Continuing to reduce their risk profile, Citigroup Inc (C) has announced the sale of three hedge-fund businesses to SkyBridge Capital LLC.
The sale is the latest step being taken by Citi to reduce the government shadow (the Treasury Department still owns more than one-fourth of Citi’s common stock) and sell off its peripheral businesses. Since being bailed out, Citigroup has managed to shed nearly $100 billion in assets.
The businesses include Citigroup’s fund of hedge-funds, hedge-fund advisory and hedge-fund seeding businesses. Seeding businesses place investor money with emerging hedge funds. They had been languishing in Citi Holdings, the bank’s repository for businesses that it is trying to sell or wind down.
It also reflects the ongoing consolidation in the $1.5 trillion hedge fund industry, where pension funds are eager to add money and new fund managers are eager to start up. But wary investors, still scarred by the financial crisis, prefer to put money with bigger firms, making it very difficult for newcomers to raise enough capital to be successful.
As part of the move, Citi’s Raymond Nolte, who headed the three businesses, will join SkyBridge as managing director and chief investment officer, bringing with him a team of 20 from Citi.
Citi’s business “really had great synergies in terms of having a fully built-out investment team and track record in the traditional fund-to-funds space, but also a focus in seeding,” said Scott Prince, SkyBridge co-managing partner, in an interview on Wednesday.
The deal “gives us more breadth and depth in the overall investment function, where the investment teams coming together can focus on both seeding and traditional fund to funds,” he said.
Financial terms weren’t disclosed for the deal, in which SkyBridge is buying three Citi Alternative Investments LLC businesses with $4.2 billion of assets under management and advisory contracts. The firm will then jump to $5.6 billion in assets under management.
Citi last year earmarked $715 billion in noncore assets to be sold, liquidated or wound down as it sought to reduce a risk profile that led the U.S. government to take a roughly one-quarter ownership stake in it during the market meltdown. That stake is currently at 27%. Roughly one-quarter of the $715 billion in assets had been shed by the end of 2009.
A few parts of the alternative investments unit are still for sale in Citi Holdings, according to Citigroup spokesman Stephen Cohen. But the bank plans to retain parts of the unit that focus on institutional and “ultra-high net worth” investors, and has moved them to the core Citicorp division, he said.
Shares of Citigroup were up 6.71% at $4.93 in late-day trading on the New York Stock Exchange.
