Pioneer Investments of Boston has undertaken a global initiative to bring its investment management capabilities to the developing markets of India and Russia. The goal is to be among the top five players in those two markets in three years.
In India, Pioneer has signed a joint venture deal with Bank of Baroda, the first deal of this kind in India. Under the terms of the agreement, the financial terms of which were not disclosed, Pioneer is acquiring a 51% majority interest in Bank of Baroda, a state-owned local bank/asset management company with under $25 million in assets.
Bank of Baroda has 2,700 branches in India with plans to open 100 more this year, said Angus Stening, head of Asia and emerging markets at Pioneer Investments in Dublin. Stening is heading up integration into these two new frontiers. "Investors want a one-stop shop, and they trust their banks," he said.
The new firm will be called Pioneer Baroda Asset Management, and the managerial responsibility will fall to Pioneer. But the two firms have strong brands and will not opt to co-brand financial services. Rather, the two separate brands will peacefully co-exist, and the firms will cross-endorse each others products, Stening said. Although Bank of Baroda will sell others' mutual funds, Pioneer will become the preferred partner.
Building Together in India
The joint venture business will officially launch in Mumbai in the first quarter of next year. A task force of Pioneer's employees is now there setting up the operations and will remain there for up to 12 months. "You cannot suitcase-manage this," Stening said.
The macroeconomics of India is appealing to Pioneer and its parent, UniCredit Italiano, Stening said. Although Mumbai's infrastructure is still significantly underdeveloped, the overall Indian market is growing at a steady, double-digit pace. The Indian mutual fund marketplace now has between $70 billion and $80 billion under management, double what it was in 2006, Stening said. "Everyone who's participating in this marketplace is getting in at the very beginning," he added.
Although India's financial services market was, early on, driven by independent financial advisers, that market is now taking on more of a European distribution model with banks becoming significant distributors, Stening explained. Bank of Baroda was beginning to develop its wealth management platform, making it a nice fit for Pioneer, he said.
Specific investment products to be offered have not yet been decided upon, but on the drawing board are products that will offer exposure to the U.S. and other global markets, in addition to investments within India's equity markets and investment products for non-resident Indians looking to invest in their country of origin which, Stening said, is a huge market. "It all will come down to how you package products, product innovation and trust in the brands," he said.
Pioneer is also moving into Russia with its recently formed Greenfield, an asset management company 100% owned by Pioneer. The business will launch this December.
But in Russia, Pioneer will be leveraging the relationship and strength of its parent bank, which is majority shareowner of Industrial Moscow Bank. Greenfield will offer its financial products through Industrial Moscow Bank's banking channel.
The macroeconomic growth picture for Russia is similar to that of India, although the Russian financial services market is more developed, Stening said. The difference in Russia is that Pioneer is setting up a brand new operation from the ground up. "It takes longer, but you get to do it your way," Stening said.
Right now, Stening believes Pioneer is ahead of the pack in Russia. "There are very few foreign, global asset managers in Russia," he said. Several ventured there years ago, but left after minimal success. Now, a few are venturing back in. About 30% to 35% of the mutual funds distributed in Russia right now are sold through Citigroup, he added.
For Pioneer, the greatest challenges to building a global presence in India and Russia right now lies in the proper execution and in recruiting good, talented people that can fit easily into a global organization, Stening said.
This is not Pioneer's first business ventures in either of the two countries, although these are the first since UniCredit Italiano acquired the firm in late 2000.
In its previous life as Pioneer Group, the firm was a more diversified company, with U.S.-based mutual fund operations as well as offshore funds operated out of Dublin. But the original Pioneer also owned a Russian-based bank and financial services company, had a joint venture operation in India with Trust of India that was called Kothari Pioneer and ran a gold and timber mining operation in the Republic of Ghana.
In 1998, amid a big scandal and charges of fraud at its Russian bank, Pioneer closed down its financial services operation there. The 2000 purchase by UniCredit Italiano of the firm's investment management operations paved the way for other non-core units to be sidelined and eventually sold.
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