Facing pressure to find new avenues for asset-gathering, Fidelity Investments is using an independent subsidiary to attract institutional assets.
The Boston company, which has amassed most of its $1.2 trillion of assets under management through retail channels, launched Pyramis Global Advisors last May by consolidating the institutional assets of four investment subsidiaries.
Peter Smail, the president of Boston-based Pyramis, said it had $72 billion of assets on Dec. 31 and has grown 25% since then, into "the $90 billion range." He said he expects to continue expanding as the company expands its staff. Pyramis had $1 billion to $2 billion of mandates from institutional clients in the fourth quarter, he said last Wednesday, but has generated $3.8 billion of mandates this quarter.
When Pyramis was started, Fidelity said it would invest $100 million in the unit over the next few years and hire at least 100 investment professionals. Mr. Smail said Pyramis started with 90 investment professionals and has already added 20 to 25. In the next 18 months, he said, it'll add 25 more.
"We have a pretty ambitious plan for expanding our product line, and we will do hiring to support that," he said.
Pyramis plans to add U.S. equity and non-U.S. equity products to its lineup, Mr. Smail said, as well as alternative offerings including real estate and long-short products.
Analysts said Fidelity needs more ways to gather assets, beyond the retail channels it has exploited, in order to keep pace with competitors such as T. Rowe Price, Vanguard Group, and American Funds, which have already developed a strong footing with institutional customers. Geoffrey Bobroff, the president of Bobroff Consulting in East Greenwich, R.I., said Fidelity is doing everything it can to hold its own in the ultracompetitive mutual fund market.
"I don't necessarily want to be critical," he said, "but to be honest, the growth on the retail side has been slow for Fidelity. They are examining where else they can go in order to grow assets."
According to Financial Research Corp., a Boston company that tracks the fund industry, Fidelity's $6.9 billion of inflows last year were outpaced by T. Rowe Price ($12.4 billion), Vanguard ($40.9 billion), and American Funds ($78.8 billion).
Analysts said Fidelity carefully selected the name and put all its institutional assets into Pyramis in an effort to appeal to institutional clients, which generally prefer to place money with companies less closely associated with retail investment managers. The name Pyramis comes from the Greek root for the word "pyramid" - Fidelity's logo - Mr. Smail noted.
Mr. Bobroff said that Fidelity is required for regulatory reasons to split its retail and institutional businesses but that it created a different brand for competitive reasons.
"As an institutional customer, I'd feel better and more comfortable investing with people that are institutional-focused and not necessarily retail-focused," he said.
Mr. Smail said Fidelity has been selling institutional asset management for 25 years but that, before Pyramis, it had never focused on the business through a single entity. Bringing all its institutional assets into one organization immediately created the scale needed to gain momentum.
"We have a philosophy as a large organization to break into smaller, more agile units that can market and develop a broader client base," said Mr. Smail, who was the president of Fidelity's defined benefit and defined contribution business, Fidelity Employer Services, before being named last May to run Pyramis. "We did it with our 401(k) business in the mid-'80s, and we are doing it with the institutional business now."
"We have always had a good reputation with institutional customers in the marketplace," he added. "Today Fidelity has relationships with 15,000 institutional customers. We just want to continue to build on that."
Last week, Pyramis appointed Young D. Chin, the president and chief executive officer of Gartmore Global Investments, to be its chief investment officer. Mr. Chin was the third top executive hired by Pyramis from outside Fidelity. Seema R. Hingorani, a veteran of the hedge fund industry, joined as director of equity research, and Michael P. McCauley, who ran a direct-access electronic trading firm, as head of trading.
Mr. Smail said Pyramis, which will move in 2008 from downtown Boston to Fidelity's campus in Smithfield, R.I., will try to keep growing organically but also may consider strategic acquisitions.
"Whether we build organically or by hiring or by acquiring, we want to grow," he said.
