Tue, Feb 02, 2010 page10

• Citigroup Inc planning to sell private equity unit

  • BLOOMBERG
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  Citigroup Inc plans to sell or split off its US$10 billion Citi private equity unit, expanding the list of money-management businesses the US bank is disposing of to reduce debt, people familiar with the matter said.

  Citi private equity, which takes minority stakes in companies and invests in other buyout funds, oversees about US$2 billion of Citigroup’s money, said the people, who declined to be identified because the sale talks are private. The rest is from outside investors.

  Managers of the decade-old unit, led by Todd Benson and Darren Friedman, have discussed buying it for themselves alongside new partners or with other financing, one person said.

  Citigroup, 27 percent owned by the government following a bailout in 2008, is selling almost a third of its US$1.86 trillion assets under regulatory pressure to shrink. Chief executive officer Vikram Pandit plans to keep a smaller buyout unit the bank bought in late 2007, a few months after he joined, the people said.

  “Citi has been going in and out of these different investing vehicles, both private equity and hedge funds,” said Steven Kaplan, a professor at the University of Chicago Booth School of Business who studies the private-equity industry. “It’s been a game of musical chairs.”

  Benson and Friedman stepped in as co-heads of Citi private equity after departure of John Barber — who had led the unit for nine years — in January last year. Neither of the co-heads returned calls for comment, and Citigroup spokeswoman Shannon Bell declined to comment.

  Other money-management units marked for sale or closure include the Citi property investors’ real-estate unit, which oversees US$12.5 billion; and the hedge fund management group, which allocates money to hedge funds on behalf of its own investors, the people said.

  Citigroup plans to keep Metalmark Capital LLC, a buyout firm the bank agreed to buy for an undisclosed sum in December 2007. Headed by former Morgan Stanley executive Howard Hoffen, Metalmark oversees almost US$3.8 billion in several funds, one person said. It invests in energy, healthcare, financial and industrial companies, Metalmark’s Web site said.

  Pandit, 53, decided to keep Metalmark because he preferred its management and strategy to those of Citi private equity, three people said.

  Pandit and John Havens, who heads the trading and investment-banking division, worked with Hoffen at Morgan Stanley from the late 1980s through the early 2000s.

  The bank is also keeping another fund, Citi Venture Capital International, which focuses on China, India, Central and Eastern Europe and Latin America.

  Citi capital advisers has about US$14 billion under management, a figure that excludes the funds earmarked for disposal, people familiar with the matter said.

  At the end of 2007, the division oversaw US$73 billion. More than a dozen funds were shuttered or frozen, including Pandit’s Old Lane Partners fund, which Citigroup bought in 2007 for US$800 million.

  The bank stopped reporting the alternative-investing division’s results after the first quarter of 2008, when it had a net loss of US$509 million.

  The decision to sell Citi private equity was made last year, before US President Barack Obama on Jan. 21 proposed banks be forced to divest their private-equity firms and hedge funds, the people familiar with the matter said.

  Ownership of such businesses can expose taxpayers to the risk of further bank bailouts, the White House said.
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