Citigroup is coming to another troubled hedge fund operation

Citigroup is ready to restart its troubled hedge fund operation after showing bad performance for about 2 years. The years had been marred with inside tussle and unrest among investors.

Those in the know said that the firm wanted to rename the unit – it having $14 billion under its management. It also comprises of private equity functioning coming from Citi Alternative Investments (CAI) to Citi Capital Advisors.

The decision has been reached after many months of wrangling between the top executives of the bank and the management about the fate of the unit. It is a common problem among banks dealing with hedge funds that were victimized by the recent crisis in foreclosures.

The outcome of CAI is of particular sensitivity because of its close link with the CEO of Citi – Vikram Pandit. He was formerly in Morgan Stanley. He joined as head of CAI of Citi in 2007 when the bank gave nearly $8000 for Old Lane – it being a hedge fund that had since downed shutters. Another Morgan Stanley and Old Lane veteran, John Havens, now leads the securities section of Citi and supervises CAI.

Insiders say that two other former executives of Morgan Stanley, John Dorfman and Jim O’Brien who operate CAI wanted to do away with the name of Citi from some or perhaps all of the units in trying to erase traces of the troubled past. But the suggestion did not gain favour. Dorfman and O’Brien had proposed the use of the name of Carlton Hill for some part of CAI.

Some of the executives apprehend that doing away with the name of Citi could be the beginning of more drama – spinning off the hedge fund sections of CAI or the shutting down of hedge fund functions if the unit could not rake in more funds from outside.

The insiders fell that for a short term this separation will not take place because nearly half of the $2.7 billion of internal hedge funds source is Citi.

Citi refused to make any comments on the suggestions about changing names but asserted that the optional investment units were “a highly valued part of Citi’s core franchise.”

The management of CAI targets the raising of nearly $2.t billion from external capital in 2010. The focus is on sovereign wealth funds and some other investors that are surfacing from the emerging markets. Till now the unit has been able to raise slightly more than $150 million.

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