Fidelity Investments is increasingly tapping the capabilities of its broader organization to serve institutional clients, seven years after the company established Pyramis Global Advisors as its dedicated champion for those clients.
Fidelity veterans, who declined to be named, said a belief that Boston-based Fidelity — a dominant player in the mutual fund and 401(k) sectors — had lagged in the competition to win business from clients such as public and private pension plans led the company to announce a hefty investment in March 2005 to build a separate institutional money management arm in Smithfield, R.I.
In a March 5 telephone interview, Ronald O'Hanley, president of Fidelity Asset Management, said raising Fidelity's profile with institutional clients — from pension funds to defined contribution investment-only clients — remains a priority. “There's nothing more important to us strategically in asset management than ensuring that we perform for, and serve, the institutional segment as well as we do the individual,” he said.
Pyramis will remain a provider of “distinctive” risk-controlled alpha for institutional investors, but the opportunity now is “to bring a broader set of capabilities” to the table, “drawing on other parts of Fidelity, and then engineering those solutions in a way that's completely tailored to and fits the needs of the institutional client,” he said.
Over the past year, asset allocation became the latest area in which a separate institutional effort by Pyramis yielded to a broader effort led by Fidelity, even as top Fidelity executives added Pyramis titles and Pyramis executives took on Fidelity titles.
The new “partnership” cited in the 2011 annual report Fidelity released March 7 left Derek L. Young, Fidelity's president, global asset allocation, leading the charge in providing asset allocation services to institutional clients. With the change, Mark A. Friebel, who joined Pyramis in October 2006 as the company's first head of asset allocation, became a senior vice president, portfolio manager and a member of the Pyramis global asset allocation and global investment strategies team.
When Fidelity announced its separate institutional effort in March 2005, it highlighted Pyramis' “independence” and “self-sufficiency” in relation to the parent company's dominant Fidelity Management & Research Co. mutual fund business — an effort to allay possible concerns of investment consultants and institutional clients that an institutional effort within Fidelity would remain an afterthought in any fight for resources. From the start, the separateness of Pyramis was never absolute. Fidelity's fixed-income operation in Merrimack, N.H., continued to serve both retail and institutional clients, even as Pyramis installed dedicated teams of portfolio managers for equity and alternative strategies in Smithfield.
The wording in the company's latest annual report, however, seems to further chip away at the idea that separateness is a selling point, referring to Pyramis, in part, as a “portal for institutions to access the full breadth of Fidelity's investment management capabilities, particularly fixed income and asset allocation.”
If Pyramis' assets under management are taken as a broad gauge of Fidelity's institutional presence, it's hard to conclude that the company's launch in 2005 has paid dividends.
Shortly after the new unit was formed, Fidelity reported it was managing $101.2 billion for more than 530 institutional clients worldwide as of June, 30, 2005 - about 9.2% of the broader company's $1.1 trillion in assets under management. For the year ended Dec. 31, 2011, Pyramis reported roughly $165 billion in assets, including $50 billion in Canadian mutual funds. Discounting those retail assets, Pyramis had roughly $115 billion in institutional AUM, or 7.5% of Fidelity's $1.5 trillion.
For 2011, Pyramis reported net outflows of $3.1 billion, down slightly from $3.2 billion for 2010.
Mr. O'Hanley noted that industrywide outflows from equities affected Pyramis as well last year. Still, Pyramis enjoyed record inflows for both fixed-income and fiduciary outsourcing mandates from small and midsize defined benefit plans. The “pipeline has never been stronger,” he added.