Citigroup Inc. (NYSE:C) has sold off $6 billion in private equity and hedge fund assets in August in an effort to comply with regulations that will come into effect in the next few years, reports Shayndi Rice for The Wall Street Journal.
Sale of Citi Venture Capital International
The biggest step came last week when Citigroup Inc. (NYSE:C) sold the Citi Venture Capital International private equity fund valued at $4.3 billion to the Rohatyn Group for an unknown price. Citigroup also sold its $1.9 billion EM hedge fund last month leaving the company with the $2.5 billion private equity fund Metalmark Capital as its only major alternative asset, and Citigroup is reportedly trying to sell that fund to its management.
The sales are motivated by the Volcker rule, which should be finalized and in effect within the next few years, that prevents banks from investing in funds managed by third parties and limits private equity and hedge fund assets to 3 percent of the bank’s tier one assets. The Volcker rule is a move away from deregulation in the 1990s that let different types of banks and financial institutions merge and is partially responsible for the global economic crisis.
Some critics have contended that alternatives didn’t contribute to the financial crisis and that the new regulations are shoring up weaknesses that might not exist.
Sales of Citigroup’s hedge funds
The recent sales re part aof an industry-wide trend, including Citigroup Inc. (NYSE:C)’s sale of its $6.8 billion hedge fund business to Napier Park Global Capital, though Citigroup still owns 24.9 percent of the fund. JPMorgan Chase & Co. (NYSE:JPM) sold One Equity Partners, its hedge fund operation with $4.5 billion AUM, to the fund management, and Bank of America Corp (NYSE:BAC) sold funds in 2011 and 2010 worth $5 billion and $1.4 billion respectively. Goldman Sachs Group Inc (NYSE:GS) is reportedly looking to get rid of its private equity funds as well.
Even though the banks still have some time before the Volcker Rule comes into effect, selling now gives them a better chance to get good value: if one deal falls through they will have time to look for another, and their negotiating partner won’t be able to use impending regulations as leverage to push down the price.