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Pioneer Shifts Acquisition Strategy


Pioneer Investments of Boston is acquiring yet another asset management firm. But this time, rather than purchasing another mutual fund company or fund family, Pioneer will acquire Vanderbilt Capital Advisors of New York, an investment firm that specializes in separately managed fixed-income strategies and structured finance products.

Vanderbilt is particularly well known for its collateralized debt obligation (CDO) products, which securitize pools of debt assets such as loans or bonds. Interests in these pooled products are then parsed out and sold predominantly to institutional investors. Vanderbilt, which up until now has been fiercely independent and employee owned, manages a total of $13 billion, of which $6.6 billion is in CDOs that combine asset-backed securities, according to Standard & Poor's. That makes Vanderbilt the eighth-largest CDO manager overall and the fifth largest in terms of managing asset-backed securities CDOs (see accompanying chart).

Financial terms of Pioneer's purchase of Vanderbilt, named for New York's Vanderbilt Avenue, were not disclosed. The firm will operate as a wholly owned subsidiary of Pioneer Investment Management USA, the U.S. operating name for Pioneer, and will retain its staff and four offices. Emad Zikry, who now serves as president and CEO of Vanderbilt, will report directly to Pioneer President and CEO Osbert Hood.

Zikry's professional background includes serving as executive vice president and chief investment officer of ARM Financial Group, and managing director and head of fixed-income and quantitative services at Mitchell Hutchins Institutional Investors, which was a subsidiary of the former Paine Webber, since being renamed UBS Financial Services.

This strategic acquisition will allow Pioneer to focus more on growing its institutional business, in particular in Europe and Asia where demand for CDOs is strong. Up until now, Pioneer's acquisitions have largely bolstered the firm's retail asset management competency.

"One of our goals [in acquiring Vanderbilt] is to expand our institutional business by leveraging the capabilities we have across Pioneer both in the U.S. and abroad," said a Pioneer spokesperson. "We are buying Vanderbilt in part for its potential to reach global markets. There is a demand in the U.S., Europe and Asia for structured funds," the spokesperson added. Right now Pioneer, which is a wholly owned subsidiary of Italy-based UniCredito Italiano, operates in 18 countries.

The deal gives Vanderbilt, which currently operates only in the U.S., access to Pioneer's global platform and the ability to broaden its CDO and other offerings, said Roger Hartley, a managing director in the San Francisco office of Putnam Lovell. "U.S. CDO issuance was $160 billion last year, according to Moody's, a 72% increase from 2004," he said. "This is an area in which institutional investors are keenly interested," he noted.

That product trend is likely to push more traditional asset managers to take a closer look at potentially acquiring other CDO players, Hartley predicted. "There is an increasing interest in the structured fixed-income area, and you should expect more deals like this," he said.

"I think we will continue to see other deals like this," agreed Eric Fitzwater, senior analyst with the financial institutions group at SNL Financial in Charlottesville, Va. While this deal is definitely a departure from Pioneer's previous strategy, CDO managers in general appear to be the next fertile ground for asset managers, especially mutual fund managers, he said. This trend is similar to the recent trend of traditional asset management firms buying up hedge funds in order to bolster their overall capabilities with non-traditional investment product offerings, he added.

Buying a non-traditional asset manager such as Vanderbilt is a departure for Pioneer, which has acquired a number of mutual fund companies. The firm's most recent purchase was a deal last September to obtain the 23 AmSouth Funds, with $5.1 billion in assets. Corporate parent AmSouth Bancorp. decided to exit the mutual fund business and Pioneer had been chosen among a short list of suitors.

That wasn't Pioneer's only acquisition last year. In February, Pioneer bought a large-cap fund managed by Cullen Capital Management. That came on the heels of three purchases the previous year. In February 2004, Pioneer bought two equity growth funds managed by Oak Ridge Investments and another four equity growth funds managed by L. Roy Papp & Associates. Then, in December 2004, the firm absorbed 22 equity and fixed-income funds formerly managed by Safeco Asset Management, which also chose to exit the fund business and focus on its core insurance.

This past January, Pioneer successfully wooed Kevin Rowell, the former head of Safeco's mutual funds, to join the firm as executive vice president and head of distribution for retail funds.

Not only is Pioneer dealing with acquisitions domestically, it is assisting parent company UniCredito in acquiring German-based Bayerische Hypo und-Vereinsbank (HVB).

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