UniCredit has reached an agreement to combine Pioneer Investments, its asset management arm, with Santander Asset Management (Sam), a subsidiary of Santander that is half-owned by US private equity firms Warburg Pincus and General Atlantic.

The deal, which has reached its final stage but is yet to be made binding, will place Pioneer Investments in the top 35 asset management firms in the world with an estimated €400bn of assets under management (AUM) globally, despite ongoing discussions to halt its creation of structured funds.

Pioneer's structured fund range, fondi a formula, which was launched in 2009, grossed just over €5bn through 12 funds in subscription in 2014, a figure which equates to 1.25% of the new company's total AUM should the merger go ahead. If the €2bn paid out to clients of existing funds is accounted for, Pioneer's structured fund net sales totalled €3bn for 2014.

"It's still early days, and certainly too early to say how the merger will affect our [structured funds] product line as a whole, but some changes are expected," said a senior manager at the asset management company in Milan.

Irrespective of the merger, market rumours suggest Pioneer is reportedly re-evaluating its structured funds range due to unfavourable market conditions. "Recently, the terms and payoffs we have been able to offer our clients - such as participation factors and capital protection – have not been as good as they once were due to record low rates," said the senior manager. "We're considering temporarily halting our structured fund range until market conditions improve in order to offer our clients the best terms possible."

Pioneer's latest structured fund – the Pioneer UniCredit Fondo a Formula - Globale Luglio 2021 – which is still open for subscription, offers exposure to the Stoxx Global Select Dividend Risk Control 10% index, a strategy allowing investors to track the 100 highest dividend-yielding shares from the US (40 companies), Europe (30) and Asia / Pacific (30).

The fund aims to offer a fixed coupon of 0.75% at the end of the first year, followed by a variable annual coupon equal to 70% participation in the underlying performance for the remainder of the six-year term. At maturity, the fund aims to protect 95% of the initial capital invested.

These terms differ markedly to those of the previous issue, which opened for subscription in January, just two months before the latest tranche. The Pioneer UniCredit a Formula - Globale Maggio 2021 is linked to the same index but offers double the coupon (1.5%) at the first year, followed by variable coupons based on 85% of the index performance.

While the series has sold well in the past (the Pioneer UniCredit a Formula Crescita - Europa Luglio 2019 raked in €710m alone during its one-month subscription period this time last year), recent issues have not fared as well (the Pioneer UniCredit a Formula - Globale Dividendo 18 Dicembre 2020 grossed a comparatively meagre €126m).

With interest rates still at a record low, it is in Pioneer's clients' best interests to temporarily halt issuance until market conditions pick up, said the senior manager.

UniCredit and Santander will each take control of about a third of the new Pioneer Investments, with the Spanish bank's US partners owning the final third of the company, most likely until it is floated on the stock market in a few years, at which point they would exit the venture, according to a statement made by Federico Ghizzoni, chief executive officer of UniCredit, to Reuters.

Juan Alcaraz, current chief executive officer (CEO) of Sam will be made global CEO of the new integrated company, while Giordano Lombardo, CEO and chief investment officer (CIO) for Pioneer, will be appointed new global CIO under the new deal.

It is unclear whether major structural changes will be implemented to existing departments within the company, although there will be expanded distribution capabilities through the combined network of 21,000 branches around the world.

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