Pioneer confident good times just around corner

For staff at Pioneer Investments, employed in both key business hubs of Milan and London, there is a new feelgood factor beginning to course through the company’s veins. “The message is ‘we’re back’,” says one London-based sales boss. “We’ve had a pretty rough time,” echoes one of his colleagues in Milan. “The good news starts here.”

The changed atmosphere is reflected in the numbers of pitches the Italian-owned fund house is conducting for both private banking and institutional business, believes Roger Yates, CEO of the €162bn investment business. “Pioneer feels like it has moved into a very good place. The business is really starting to hum once more,” he says.

The rough patch related to a recent strategic review which he conducted together with shareholder UniCredit, a leading Italian bank. Through previous uncertainty over the strength of UniCredit itself and an apparent inability of staff to concentrate on investments, while every major competing asset manager was bidding to buy them, management had been keeping a low public profile.

Now with the review over, Mr Yates is back on the road, explaining the group’s future business strategy. Despite the unfavourable current environment for asset management – the least supportive during his 30-year career at groups such as Henderson, Morgan Grenfell and GT – Mr Yates is surprisingly confident.

Pioneer expects to add around €13bn each year to its asset base over the next five years, provided employees can sharpen their focus on key specialisms.

“There used to be 25 managers in each product category making a living, now there are only five in each area, which have all the flows,” he says. But while the cake gets increasingly concentrated in a small number of hands, it is also becoming smaller, due to the encroaching tide of passive investment vehicles.

A barrage of know-your-customer regulations and the aggressive US Fatca rules are also bombarding fund houses, making it more difficult to operate from day to day. Against this background, Pioneer came close to selling up, with no shortage of offers, but in the end decided to keep going with a growth plan.

“We thought very hard about markets and channels we could operate in where we would partner with someone and we had a number of discussions with interested parties,” confirms Mr Yates, who enjoyed the opportunity to explain to his firm’s Italian parents about how fund management worked.

French houses in particular appeared to be on the hunt for acquisition, with interest from the likes of BNP Paribas, SocGen and Amundi. “There are a lot of asset managers in France who do not have a significant US client base,” confirms Mr Yates. “Their Asia footprint needs developing and they are not large in Germany or Central and Eastern Europe. They have gaps which would have made us attractive.”

But the conclusion when it came was emphatic. “We decided that a better return would come from the successful execution of our organic growth plan,” he says.

This meant building on the group’s strong fixed income franchise, managing €90bn and a US business running €35bn, with plans to grow this by $500m (€380m) this year and by $2bn in year five of the business plan. Integrating the US and European businesses has also been a key priority for Mr Yates, who has ripped down the curtain which once separated the two. “The US/Europe split in Pioneer does not exist any more,” he says. “The rest of the business can learn a lot from North America.”

Asia, where Pioneer has a limited footprint in Singapore and Taiwan, was seen as a particular springboard for expansion, with expectations to double the €700m currently flowing into insurance-linked Taiwanese products each year and advanced plans to set up a similarly-sized business in Korea.

“US dollar equity and fixed income product always sells well and is a very important calling card to have when building business in Asia,” says Mr Yates.

Despite all the hype, there is a sense that Mr Yates continues to feel slightly uncomfortable, running a fund house directly owned by a bank with a huge branch network. More than half of his assets, around €85bn, are sourced through the UniCredit channel, most of it from retail customers. Previously, when he headed up Henderson, he was instrumental in the separation of the funds group from its Australian bank owner AMP.

“When people talk about captive fund management firms, they think we have an easy time and money walks in through banking branches, so we don’t really need to compete. That is not true of Pioneer. We are going head to head, every day, with big names across the world,” he says, singling out BlackRock, Fidelity and Schroders as key global competitors. In Italy, Pioneer does battle with Eurizon on a daily basis, Deutsche in Germany and Raiffeissen in Austria.

He can be scathing about so-called captive managers. “The ability of banks to screw up fund managers is legendary,” says Mr Yates. “We want to make sure we have sufficient independence to run business the way we want to.”

This independence has included the setting up of a remuneration committee separate to that of its banking parent, with fund managers rewarded for investment performance, rather than the profitability of the bank. “We want people who have skin in the game, not just general compensation, but strong, long-term incentive structures,” says Mr Yates, who will be hiring 20 new investment staff in the short term to add to his 2,000 existing employees. Recruits are expected to come from failed hedge funds start-ups – a sector which starved long-only groups of talent over the last 10 years. Now, as hedge funds suffer, the trend is being reversed, believes Mr Yates.

“Five years ago, we saw a lot of talent went from the best firms to hedge fund start-ups to get rich.” But many have floundered, struggling to hit a $100m critical mass and are failing to overcome compliance and regulatory hurdles.

In Europe, Germany has been highlighted by Mr Yates as a key focus for Pioneer, which currently runs €19bn there, sourced through group distribution partner HVB. “That business should be much bigger,” he admits. “We can do €1bn of net flows through the network in Germany. We have the ability to change the dynamic of that business.”

While Italy has to remain a priority, because it is where the lion’s share of customer funds are sourced from, it is a part of the business which is not expected to grow in the short-term, following a flight from asset management to deposit products among customers of all banks during 2011. But one huge change Mr Yates has introduced there is to physically embed support staff, expert in the fund products, into the retail network, so that movements of markets and reasons behind product performance can be adequately explained to customers.

Certain parts of the business are also being streamlined, with the ongoing transfer of the once heavily-resourced Russian operation to TKB BNP Paribas Investment Partners a case in point. “Russia had not developed as much as we wanted it to,” concedes Mr Yates. But he insists that Pioneer is still big in Poland, the Czech Republic and Hungary, despite perceptions that both Pioneer and its parent were pulling back from an initial fascination with the CEE region. “Eastern Europe is still a growth part of our business; we have been very consistent there.”

But the priority will be to leverage existing investment strategies for different distribution channels. A big investment in working with distribution partners aims to get Pioneer on more shortlists of product providers, now being used by most European banks. Regulations such as Mifid further encourage this use of preferred providers, believes Mr Yates.

“UniCredit has 10 providers, of which we are one. Maybe that is the future,” he believes. “In theory, once you’re in one part of the organisation, you should be in the whole bank. They all claim to have a global approach to choosing fund managers. In practice, there is quite a different approach in Europe, the US and Asia. These banks are often less integrated than their literature suggests. But if you have a good quality product, the distribution will always find you.”

Roger Yates, Pioneer