Santander deal settles question on fate of Pioneer

The announcement last month that UniCredit Group and Banco Santander are set to merge their money management divisions put an end to months of speculation over the future of Pioneer Investments.

The non-binding, preliminary agreement, announced April 23, is between Pioneer parent firm UniCredit and Santander Asset Management's owners — 50% Banco Santander, and 50% between private equity managers Warburg Pincus LLC and General Atlantic LLC.

The deal includes the creation of a holding company — Pioneer Investments — that will own 100% of Pioneer's U.S. operations, and the combined non-U.S. operations of Pioneer and SAM.

The overarching holding company will be owned 50% by UniCredit, and 50% by Warburg Pincus and General Atlantic. These three firms also will own 66.7% of the newly combined Pioneer ex-U.S. business and SAM; Banco Santander will directly own the remaining 33.3% of that combined firm.

A money manager with almost e400 billion ($447.4 billion), it is set to pose serious competition to the money management landscape - particularly in Europe.

“The planned merger will create a huge player with global reach thanks to substantial synergies, especially in terms of geographic distribution,” said Francesco Paganelli, Milan-based fund analyst at Morningstar Inc. “A higher scale will likely provide an edge compared with smaller, local players in terms of geographic diversification, product offering, costs and margins, whereas from a fund investor point of view it remains to be seen whether the overall quality of the fund range will actually improve.”

Erwin van Lumich, Barcelona-based managing director, responsible for non-bank financial institutions at Fitch Ratings, said the firm estimates the combined Pioneer Investments “would be a top 20 asset manager in Europe in terms of AUM — so a touch of consolidation, but the industry is still very fragmented. Therefore, we feel that while it gives the entities involved a stronger position, it does not change the composition of the landscape in a very material matter.”

Juan Alcaraz, London-based CEO of SAM, will become CEO of the new entity, while Giordano Lombardo, CEO and group chief investment officer of Pioneer Investments, will become global CIO for the new firm.

“As both firms boast a large asset pool, (with SAM bringing e172.5 billion of assets under management, and Pioneer e225 billion) it makes sense (to have) a split of the top-level management positions (of) CEO and CIO,” said Mr. Paganelli.

The new firm will have “a truly global reach, with well diversified geographic mix and presence in almost all major asset management markets, including the highest growing global markets of Latin America and Asia, and presence in 31 countries,” said spokesmen for Banco Santander in an e-mail. They added that the merger will allow for further expansion of Pioneer's institutional platform, and will contribute to “the acceleration of the institutional build-out in emerging markets.”

In response to questions by e-mail via a spokeswoman, executives at Pioneer Investments highlighted SAM's position as the “largest international asset manager in Latin America, along with a large business in Spain and Portugal where Pioneer is relatively less present,” as gains for the firm.

On the strategies side, analysts were positive for clients of both businesses. The businesses are fairly complementary “on the fixed-income side, as Pioneer has three well-resourced teams (in Boston, Dublin and London) respectively for U.S., European and emerging markets,” said Mr. Paganelli.

With Mr. Alcaraz becoming global CEO, London will be the combined firm's headquarters. “As the HQ will be in London, another issue is linked with the location of the investment teams,” warned Mr. Paganelli. With offices in locations including London, Dublin, Munich and Milan, and Santander's investment teams mostly in London and Madrid, and some operations in Latin America, “if the whole investment team relocates to London there could potentially be some staff turnover.”

However, staff is a major positive for the newly combined firm. “It's likely to compete with the largest players in the industry,” said Mr. Paganelli. “We do believe some of the Pioneer's teams have an edge compared with several competitors: that's true for the European fixed income and equity teams, where Pioneer boasts several highly experienced and skilled investors,” he said, highlighting head of European fixed income Tanguy Le Saout among others as serious talent assets.

As for Banco Santander's non-involvement in the U.S. side of Pioneer's operations, the spokesmen said with Santander focusing on other parts of the business, the group doesn't think this is the time to add new businesses to the mix in the U.S.” n