First off - over the latter months of 2005 and thus far in 2006 - Citigroup has made over 20 research hires around the region. And the hiring does not appear to be a flash in the pan with another 8 to 10 analysts expected to be hired by the end of the year.
The catalyst for the hiring splurge began with the appointment of Adrian Faure, managing director and director of Asia-Pacific equity research, in May 2005. He crossed from Macquarie Bank, where he was head of its Asia research division, and immediately made an impact on a research division that was seen to be underperforming relative to its peers.
"I arrived with a mandate to make a significant dent in the internal rankings with our key clients," says Faure. "We were not executing consistently across the board and were recognised more for our sector than country research."
Noting the need to improve its leadership at the country level, it has made research head appointments, both internally and externally, in Hong Kong, Malaysia, South Korea, Taiwan and Thailand. Sector-wise, the firm has also drafted in new hires and promoted existing staff to bolster its technology, consumer, internet, financials, utilities and small and mid-cap capabilities.
The firm also expanded its capabilities on the quantitative research side, catering to demand from both heavily quantitative-focused and 'quantitative-light' clients.
"Quantitative research is a vital part of the product suite, as we see demand from two types of clients for this offering," says Faure. "First, we're seeing interest in a heavily quantitative-focused strategy, coming particularly from the hedge funds, which are increasingly using robust quantitative models. Second are the less quantitative-focused group that uses quant screens to reaffirm their fundamental views."
"Under the new Quant research leadership, we launched new products that incorporate the quant and fundamental views of our analyst teams to provide an integrated valuation approach," he says.
With the new hires and sectoral expansion, Citigroup expects to increase its current coverage from approximately 450 Asian stocks to 600 by year-end, with roughly one-quarter of these names coming from India.
But bringing in a new director of Asia-Pacific equity research has not only resulted in over a dozen key appointments and an evident boost in coverage. It is also fostering a new culture within Citigroup Investment Research.
"We set out clear goals and have been fostering an environment of communication, accountability and closer partnership with Citigroup's other businesses like equities," says Faure. "We feel that now everyone is on the same page and that we've changed the mandates of our people. We've broken down some of the barriers in the research world and showed the market that big firms are not always slow to change."
"While there is still plenty to do, I feel we are on the right track," he says.
The eradicated barriers that Faure speaks of include a fully integrated and complete partnership approach to client servicing and more radically, a new incentive scheme for analysts.
"In the research world, past performance is no guarantee of future return and at January 1 our analysts bonuses start from scratch," he says. "We're initiating a merit-bound performance culture and now we will only pay our real performers the incentives."
Faure explains that one of the major highlights in Citigroup's improved regional research platform has been its ability to distinguish itself from its peer group through its global footing and the independence of its research unit from its investment banking business.
At least one-third of Faure's teams recommendations are sells, while only 18% are holds, well below the regional averages at other brokerages.
"At the end of the day, we see ourselves as stockbrokers and we're aggressively telling analysts to take a strong view," he says. "The independence between the research and investment bank is perhaps best demonstrated through the 33% of recommendations, which are sells, and at least 34% of these names are clients of Citigroup. Independence from the investment bank is something that we remain focused on not only in Asia, but globally."
"We are unequivocal in our goal to be the pre-eminent research house on the street. To be the best-in-class, our analysts need to have real depth of experience and understanding of their industries and companies, as well as being able to make strong, actionable calls."
With further hires expected and a continuous expansion of the coverage universe, the Citigroup research overhaul is not over by a long shot and as the bank moves up the research rankings, it clearly seems to be paying off.
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