Money Troubles

UniCredit Looks at Slimming Down

  • Why it matters

    Why it matters

    Whoever takes over Pioneer Investments will have much work ahead to turn around the Unicredit subsidiary, but also advantages in some key areas, such as commodities and absolute return products.

  • Facts

    Facts

    • Unicredit is said to be entertaining interest from a consortium led by the Italian Post, French manager Amundi and U.S.-based Ameriprise Financial, among others.
    • According to evaluations at the third quarter’s end, Pioneer Investments dropped down to 42nd place in the rankings of the 63 leading investment funds.
    • Bankers estimate a Pioneer deal could bring in €3.2 billion to €3.5 billion for Unicredit.
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    Audio

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Headquarters of UniCredit, Italy’s biggest bank by assets, is pictured in downtown Milan
UniCredit's headquarters in downtown Milan. Source: Stefano Rellandini / REUTERS

It’s been from pillar to post over the years. Italy’s biggest bank Unicredit has long considered selling its funds subsidiary, Pioneer Investments, but then changed its mind a few times.

“It would be nice if peace were to finally return to the owners’ front,” said Rüdiger Sälzle, the head at corporate consultancy Fonds Consult.

Now it appears an end is finally in sight. The bank is mulling over offers for its €226 billion ($240.3 billion) funds subsidiary, one of Europe’s largest asset managers.

According to industry circles, the main bidder for Pioneer is a consortium led by the Italian Post, together with domestic money manager Anima-Holding and state bank Cassa Depositi. Large French manager Amundi has also confirmed its interest, and rumor has it U.S.-based Ameriprise Financial, Australian bank Bank Macquarie and Scotland’s Aberdeen Asset Management are also considered potential bidders.

Unicredit’s motivation for selling is clear: The struggling European bank, which also owns major German player HVB, needs the money. But whether its fund arm is a good buy for somebody else is another question.

Despite all the attention, ratings agency Feri EuroRating has calculated for Handelsblatt that the asset manager is not necessarily delivering with its investments.

“Pioneer has clearly fallen behind compared to the competition; only one fund in four still has a good rating,” said Christian Michel, who heads Feri’s funds team.

The agency’s calculations are determined by looking at earnings and value fluctuations in relation to competing comparable funds. Grades for individual products are aggregated and a rating is reached for a manager’s overall product portfolio, explained Mr. Michel.

Based on third-quarter results, Pioneer Investments dropped down to 42nd place in the rankings of the 63 leading investment funds. Mr. Michel said the weakness is spread over a variety of investment areas. He named equity products for North American and Europe and bond funds for government securities, high-yield securities and emerging economies.

But there are positives too. Feri said the fund is still in a good position in certain investment areas, such as commodities and so-called absolute return products, which strive to achieve positive returns while keeping interim losses low.

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The question of who will get their hands on Pioneer Investment has become political. Italy’s oversight authority favors a national solution, according to an insider, since Pioneer also manages pension funds and is an important purchaser of Italian government bonds.

“Should there be a domestic deal, Pioneer needs the independence to take the business forward in a modern way, perhaps by going public,” agreed Kevin Pakenham, founder of London asset management firm Pakenham Partners.

Unicredit urgently needs the money from a sale of Pioneer. Struggling to make profits amid the wider ongoing crisis in Italian banking, Unicredit has been forced to consider a capital increase. Bankers estimate a Pioneer deal could bring in €3.2 billion to €3.5 billion ($3.4 billion-$3.7 billion). A final decision on the sale is expected to be made in December.

Selling the asset manager could put an end to unrest the company has been suffering from for awhile now. The bank attempted to offload Pioneer for the first time six years ago. The latest attempt in spring failed, as did a merger with Santander Asset Management. Michael Klimek, founder of the consultancy Klimek Advisors, calls it “a sad story.”

“Some of the products are unsuitable for comparisons with competitors.”

Evi Vogl, Pioneer Investments Germany head

There are repercussions for Germany too. Eleven years ago, the Italian lender swallowed Germany’s Hypo-Vereinsbank, HVB, along with its fund subsidiary. Pioneer’s head in Germany, Evi Vogl, estimates the capital of domestic customers at €21.5 billion. There are some 150 Pioneer employees working in HVB’s Munich headquarters.

Ms. Vogl said she disagrees with Feri Eurorating’s assessment that Pioneer is falling back from competitors.

“Some of the products are unsuitable for comparisons with competitors, because they are tailored to specific customer requirements and a special risk profile,” she said. She pointed to products like the “HVB Vermögensdepot (assets depository)” which has earned consistently bad marks from Feri Eurorating, even though she claimed investors have sunk more than €3 billion into them.

According to Ms. Vogel, the problem is mainly with European equity funds, which have in general had a tough year. “We were off the mark here and there in the selection of individual securities and industries. We also hadn’t counted on the Brexit vote coming out the way it did.”

Feri agreed that within a short time, Pioneer’s top European performers had fallen from a top rating to an average rating.

Pioneer’s Germany head did acknowledge that performance has been partly sacrificed of late due to a defensive stance. “We did badly in our choice of maturities when there was an upswing in price.” Consequently, only modest gains resulted from the bonds chosen in the fund because of short-term maturities. On the other hand, the prices of high-yield bonds from issuers with low credit standing were able to increase robustly.

To be fair, Feri’s strategists haven’t suggested writing off Pioneer just yet, either. European bonds aside, bonds from emerging countries happen to be performing well. When coupled with promising positions in commodities and absolute returns, there is at least a glimmer of hope for the Italians.

 

Ingo Narat is an editor with Handelsblatt’s finance section, covering financial markets and asset managers. To contact the author: narat@handelsblatt.com

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