Drawing a virtuous circle
A number of prominent bank-owned asset managers have been put up for sale at various times since 2009 – a process that has not always been straightforward for the banks or the asset managers. Pioneer Investments’ proposed sale by its parent Unicredit was finally called off in April 2011, which allowed it to focus on a new set of strategic priorities.
How does CEO Sandro Pierri assess Pioneer’s progress on its growth plan? That plan was launched at the beginning of 2012 by Pierri’s predecessor Roger Yates, with ambitions to grow in Asia, Latin America and the US.
Pierri, formerly head of international business and CEO of Pioneer Italy, emphasises the continuity and teamwork behind the plan, which the firm is currently rolling out. “Clearly there was the change from Roger Yates to me but that was a smooth change, as I already had accountability for 60% of the results in the plan. We did a bit of fine tuning.”
This plan was also very much driven by the management, Pierri emphasises, without recourse to external consultants. “The advantage you have of doing it internally is that you have a bigger chance of getting buy-in from your team, which is an important element in ensuring execution.
“One of the things we are doing is making sure the whole team, despite differing responsibilities, feels accountable for the whole destiny of the firm. This is the spirit I want to see within my management team.”
The overall strategy is bearing fruit, according to Pierri, who points to a turnaround in asset flows in the last two quarters of 2012 and to €8.3bn in net new assets to end-October 2013. Around 50% came from institutional investors.
Fine tuning of the business plan has involved two areas. These are fixed income, where Pioneer is building out its portable alpha capability, and institutional clients, key buyers of fixed income strategies due to regulatory and demographic trends.
“I wanted us to focus on an area that is already good, which is already prepared for a prolonged period of rising interest rates,” Pierri says. “The combination of low yield and potentially rising interest rates clearly creates concerns in investors’ portfolios. We have re-examined the way we manage fixed income and the approach we have.” This is based on a portable alpha platform, where risk is allocated to individual active strategies: “We think this will differentiate us in the next generation of fixed income.”
Pierri also points to other less mainstream strategies, such as US bank loans, that he nevertheless sees as a natural extension to the firm’s capabilities and where Pioneer already manages about $3.5bn (€2.6bn).
“This is an asset class in fixed income that will become very appealing for institutional investors,” he says, adding that Pioneer is looking to extend the franchise, offering it to European and other institutions but also including European loan portfolios in the mix. “Bank loans have a long tradition in the US but in Europe it is somewhat new and we feel that is going to be an important area. It ticks a lot of boxes – it’s protection against rising interest rates, it’s protection against banks being disintermediated and having to re-examine their capital allocation. It’s a real play on a series of mega trends that are there to stay.”
A third broad trend in fixed income is the convergence with the alternatives world in terms of long-short credit in particular, which Pioneer is developing. “Given our portable alpha approach and the depth of our credit research, this is a relatively easy step,” Pierri says. “We are really trying to build portfolios that are less and less interest-rate sensitive and this is also an important building block of our multi-asset capability.”
Pioneer uses the same risk budgeting and portfolio construction techniques in portable alpha as in multi-asset strategies.
“This is the glue unifying the different capabilities,” Pierri says. “It’s proprietary technology we have spent a lot of time and money developing and it is something that can set us apart from the competition. We are starting to see some progress. This is not only a commercial interest – it’s a key element in constructing a long-term partnership with consultants and clients. It’s about transfer of our intellectual capital and this is the way I would like to see the overall institutional business evolve.
“Our ambition is for Pioneer to be a knowledge provider for investors, not only managing a sleeve of the portfolio but also helping in finding a solution for client problems.”
As part of a recent geographical reorganisation, Munich was designated a regional investment hub and the home for the multi-asset-management capability. As part of the multi-asset offering, a fiduciary management capability was launched in 2012, although it is yet to attract clients.
Pierri notes that consultants are among the key players in fiduciary management, at least in markets like the UK. “This is a world of partner and competitor at the same time,” he says. “You might be a partner but you might be competing with the same firm in different regions or different parts of the business. The point to me is that fiduciary management is putting together different pieces to create comprehensive knowledge and organise it in a way that fits client needs. We saw it as a very natural extension of what we have.”
Although Pioneer may be competing with consultants, Pierri sees potential to team up with one or other firm for some of the fiduciary offering: “I think there’s room for creating a sustainable platform and not getting into significant competition with any of the global consultants,” he says.
The German market is a key one for Pioneer due to UniCredit’s 2005 acquisition of Munich-based HVB, following which Pioneer took over HVB’s asset management capabilities and launched itself as a domestic player. Germany is showing a significant recovery, Pierri says, with €1bn net new inflows this year. “We are clearly a global player but we have local roots, which sets us apart from both the local players and the global players.”
For the CEO, the transition from DB to DC calls for a significant shift into multi-asset products: “This is the underlying trend globally, although the way you do product design for DC is very much local. We are building up a good team but we need to adapt to local market circumstances. It’s a combination of product design and distribution.”
Broadly, Pierri sees a way to set the interests of the firm and its shareholder in alignment with those of clients. “The ultimate goal is not to maximise shareholder value, it is to strike a balance between client interests, employee interests and shareholder interests. It’s a balancing act because the three things need to go together over a cycle and you cannot create a sustainable business if you don’t balance these interests year in, year out.
“You need to start with the right people to produce the right investment results, and you act in the interest of clients, which produces profits, which you need to reinvest in the business. It’s about uniting a virtuous circle within the firm and this is something we are keen on preserving.”