Citigroup may have struck upon a novel way of coming into compliance with the coming Volcker rule.
The bank plans to offer fund managers in its Citi Capital Advisors division a piece of that business. John Havens, Citi's chief operating office, said that under plans being worked out, CCA employees would get a "significant" stake in the company. The move will help Citi attract and hold on to top alternative investments talent and could also attract the billions in third-party capital that Citi needs to keep CCA running in its current form.
"Our competitors are an owner-operated model," he told Bloomberg News. "It was always in the plans but you have to actually have a business that you're comfortable with to go do it."
"We're trying to create a client-centric, alternative asset management business, and this is the final stage of putting that in place. Clients like independent asset managers."
Under the Volcker rule, due to come into force gradually over the next two-and-a-half years, banks will be barred from having more than 3% of their Tier 1 assets invested in hedge and private equity funds, and would not be allowed to account for more than 3% of the assets of any one fund. Currently, Citi's cash accounts for about one-third of CCA's $18.2 billion in assets.
The details of how the new ownership stakes would work are still being hammered out.
"The actual drafting of the terms are underway," Citi spokeswoman Danielle Romero-Apsilos said. "Formulas are currently being negotiated that would allow CCA's management to acquire a portion of Citi's interest in CCA, including their ability to replace a portion of Citi's existing capital with third-party capital."