Pioneer Group, the entrepreneurial Boston-based mutual fund company, is banking its turnaround hopes on a reorganization plan that is focused on cost cutting and accountability.
Earlier this month, Pioneer announced it expected to lose between $14 million and $16.5 million or $.55 to $.65 per share in the third quarter. It expect earnings to fall between TK and TK per share in the third quarter.
"Losses weren't surprising, but based upon preliminary numbers, the magnitude is a little higher than you would have hoped," said Michael S. Beall, analyst with Virginia-based Davenport & Co., a money management firm. But Beall said the company's reorganization, which splits Pioneer into three divisions -- international mutual funds, domestic mutual funds and Pioneer global -- "is long overdue and will refocus the company."
Timothy Frost, director of corporate planning and communication for Pioneer, said the overall goals of the restructuring include reducing corporate debt, finding a strategic partner for a timber operation in Russia, dramatically boosting productivity at gold mines in the Republic of Ghana and streamlining Pioneer's organization.
New marketing ventures include a major push for retirement accounts in Poland, a strengthening of the wholesale force in the U.S. and a public relations campaign with intermediaries emphasizing Pioneer's strong showing in a customer satisfaction survey conducted by an independent financial services company.
The expected losses have been caused by the gold mining and timber operations, Beall said. In addition, there has been a virtual shutdown in the mutual fund business in Russia because of currency problems that have closed financial markets. Pioneer banking offices in the country have been closed and the brokerage activities scaled down dramatically, resulting in numerous layoffs.
"We're downsizing, but not abandoning the market," said Frost. Previously separate investment operations in Poland and the Czech Republic are now merged and handled in the Moscow office, he said.
"In Russia, we're in a three-month to three-month review," said Frost, who formerly headed up the Moscow operation, but is now back in Boston. In Poland however, where it has an 80-percent market share of the mutual fund business, Pioneer is planning a heavy marketing campaign.
Pioneer is anxious to take advantage of a promising new market opening in Poland next April when the government will allow individual citizens to decide whether to opt out of the state-run pension program and invest with a private money management firm. Pioneer is one of the first companies to obtain a license to handle the private retirement programs.
"We expect there will be at least 10 companies who will get approval to compete," said Frost. "And we are anticipating that we'll develop a fairly significant advertising campaign -- print, radio and television -- to take advantage of our known brand identity and try and reinforce that."
In the U.S., a major part of the reorganization is the merging of Pioneer's investment management and marketing units. No new marketing initiatives in conjunction with the reorganization are planned right away, says Anne Patenaude, a Pioneer spokesperson.
Pioneer recently completed a realignment of territories within the U.S. for its wholesale team, which has been expanded to 28, up from 22, Patenaude said. Pioneer also plans to expand its trade advertising.
In addition, the company is preparing marketing materials for distribution to intermediaries that will highlight Pioneer's high rankings from Dalbar's recently completed broker/dealer survey for mutual fund companies, which reviewed quality of service. Pioneer ranked first among the 23 largest mutual fund groups in 13 of 21 categories, including product information, ease of doing business, overall marketing, servicing clients and problem resolution.
Combining the investment management and marketing functions will further improve the company's internal communications, says Patenaude. Analysts say the reorganization has been prompted by increased criticism of Pioneer, whose stock price has lagged other mutual fund companies. The stock, which had traded above $30 in the past year, dropped below $10 per share briefly in early October. It has since rebounded to the mid-teens.
Pioneer's mutual fund assets under management, according to Dalbar, have declined about 6.5 percent to $17.5 billion as of August 30, compared to $18.7 billion a year earlier.
Pioneer s problem have extended beyond its losses in Ghana and Russia. There has been increased criticism from analysts about the way Pioneer does business. One enduring issue is the dual roles of John F. Cogan Jr., the company's 71-year-old CEO and chairman, who is also a partner at the Boston law firm of Hale & Dorr.
The reorganization creates three presidents for each of the new divisions, lightening Cogan's responsibilities for day-to-day operations and giving him a greater role in directing overall corporate strategy.
"This is more in line with how a traditional mutual fund company operates," said Frost. "There's now a degree of coordination that was missing in the past."
Besides the reorganization, which Beall said will significantly tighten the chain of command and strengthen accountability, Pioneer is actively looking for a partner or buyer for its Russian timber operation. Currently, the operation is being run by a Finnish timber concern. But he said sale of the gold mining operation is not being considered now.
"The structure is there, and seeing is believing. It appears they're serious," says Beall of the company's reorganization.