Sandro Pierri took over the role of Pioneer Investments
chief executive from Roger Yates in July 2012, and with it the
responsibility to implement a five-year plan. As he was
involved in devising the plan, Pierri did not feel the need to
make any major changes and so was 18 months into the
implementation phase when he spoke to Global
Parent firm UniCredit thoroughly considered the future of
Pioneer in 2010, getting as far as talking to potential
suitors, but ultimately decided the best option was to invest
and grow the business. The final decision was taken in April
2011 and Yates was charged with creating a five-year plan over
the summer. UniCredit backed the plan with significant
investment and the results are now starting
The business sources roughly 50% of its assets under management
(AuM) via UniCredit's distribution channels, including its
private bank and Fineco independent financial advice business,
but this share is heading towards 40%, in line with the plan,
as more business is flowing in from external sources.
At the end of Q3, Pioneer had around €7.5bn ($10bn)
net new flows year on year, which are "pretty significant
numbers" and ahead of schedule. "It is good to start with the
right momentum," says Pierri, adding that it is flowing from a
wide geographic mix of countries, institutional as well as
retail sales, and includes a pick-up in equities to complement
its predominantly fixed income business. "It is not only about
the numbers - it is also about the quality of the
The five year plan
While the bulk of the five-year plan remains intact,
Pierri's style is different and is perhaps more in tune with
the task in hand. "I am obsessed by execution. I think it is
really the differentiating factor. But we really were very much
in alignment in the three years we worked together."
Due to the plan's long timeframe, some adaptation to
circumstances was necessary. "Our GEM [global emerging markets]
and global equities capabilities have enough traction. But I
wanted to make sure we avoid huge investments upfront and then
just hope for a hockeystick effect [investing now and hoping
the business will take off later]. I wanted to have a more
He also wanted more focus on maximising fixed income
opportunities. "I felt that fixed income is going to be an
important development, given it is a large pool of assets and
it will stay there. I wanted the team to refocus a bit more on
the institutional channels because that is where we have the
largest fixed income pool. It is the best match with our
The end of QE
The key issue for all fixed income asset managers is
the tapering of quantitative easing (QE) and the return to
normal interest rates. As the US Federal Reserve rate is the de
facto global risk-free rate, any increase will have a knock-on
effect globally for government and corporate bonds. Pioneer
does not expect rates to rise in 2014 but knows this will
happen at some point.
"The challenge is how orderly this transition will be. If it is
orderly, it is going to be longer-term and something that will
create opportunities along the way. If it is not, it could be a
significant challenge. The risk is that there is a complete
misalignment between investor perception and reality about the
safety of fixed income returns."
Everything will depend on the deftness of institutions such as
the Fed in managing perceptions. "Clearly, it is mostly about
communication. No one doubts that interest rates will at least
definitely not fall again. The Fed tested the water in June but
made a much more benign comment in September. They are trying
to manage this transition in a reasonably orderly way, which is
Fixed income challenges
The predominance of fixed income in its business
could be seen as a strategic difficulty, but Pierri does not
think that tapering will cause an exodus from the asset class.
While he believes equity valuations are more attractive than
those for fixed income, he believes hype surrounding the great
rotation is overdone.
"On the institutional side, you still have liability-matching
portfolios so fixed income will still be a relevant part." He
notes, for example, that Solvency II pushes insurance companies
in Europe towards fixed income by penalising riskier
"The fact is that the fixed income pool of assets is so large
that it will not go away. We can do a better job than just
advising clients to go into equities, which they will never
He also notes that demographics are working in the other
direction as, on the retail side, there is a concentration of
investors approaching retirement and it is "difficult to
believe that they would aggressively walk away from fixed
But the returns created by even the most astute strategy could
quickly be wiped out by swimming against the tide of rising
rates. He says that two elements are crucial to combat
"Clearly, you have higher risk." He says the riskiest part of
the fixed income spectrum - high yield and emerging market debt
- will probably offer good value and yield pickup. "Fixed
income investors need to be prepared to take more risk than
plain sovereign or investment grade bonds," he warns. "It's
going to be difficult."
The second element is structural. "You need to be in a position
to allocate between the different sectors of fixed income over
time in a reasonably aggressive way. Even on sovereign, even
with a rising interest rate, there will be tactical moments
when it probably makes sense to allocate.
"The issue is how to prepare your fixed income offering,
starting with lowyield, for a potentially long period of rising
interest rates. Flexibility in allocation is of paramount
importance. It needs to be done within a very disciplined risk
Pioneer has approximately 24 dedicated analysts in its US and
European fixed income teams, with specialists in currency,
interest rates, loans and infrastructure among other areas.
"Outside the plain vanilla toolkit, you need the right
resources to spot opportunities."
But, for now, Pierri is seeing only "incremental flows into
equities" where new cash is being deployed rather than leaving
fixed income. "Clearly, the hot days of the past five years are
slowing down," he says, but this means only that investor
preferences are shifting towards unconstrained, multi-sector,
fixed income products.
The role of multi-asset
Investment has become much more benchmark agnostic,
he says. "It is really about how you can protect clients' money
rather than replicating an index." One method is the
unconstrained approach - an absolute return fund potentially
spread across several asset classes - with a series of
uncorrelated alpha sources.
He suggests the new key ability is to allocate among different
asset classes. He says it is better to trust firms with
multiasset products, of which Pioneer is one, that can quickly
adapt asset allocation in response to market events. "That is
what is really behind the growth in multi-asset, solution-based
products," he says.
He says that in the US almost 60% of Pioneer's flows are into
multi-asset products, "which are ones that we did not have five
years ago". He says there is also evidence this is starting to
happen in certain European markets. "It is a question of also
creating the right package in the right geography. We are well
The approach includes asset classes such as high-dividend
equities, and there are plans progressively to increase the
number of asset classes to include loans, infrastructure and
real estate. He stresses that these are not the same as
balanced funds, fashionable with pension funds in 1990s.
"The real difference is the breadth of underlying asset classes
- that is where the game will be played. It is really about how
credible each firm is in addressing the less traditional asset
classes within a multi-asset framework."
Pierri says middle-tier pension funds are increasingly joining
the traditional retail investor base for multi-asset funds due
to the cost of effectively monitoring multiple mandates across
many asset classes.
Emerging markets were also a key part of the
five-year plan. On the distribution side, Pioneer has a "pretty
sizeable" business in the US and is gaining traction in markets
such as France, Switzerland and Spain, but has identified
emerging markets as crucial to future growth. "We probably have
a better chance if we really invest for future growth in the
larger emerging markets."
He mentions that Asia and Latin America are his top prospects
and notes that lead times are usefully shorter than in crowded
developed markets. Pioneer has already started a significant
initiative in Mexico, where it has already won a couple of
large institutional mandates. It also set up a joint venture
with Bank of Baroda, one of India's largest public banks, in
2008 to distribute its funds.
On the investment side, the plan to make London its emerging
markets hub has been completed. It was decided that it was
preferable to have the whole team sitting in one place with a
consistent investment process and tap into London's
international expertise than have a scattered local presence.
"At the end of the day it is a question of whether you have
access to the best talent pool."
While still concentrating on the five year plan, he is also
considering building up a liquid alternative business, which is
becoming a trend in the US and Europe. But this would be an
evolutionary, not revolutionary, move as it would be adding to
Pioneer's existing credit and long-short equities offerings in
European and Asia.
The next 18 months are about momentum. "We want to see flows
because that is the real indication of the health of an asset
manager. At the end of Q3 the numbers were very promising. The
next step is sustaining and maintaining this momentum."