European equity oriented and European fixed income, but they are all important centres,” says Perruccio.
Pioneer has expertise in all asset classes. More than half of its assets are invested in European, international and emerging market bonds, including high yield and corporate bonds, and over a quarter in European, US, Asian and emerging market equities.
“Our US fixed income is very strong, and we’re quite strong on European equities, which is an area that we plan to focus on. We’re busy working on adding capabilities where we feel we could bring something quite interesting to the table,” says Perruccio
There are still gaps to be plugged among the asset classes, principally UK equities. “Obviously if you want a bigger piece of the pie in the UK you have to be in UK equities. Today, we’re not a UK equities powerhouse. That doesn’t mean to say we can’t play the UK pension market. It means that we’ll play on the periphery in the more niche asset classes. However, we are very aggressively looking to build or acquire UK equity skills.”
One area where Pioneer has developed impressive expertise is in its quantitative capabilities. Dublin, where UniCredito established its EuroPlus asset management subsidiary in 1999, has become the main centre for quantitative resources
Pioneer has developed, jointly with Cambridge University in the UK, an asset liability management (ALM) tool based on stochastic modelling. This has won high praise from the industry. Fitch considers the Pioneer ALM model an industry benchmark.
How does the market perceive Pioneer Investments, and how does it want to be perceived? Perceptions of Pioneer tend to vary from market to market, says Perruccio. “Brand surveys we’ve done in the German market, for example, found that 40% of the respondents thought we were German. In the US we’re viewed as a Boston-based money management firm and one of the founders of the mutual fund industry. And in the Italian market we’re viewed as the only global international Italian manager.
“Our aspiration is to be a recognised global asset management company, but more important than that, I really don’t care if they say we’re global, international, local so long as they say they say we are excellent. We want to be an asset manager that is recognised for consistency in its investment management over time. That is really where our culture lies, and we’re fanatical about that.
“We don’t want to shift with the wind. We’ve been consistent and sometimes that’s helped us in certain market environments and sometimes that’s not made us the sexiest shop in the street. But I think that in the medium to long term it’s paid off.”
The challenge, Perruccio says, is to get Pioneer better known and recognised by pension funds and their consultants. We find that the more people know about us, the more they get to like us. We recognise that not enough people like us at the moment. In the UK in particular we’re almost entirely unknown. And that’s something we’ve got to work on.”
He is confident that Pioneer can achieve its goals. “This is a company that has an incredible amount of energy. It’s grown and demonstrated that it can deliver things that very few asset management companies have been able to deliver in such a short period of time.”