NEW YORK (Reuters) - Citigroup Inc (C.N) plans to sell hedge fund businesses with $4.2 billion of assets to SkyBridge Capital LLC, in a deal that would quadruple the firm’s size.
The transaction, announced on Wednesday, marks another step in Citi’s plan to shed assets and will allow five-year-old SkyBridge to expand beyond its traditional business of helping new managers start up.
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.
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.
The Citi businesses going to New York-based SkyBridge include a seeding business, a hedge fund advisory business and a hedge fund of funds business. They had been languishing in Citi Holdings, the bank’s repository for businesses that it is trying to sell or wind down.
For SkyBridge, the deal offers an opportunity to expand into the traditional fund-to-funds business, while doubling the size of its core investing in start-up fund managers. After the deal is complete SkyBridge will have $5.6 billion of capital, including more than $1 billion of seeding assets.
Terms of the deal, which is expected to close by the end of June, were not disclosed. The businesses Citi is selling include more than $1 billion invested in hedge funds, more than $2.5 billion in hedge funds that it manages, and more than $500 million worth of stakes in start-up funds.
The planned deal was first reported in February, when a person familiar with the talks said that SkyBridge had emerged from preliminary discussions as the final, exclusive bidder for the unit.
Citigroup sold the businesses from its Citi Alternative Investments unit, which has been managing funds-of-hedge-funds since 1994.
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.
In July 2008, Citigroup closed Old Lane, the hedge fund started by current Chief Executive Vikram Pandit. The bank bought the fund, once managing $4.4 billion, in July 2007. By the end of that year, Pandit was named CEO.
Raymond Nolte, who oversees the businesses SkyBridge will buy from Citi, will join SkyBridge as part of the deal. Nolte will become a managing partner and chief investment officer there, and he will bring his entire team of more than 20 people with him.
Citigroup shares, up 5.8 percent at $4.89 in afternoon trading, were some of the top gainers among large banks.
Reporting by Maria Aspan; with additional reporting by Svea Herbst-Bayliss in Boston, editing by Derek Caney, Dave Zimmerman and Steve Orlofsky