STRATEGICALLY SPEAKING:Peter Carman Marriage of mi
One of the key features in SSB Citi Asset Management group’s strategy is that it is being overseen by two co-equal chairmen, Tom Jones on the “business management side” and Peter Carman, as chief investment officer, on “the investment side”.
Carman explains: “There is just too much for one person alone to do.” But he adds: “The two have to be able to get along – and we do work well together.”
In his view, the new business starts where many others aspire to be: “we are very intensely global, which is a major strength for us”. But he does acknowledge that where they come from as a grouping of a number of separate businesses is not the ideal way to run an investment business. “Simpler organic structures and simpler cultures seem to work better than complex ones in investment management,” says Carman.
Complex or not, Carman is busy putting the new investment structure in place at SSB Citi, which is built around research, quant and technology. “This is where we are putting the additional resource. We had made this commitment at Citibank and it has carried through the merger.”
The research team is going to include 65 senior analysts supported by 45 associates. “These are all first rate top quartile people.” The research is highly focussed on industry and company knowledge based on long-term forecasts – of industry demand, company earnings, balance sheet and cash flow. “Our aim is to buy the most attractive in any products benchmark. This forces you to rank stocks. But to do this you have to have consistency, so that you are comparing apples to apples.”
What is being done at this point is significantly helped by the quant area activity. This team currently stands around 25 and is due to grow to about 40. The quant team has a critical role to play in Carman’s view in that they have responsibility for putting the common set of values into a structured format. “They test assumptions, help with risk control and with organising data, they work with the portfolio managers and the research anal;ysts in tieing things together.”
To get the maximum out of technology, the quant group has an essential job in closing the gap between the portfolio managers who know what they want from technology, but do not know how to get it, while the systems people do not know about investing. “Quants are actual investors and can act as a bridge between those running portfolios and technology, but most organisations are not using them that way.” But Carman is adamant: “We won’t be a quant shop”.
“We are putting a huge amount of effort into the equity piece. We are predominantly fixed income but that will be redressed over time as our equities exposure grows.” But there is no pre-ordained ratio between the two, he says. “We are obviously not going to turn down fixed income business to get the ratio right.”
Carman describes the investment process in very broad brush terms: “We are multi-product and multi country, so the ultimate goal is the capability of producing for US equity, small, mid and large-cap, growth and value. For other countries we hope to produce similar breakdowns, where appropriate.” On the fixed income side, the aim is a variety of products, ranging from speciality to core applications. This currently have high yield, US, core and core-plus, euro, and emerging markets.
SSB Citi is concentrating its structured approach on the institutional part of its client base, with the retail and mutual fund clients “being less formally managed at this point”, as Carman puts it. Because of the mergers, the combined group has clients “in different product sets”, but the commitment to the clients means keeping these intact. “In my job, I have to be very careful not to tell people ‘Here is a new way to manage money!’ While the resources are there to develop these new products, the existing ones are still delivered to the clients.”
Another aftermath of the mergers is the degree of overlap. He acknowledges that between the former Citibank and Salomons there is some, most significantly on the fixed income side. “Where it makes sense, we try to make use of each other’s skill sets. But if there is no overlap, we keep the styles separate.” So there are three global fixed interest groups, with a “fair commonality in approach”. “They each have strengths that are complementary.” The Smith Barney group remains somewhat separate, but it is “still capable of taking advantage of the additional resources because of its special nature and the obligations it has to clients”. As to whether ultimately it might come down to one approach, Carman reckons that will very much depend what their clients want and how that evolves.
Carman describes consultancy community’s attitude to the merged group as “wary” and says this without a moment’s hesitation. But the quickening pace of merger in asset management has forced the consultants “to put their thinking caps on about summarily dismissing firms”. “There is an interest in how asset managers are handling the process of merging, whether they are approaching it in ways that increases the chances of being successful. So they are obviously thinking about the question, even though they have not made up their minds as yet.”
There is still a tremendous amount to do, he says. “We have actually come a long way in building infrastructure and have begun to work with a number of groups to evolve existing products and create new products.” But with assets under management worldwide of $351bn, it is the global opportunity that beckons. With many groups purporting to be global investors, the destiny he and Jones see for the group is that of being a global distributor: “That’s what we want to be and already we are unusually strong here”. The aim is to be within the top five globally in five years’ time and that will be not just a matter of size and quality but of having the ability to deliver service globally. Fennell Betson