) is planning to exit Citigroup Alternative Investments unit,
which is involved in various alternative investments,
Wall Street Journal
reported. The move comes on the heels of regulatory and financial
pressure on the bank.
The unit includes a $3.4 billion fund - Citi Infrastructure
Investors (CII) - raised in 2007, in which about $500 million was
Citigroup's own capital. The investment bank has decided not to
invest in new infrastructure deals for this fund, which owns
assets including a U.K. water supplier and a Spanish toll road.
Notably, stake will be reduced to 20% from 37% in Kelda, owner of
U.K.-based Yorkshire Water.
Further, the infrastructure fund participated in a number of
warped deals, which included a futile $12.8 billion bid to
operate the Pennsylvania Turnpike in 2008 and the failed $2.5
billion privatization of Chicago's Midway Airport in 2009.
Moreover, the end of former co-head, Juan Beja's tenure in 2009
compelled investors to stop extending the investment period of
Citigroup plans to sell some of the assets in the fund and
transfer the remaining to a new asset manager. This move follows
the bank's strategy implemented in 2009 to exit hedge fund and
private-equity units, impelled by stringent regulations and weak
performance. The decision to spin off these businesses followed
the regulatory reform bill that became law in Jul 2010.
The Dodd-Frank financial reform bill, which was signed into law
by President Obama in July, has a number of provisions that would
affect the business model of the financial institutions
significantly. A provision in the law -- the "Volcker Rule,"
named after Paul A. Volcker, former Federal Reserve chairman --
restricts banks from utilizing their own capital to speculate in
order to prevent huge risky bets.
Therefore, to comply with the rule, Citigroup has adequately
reduced its alternative-investment business and will continue to
exit more such businesses.
Beginning in 2009, Citigroup positioned some part of its
alternative investments marketed to retail investors as Citi
Holdings assets. Since then, the bank has been shedding these
assets. However, the left over investments for institutional
investors were placed in a new unit called Citi Capital Advisors
In accordance with the Volcker Rule, Citigroup divested an
internal hedge fund unit, which it independently renamed Napier
Park Global Capital in Feb 2013. The unit was previously managed
by the bank's CCA division.
Moreover, several private equity and hedge fund businesses, which
are on the list of divestitures include emerging-markets
fixed-income unit, EMSO Partners, North American private equity
investors, Metalmark Capital and emerging-market focused Citi
Venture Capital International.
Apart from Citigroup, many other U.S. banks including
The Goldman Sachs Group, Inc.
Bank of America Corporation
JPMorgan Chase & Co.
), Wells Fargo & Company (WFC) and Morgan Stanley (MS) are
trying to reduce their investments in hedge funds and private
equity. Though the regulation will take several years before its
provisions and impact becomes clearer, these banks are
considering a number of options to comply with it. Currently
Citigroup carries a Zacks Rank #3 (Hold).
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