CITI MAKING BIG INVESTMENT IN ASSET MANAGEMENT UNIT: HIRING 300 RESEARCHERS TO HELP IT REACH TOP 5 WORLDWIDE IN 5 YEARS

SSBCiti Asset Management, Citigroup’s new investment management unit, is on a hiring spree, with plans to add between 200 and 300 equity and quantitative research workers.

“We’ll be spending a lot of money,” says Peter Carman, 57, co-chairman and chief investment officer, without revealing how much.

The conglomeration – comprising Salomon Brothers Asset Management, Smith Barney Asset Management and Citibank Global Asset Management – will be hiring 60 senior stock analysts and many junior analysts. It also is budgeted for a quantitative staff of 30 in stocks and bonds.

“Because we’re a global firm, we are one of the firms that can and should make that kind of commitment,” says Thomas W. Jones, the 48-year-old co-chairman and chief executive of the new unit, who has come a long way from his days as a student activist in the 1960s.

But the jury is still out on how the disparate group will mesh. Citigroup has put a premium on using teams, resulting in rough going for the new company, formed by the marriage in October of Travelers Group and Citicorp.

SSBCiti also plans a major move internationally, an area where the Citibank and Salomon units already are strong. “From the point of view of distribution and experience, this is where Citi has the most experience and leverage, with operations in over 100 countries,” says Mr. Carman.

Mr. Jones’s goal is to make SSBCiti one of the world’s top five asset managers within five years.

Last year, the combined company would have ranked eighth in the United States, with more than $251 billion under management, according to data from InvestmentNews sister publication Pensions & Investments. According to the numbers provided by Citigroup, the combined group had more than $292 billion under management as of June 30.

took diverse paths

Mr. Jones and Mr. Carman reached SSBCiti by very different routes. Mr. Jones was hired as vice chairman of Travelers Group and head of its asset management unit in August 1997, coming from TIAA-Cref in New York, where he had been president and chief operating officer.

Mr. Carman hails from Sanford C. Bernstein & Co., where he gained notice for a shrewd interest rate call in 1982. He was there from 1981 through 1993 and then went to Putnam Investments before joining Citibank Global Asset Management as chairman and global chief investment officer in May 1997.

(Mr. Jones and Citigroup co-chairman Sanford Weill first met on the board of trustees of Cornell Medical College. Both are alumni of Cornell University.) Mr. Jones isn’t concerned about putting together the various pieces.

“We have the same desire to build a premium firm,” he says from his large corner office, which has a panoramic view of lower Manhattan.

“We have complementary skill sets” – Mr. Jones on the business side and Mr. Carman on the investment side – “and neither one of us has approached it from the point of view of `how do I get rid of the other guy.’ ”

One of the first things they did following the merger was hire Barra Strategic Consulting, a unit of Barra RogersCasey, to analyze the company’s strengths.

“We’ve recognized that we have a far better product capability without much overlap,” Mr. Jones says.

In one area, however, there was much duplication. The two chiefs moved quickly to merge the global bonds groups, based in London.

“We recognized that something had to be done. We spent time before the merger discussing how it would work,” says Mr. Carman. “We spent a lot of time with the three groups, building mutual respect and understanding the global strengths and weaknesses.”

In the retail mutual fund area, which already manages $140 billion, SSBCiti will be selling a variety of offerings.

“The idea is to take the manufactured product of Salomon Smith Barney and distribute it through Citibank’s network,” says Richard K. Strauss, an analyst with Goldman, Sachs Group LP in New York. “They need to take it to a higher level of profitability.”

The new outfit also intends to redesign its products and reposition itself in Europe.

“We are building a marketing and sales force overseas,” says Mr. Jones, and the firm plans to sell products through multiple distribution channels.

401(k) a key to growth

SSBCiti has not yet determined its direction for the 401(k) business. Mr. Jones acknowledges that without getting a good share of the defined contribution market, “it will be difficult to be one of the top five asset management firms in the world.”

Of course, he’s no stranger to controversy. It was almost 30 years ago, in April 1969, his senior year at Cornell, that Mr. Jones led a group of students in the armed takeover of Cornell’s Willard Straight Hall, protesting the university’s disciplining of black students who had demonstrated for a black studies program. There is a famous photo of Mr. Jones leaving the building, fist raised and holding a rifle.

“America was a very different country; it was a very different era,” Mr. Jones says. “The country was dominated by Vietnam and the civil rights movement. You choose your paths in accordance to the times in which you live.”

When he decided to work in corporate America, “I was convinced the country was becoming what it was supposed to be,” he says. But he admits the Cornell incident “was always a shadow.”

He worked at the accounting firm Arthur Young & Co., then John Hancock Mutual Life Insurance Co. before joining TIAA-Cref in 1989.

As for Mr. Carman, his correct prediction that interest rates were about to fall in 1982 prompted Bernstein to make a huge investment in long bonds – generating a huge profit.

But he says such calls are hardly an everyday occurrence.”This is a blocking and tackling business,” he says. “If you have great research, it gives insights you can take advantage of. . .by making little bets as opposed to large bets.”

SSBCiti “will do asset allocation carefully and with some humility. The analysts will provide bottom-up input into asset allocation top-down studies.”

The two men intend to exercise the same caution as they meld the various pieces of SSBCiti. For instance, they have no intention of moving the entire operation to one location. Mr. Jones says they want to “minimize the human disruption and focus on building the business.”

Crain News Service