Pioneer buys 51% in BoB arm

Milan-headquartered Pioneer Investments signed a joint venture agreement with Bank of Baroda (BoB) to buy a 51 per cent stake in the public sector bank's mutual fund arm.

Pioneer Investments is the latest from among the slew of foreign mutual funds to enter India through the joint venture route as distribution of schemes becomes vital for a fast-paced growth in the Indian mutual fund industry.

Recently, Canara Bank sold a 49 per cent stake in its asset management arm to Robeco Groep of Netherlands, the asset management arm of the Rabobank Group.

Dutch financial group Aegon has tied up with Ranbaxy promoters-controlled Religare Enterprises to enter the Indian mutual fund industry.

Dario Frigerio, the global CEO of Pioneer Investments, told newspersons today that the company would be jointly branded.

"Initially, the business will create locally domiciled Indian mutual funds for the Indian market. It is acknowledged that the next evolution in the penetration of mutual funds will be a greater take-up in tier-II and tier-III cities," he said.

Pioneer Investments hopes to leverage on the BoB's network of 2,700 branches in India.

Industry sources said the fact that BoB had such a small business would help a player such as Pioneer Investments to establish a presence in India and that it was almost like starting from scratch.

The existing schemes of BoB will continue under Baroda Pioneer Asset Management, which will start rolling out its products from April 2008.

Despite this, some industry sources say in reality not too many public sector banks have been able to sell mutual funds.

Interestingly, this is Pioneer Investment's third coming in India. It entered the country earlier through the HC Kothari group (Kothari Pioneer AMC) and later with the Sanjay Maloo group (Pioneer ITI). Both Pioneer and ITI cashed out of the deal eventually by selling the business to Franklin Templeton Investments in 2002.

The bank is also planning to provide value-added services for increasing its fee-based income and is considering the formation of a joint venture in the wealth management business. It has already begun the recruitment of about 55 managers for wealth advisory services.

"This idea (to rope in a partner) for wealth management is in a nascent stage and no timeframe has been set. As a first step, we will have wealth advisory managers at key branches," a senior BoB executive said, after the bank signed a definitive agreement with Pioneer Investments.

The executive spoke about a gradual shift in the savings and investment patterns of bank customers and the rising investments in mutual funds and equity. The bank would be able to get advisory business from existing customers through advisory services.

Many experienced individuals have evinced an interest in joining the bank's wealth management advisory business, the executive added. Looking at the compensation package that wealth managers command and high attrition rates, "retaining talent will be a challenge".

BoB already has an alliance with India Infoline to offer e-broking services to its customers.