The formation of Fidelity Institutional Asset Management marks the end of the road for Fidelity Investments' long-struggling institutional business, Pyramis Global Advisors.
Sources said that throughout its 10-year existence, Pyramis faced issues of being unable to effectively make its mark in the institutional money management space, confusion over its corporate identity and a lack of support from Fidelity's senior leadership.
Boston-based Fidelity announced on Oct. 15 that it was creating FIAM, a money manager with more than $540 billion in assets under management and administration, by combining its Pyramis and Fidelity Financial Advisor Solutions arms.
In merging these two businesses, Fidelity is expanding its definition of “institutional” to include assets from intermediaries on behalf of individuals, such as registered investment advisers and broker-dealers.
Increasing demand for institutional-level services from clients more traditionally seen as retail was a key driver in Fidelity's decision.
(More: Will Fidelity kill goose that laid the golden egg?)
Scott Couto, former president of Fidelity Financial Advisor Solutions and now head of distribution for FIAM in Smithfield, R.I., told
Pensions & Investments the merger was done to streamline operations.
“Over time, there's been a significant convergence of buying demands of (the) institutional channel as well as the intermediary services. It made sense to have one focused team on a global scale,” Mr. Couto said. He said there will be no changes on the investment side of the business, but now each client will have one point of contact, regardless of what investment vehicle they're in.
WRITING ON THE WALL
Perhaps Fidelity is seeing the writing on the wall.
Money manager consultant Casey Quirk & Associates,
issued a white paper on Nov. 16 making the case that individual investors will be more influential in shaping the marketplace than institutions in the near future.
Casey Quirk's white paper, “The Roar of the Crowd: How Individual Investors Transform Competition in Asset Management,” states that by 2020, 119% of net new flows into investment strategies will come from individual investors, up from 93% in 2014.
Benjamin Phillips, a partner at Casey Quirk and co-author of the paper, declined to comment about Fidelity.
Fidelity launched Pyramis in 2005 with roughly $70 billion in assets as a means of increasing its U.S. institutional business. The firm decided to boost its institutional side at a time when sales of Fidelity's retail mutual funds were lagging. (At year-end 2004, Fidelity had $1.286 trillion in global assets, of which $505 billion, about 39%, was in U.S. institutional tax-exempt assets, P&I data show.)
However, Pyramis had struggled to establish its identity since its inception. Not only was it was an institutional firm within an organization with a strong retail presence, but sources also said a few of its clients didn't even know it was part of Fidelity.
(More: Fidelity charged by Massachusetts with dishonest and unethical behavior)
Sources told P&I that Pyramis' days were numbered
ever since Fidelity announced last year that Abigail P. Johnson would succeed her father, Edward “Ned” Johnson, as CEO of the investment giant.
In recent discussions with industry observers about the formation of FIAM, an executive recruiter familiar with the situation said: “Pyramis had a troubled birth, difficult adolescence and a not surprising death after Abby Johnson took over.”
'NED'S VISION'
The recruiter added that Pyramis had always been “Ned's vision. It was never going to have a stand-alone future, given the succession that took place at Fidelity.”
A former Fidelity executive agreed Pyramis was never part of Ms. Johnson's vision for the company, adding: “Consultants are going to have to wait and see what this means. Since consultants like consistency, this doesn't help the institutional business.”
Mr. Couto declined to comment on Ms. Johnson's attitude toward Pyramis.
Creating Pyramis 10 years ago allowed Fidelity to focus more attention on the institutional marketplace. Over the past decade, however, the marketplace changed, as did the needs of its clients.
With intermediary clients expecting institutional-level insight, and with institutional clients wanting more complex, customizable strategies to help them meet very distinct outcomes, Mr. Couto said it made sense to have the same business serve both intermediary and institutional clients.
“All of these clients want a more coordinated service experience,” he said, adding it also made more sense to reorganize its asset management business using the Fidelity name instead of Pyramis' because of its greater name recognition.
Jim Lowell, editor of the Needham, Mass.-based newsletter Fidelity Investor, agreed that dissolving the Pyramis brand was a smart idea. In an e-mail, he said viewed this move as “essential and essentially positive.”
FIDLITY'S CONFIDENCE
“The brand that is most known and carries the greatest heft is — and has always been — Fidelity. I think it signals Fidelity's confidence in its own brand,” said Mr. Lowell.
Although FIAM would be expanding the definition of what constitutes institutional assets or institutional clients, Mr. Couto said this was not Fidelity diluting or “homogenizing” its investment approach, but instead was “bringing the resources of the entire firm together.”
Looking forward, Mr. Couto hopes FIAM can offer a “broader range of solutions” and services to the retirement market “in a much more coordinated fashion.” He said he also would like the new firm to be more active in the cash management business by leveraging the investment management capabilities of Fidelity's entire business, including equity, high-income and fixed-income. He would not elaborate.
James Comtois is a reporter at sister publication Pensions & Investments.
