Spooked By Credit, Citi Adds Derivatives Hedge Fund

Nov 1 2007 | 2:30pm ET

Trick or treat! Citigroup found a credit derivatives hedge fund in its goody basket yesterday, agreeing to buy New York-based Carlton Hill Capital. The firm, which has not launched its first fund, will focus on non-levered fixed-income investing.

The acquisition makes Citi Alternative Investments feel a little bit more like the Morgan Stanley Alumni Association: Carlton Hill was founded last year by Morgan vets James O’Brien and Jonathan Dorfman, and the purchase—whose terms were not disclosed—is the first big move by new CAI chief John Havens, another Morgan Stanley alum who joined Citi in April when it bought his hedge fund, Old Lane Partners. He was named head of CAI last month, when fellow Old Lane co-founder (and Morgan veteran) Vikram Pandit was made head of a merged alternative investments and investment banking unit.

“The Carlton Hill team brings up extensive credit markets expertise that will significantly enhance our capabilities in developing and offering credit-based products for CAI’s customers,” Havens wrote in an internal memo. “Both Jim and Jon previously created, built and managed a market-leading global credit derivatives and structured credit business at Morgan Stanley and are particularly well-suited to lead our fixed-income product development efforts going forward.”

Citi reported a $636 million write-down on fixed-income trading in the third quarter.

O’Brien and Dorfman will helm all of Citi’s fixed-income investing as heads of Citi Global Fixed Income, under which their firm, the to-be-renamed Citi Credit Strategies group, will fall. The former Carlton Hill already has $150 million in equity commitments and plans its first offering for later this year.


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