Citi To 'Carve-Out' Most Hedge Funds

Oct 22 2012 | 1:47pm ET

Former Citigroup CEO Vikram Pandit left his late firm with a parting gift: an exit-strategy for the alternative investments business he spent much of tenure building.

The banking giant quietly announced the carve-out of most of its internal hedge funds last week with a plan to sell most of the unit to its managers. The agreement, struck before Pandit and his deputy, John Havens, who oversaw the Citi Capital Advisors unit, were forced out on Tuesday, will see CCA chiefs Jonathan Dorfman and James O'Brien take a 24% stake in the new entity. Citi will retain a 25% stake, and the rest would be divided among the hedge funds' other executives and employees.

The agreement came during Pandit's final quarter at the helm and was disclosed in a Monday quarterly financial supplement, posted on its Website. Nor was it a total surprise: Havens in March said Citi was looking to hand a "significant" stake to its internal hedge fund managers.

The deal could help Citi come into compliance with the Volcker rule, which strictly limits banks' ability to own and invest in hedge funds. Citi has some $2.5 billion in CCA hedge funds, and a similar amount in other CCA funds.

"Citi has begun transitioning certain CCA businesses from being wholly Citi-owned to being owned primarily by management," Citi spokeswoman Danielle Romero-Apsilos said. "As we announced earlier this year, this will allow us to facilitate our compliance with regulatory obligations."

But the carve-out isn't comprehensive: Rajesh Kumar, head of CCA's $400 million Mortgage/Credit Opportunity Fund, hasn't assented to the deal, at least not yet. And CCA's $1 billion Emerging Markets Special Opportunities Fund may also not be part of the carve-out.


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