Citigroup Asset Managementvice-president Nathan Wares is confident that the group has the equity capacity to drive growth. “We have shown our ability to grow in declining markets,” he says.
Wares adds that CAM, whose accounts are consolidated into the global business, is profitable. There is $6.1 billion in assets under management, which “can comfortably double”, he says.
To achieve this, Wares identifies four areas — outperforming the markets, leveraging the brand, strengthening institutional support and “making sure we are on the radar screen through our ratings”. He notes that the group has enjoyed a good performance record with low volatility and that van Eyk has given them five A ratings or better.
CAM entered the Australian asset management industry through its 1998 acquisition ofJ.P. Morgan Investment Management Australia. This gave it over 20 years’ funds management experience in the Australian market and a massive parent asset manager in Citigroup Asset Management, the ninth largest asset manager in the world, with assets under management of US$766 billion (at March 31, 2003).
Citigroup Inc, listed on the New York Stock Exchange, was formed through the October 1998 merger of Citicorp and Travelers Group, and is a diversified global financial holding company.
CAM’s core business strategy, explains Wares, is to be a key provider of institutional and master trust asset management services to the Australian market.
“Such asset management services include tailored Australian and global fixed income, equity and asset allocation strategies, which utilise our extensive global research networks that are highly integrated. Citigroup Asset Management’s global strength and diversity allows it to offer world-class investment resources,” he says.
Wares adds that the group differentiates itself from competitors by its global resources and proprietary research. “We are not pigeon-holed into a single asset class.”
CAM does not outsource any of its asset management or research. “On the buy-side, we probably have the largest global research team.”
CAM’s business is divided into institutional (some 80 per cent of assets) and wholesale. It has a small sales team of three people each in both divisions. There is no desire to build up a distribution network through marketing, wraps or master trusts.
“We are focused on providing specialist funds management services across all asset classes, and not acting as the manager of third parties’ funds through a distribution channel. We would rather manage money.”
Looking ahead, Wares anticipates more blended options products and the further erosion of retail products. “This suits us, as we have no retail products.”
Outlining the group’s investment philosophy, Wares says extensive fundamental research, complemented by proprietary quantitative analysis, can identify value-adding opportunities in the investment universe.
“We believe that the intrinsic value of any security is best determined by the present value of its future cashflows and that those cashflows are best determined by proprietary research,” he says.
So a core investment style aims to deliver consistent investment returns with low volatility.
Features of CAM’s investment process that Wares highlights as distinguishing CAM from other asset managers include:
* Stock selection capabilities — strength in the analysis of individual securities to determine fundamental value and near term earnings momentum.
* Structured investment process — a structured quantitative valuation technique is employed that identifies long-term value and short-term momentum issues.
* Risk approach — CAM’s style is to make a large number of incremental bets relative to the benchmark to control risk.
* Research — original research is a global function. Analysts draw on the knowledge of global colleagues when analysing international factors impacting the domestic market. The global research team comprises equity analysts, credit analysts and quantitative analysts based in six Global Research Centres (New York, Stamford, London, Tokyo, Melbourne and Singapore).
“Our analysts work with a common language and values, detailing how analysis is built to enable cross-industry and cross-border comparability. This process enables CAM to compare stock values by adjusting for issues, such as the treatment of pension plans, accounting standards and so forth.
“The result is a world-class asset management platform unencumbered by existing structures or processes. This dedication allows CAM to generate its own ideas and stock valuations without relying solely on external stockbroking advice.”
* Quantitative assessment — analysis of investment potential is rigorous and objective, supported by a dedicated in-house quantitative research team.
CAM’s equities investment process adopts a diversified, bottom up stock selection approach. This process relies on microanalysis of individual companies rather than applications of macroeconomic themes and sector rotation.
“Our stock selection process is driven by the net present values for each stock derived from a proprietary Dividend Discount Model, with a focus on earnings resilience,” Wares says.
International equities allocation is fully diversified, with the investment universe covering all the markets of the MSCI index and an extensive range of emerging equity markets. Specific investment capabilities include Australian equities, Australian small companies, Australian index enhanced, global equities and emerging market equities.
On the fixed income side, the investment process adopts an active management approach that aims to capture incremental returns from a wide variety of diversified sources.
“This philosophy is supported by an array of proprietary quantitative tools. A fundamental value based and research driven process is used in all fixed income investment decisions,” Wares says.
Specific investment capabilities include Australian bonds, Australian corporate bonds, global fixed income, global credit, cash and cash enhanced.
The key people in the group are managing directors Denise Allen (Asia/Pacific business head) and Michael Wood (head of the balanced and equity group), and head of fixed income Mitchell Stack.
