New look Pioneer pins hopes on fixed income

Most new chief executives commission an extended six-month review of a business soon after taking over. Not so Sandro Pierri, who took the helm of Italian funds house Pioneer Investments in the middle of 2012, having the luxury of a certain familiarity with the group, which he has served since 2003.

“I had the benefit of being with Pioneer for quite some time, so it was a relatively quick review,” says the jovial investment boss. “I did not have to start from scratch.”

Yet despite his often light-hearted exterior, Mr Pierri has a steely plan of action in mind. This involves fine-tuning the company’s investment engines, shifting resources from the once unassailable Milan head office to the new London nerve centre and continuing the work of the previous regime, under ex-Henderson leader Roger Yates, to boost non-captive business. Mr Pierri’s overall, ambitious goal, is to establish Pioneer as a leading investment house in both the institutional and wholesale spaces.

Central to this task has been a re-engineering of the fixed income investment process plus a competitive positioning of the emerging market debt offering.

The market is clearly appreciating these improvements, with €6bn having flowed into Pioneer products during the first six months of 2013, 75 per cent of this invested in fixed income strategies including high yield, multi-sector bonds and absolute return funds.

Although Pioneer is prepared to swing either way across the great stock-bond divide, the subsidiary of Italian bank Unicredit is being increasingly seen as a bond specialist because more than 60 per cent of its €170bn in assets under management are invested in fixed income.

“We have not seen allocation to equities to be honest, which is why we are a fixed income player,” says Mr Pierri, dismissing any hype about a ‘Great Rotation’ away from bonds. “We are still waiting for it to happen.”

A comfortable fit

Even though the economic story may be shifting away from bonds, it is not easy to persuade senior investors to make the same switch. Clients have also been comfortable with performance, which has been ahead of the competition “in a difficult fixed income environment,” he says.

“In excess of 60 per cent of clients are in the 55-65 age group, so to expect this group to switch to equities is a long-shot, when they are approaching retirement age,” adds Mr Pierri.

“The challenge for fixed income will be how to deliver results, as big positions in our business will continue to be held in bonds.”

This means moving from duration-led bond management to a much more benchmark-uncorrelated product, focusing on  unconstrained multi-sector bond strategies  in a rising rate scenario for the group’s “fixed income 2.0” incarnation.

The group’s structure is being determined by a structural rather than cyclical change in the operating environment, which will mean fixed income will be the key revenue generator for at least the next 10 years, believes Mr Pierri.

“If there is no easy money – and we believe low yields are here for some time to come – you have to create a way of making money from bonds.”

There will eventually be a rotation into equities, he admits. “But it will be less than people expect.”

Nevertheless, he is keen on brushing up the equity process to bring the consistency of Pioneer’s returns up across the board. A strategic decision has been taken to boost research capacity in London, where 17 analysts have been added to the team, with an increased emphasis on global emerging markets and high yield investments.

Pioneer has chosen to base these staff in the UK rather than the target Asian markets, because the challenge of finding the “right talent” is a greater priority than geographical proximity to markets, says Mr Pierri.

“The definition of emerging market equity is becoming more and more blurred,” he claims. “European and US companies get 50 to 70 per cent of their profit from emerging markets and are also starting to get more revenue from developed markets.”

So rather than step up presence in faster-growing emerging markets, Pioneer will continue to develop its key global manufacturing hubs in Boston, Dublin and London. Other, more localised, markets will be serviced by operations in Milan, once the group’s most powerful office, plus Munich, Vienna and Warsaw.

This shift in emphasis between centres will see Pioneer become less of an Italian company and more of an international brand, believes Mr Pierri. “Until two years ago, we had limited manufacturing in London, but now we have a significant emphasis to create a presence here,” he says.

“Milan is not being downgraded, but there is now a clearer focus on the role the Milan office is playing, which is managing multi-asset products for our Italian distribution channel through the Unicredit banks.”

Less than 50 per cent of Pioneer’s asset base and less than 40 per cent of profits now emanate from what was always seen as the group’s home country. “We are less Italian than before,” smiles Mr Pierri. “We have seen significant diversification of our business. This is more important than the direction of the business. If you want to be blessed, you need local staff in different places.”

With only 350 of the company’s 2,000 staff now originating from Italy, there is a cultural transformation taking place as well as an investment shake-up. But with Italians still dominating the company’s higher echelons, it is a message which Pioneer management is still struggling to articulate both to staff and clients. 

One-stop solution

Although Pioneer has a “clear focus” to grow its assets managed on behalf of external parties, the firm has been stepping up investments into product delivery channels at parent bank Unicredit since 2009.

Latest initiatives include embedding 20 Pioneer sales staff within the regional head offices of the retail bank. “They are busy training bankers on new product launches,” says CEO Sandro Pierri. “This is a significant commitment to the cause,” and is already helping to boost revenue.

“We are beginning to see payback and starting to get our fair share of flows and some acceleration.”

Retail money in Italy is favouring multi-asset products, with Pioneer scooping up €1bn through these channels during the last three months.

In order to help customers with the transition from fixed income to equity, Pioneer is buying them high-dividend paying equities as part of the product. The multi-asset package, tried and tested in the Italian retail market, is now becoming Pioneer’s core product across Europe for affluent clients.

He expects this offer of a one-stop solution to make the sales process in the retail channel simpler. “There will still be a space for sophisticated building blocks, where private banks want to keep control of asset allocation, but the retail and institutional businesses will both go multi-asset.”

Levels of expertise in manager selection at private banks have risen significantly during the last five years, adds Mr Pierri, with professionals now defecting from institutional investment consultants to private banking platforms.

Branch-based distribution is also healthy in Poland, through sister institution Bank Pekao. But Russia tells another story. “We will not achieve critical mass in Russia, which is why we are pulling away,” admits Mr Pierri.