Fidelity Banking on Pension Business

After folding the existing $72 billion in institutional pension assets Fidelity Investments had under management into Pyramis Global Advisors last year, Pyramis has since grown by another $20 billion through a combination of market appreciation and new business, The Wall Street Journal reports.

And the importance of this unit devoted to institutional clients, at Fidelity appears to be growing, particularly as sales of the firm's retail mutual funds are lagging those of Vanguard and American Funds.

Industry analysts applaud Fidelity for creating a separate unit devoted solely to institutional clients, as they commonly perceive management of retail funds as far more rudimentary as running an institutional portfolio.

"Institutional investors expect a very different approach to managing money than their retail counterparts do," confirmed Will Wechsler, a vice president at Greenwich Associates, which consults with institutions on their investments. Whereas individual investors focus on the past returns of funds, institutions tend to focus on strategies.

Fidelity first created Pyramis by transferring 90 investment professionals to the new business and hiring another 25. Over the next 18 months, Pyramis plans to hire 25 more.

Fidelity followed a similar blueprint when it began growing its 401(k) business, by forming it as a wholly separate division of the company that the marketplace perceived as a defined contribution specialist. Now that Fidelity, which has been running institutional money for 25 years, has its dedicated Pyramis unit, it will be interesting if it becomes as much a success to Fidelity as has been the 401(k).

What also remains to be seen is whether Pyramis, like Fidelity's brokerage and index fund business, will compete on price. Some believe that will be a critical component, as Pyramis attempts to take on the giants in the business--Barclays, State Street Corp. and Mellon Financial.