Citigroup To Close Old Lane Hedge Fund

by Carla Johnson, Investors Offshore.com

18 June 2008

Citigroup is to close a hedge fund co-founded by its chief executive Vikram Pandit and allow investors to cash out of the fund, following a run of poor returns.

In a statement released on 12th June, Citigroup explained that a restructuring of the Old Lane business "is designed to meet Citi's objective to retain talent and create synergies among the company's trading platforms".

In the first quarter of 2008, following the promotion of key Old Lane executives to other positions at Citi, Old Lane notified investors in its multi-strategy hedge fund that they would have the opportunity to redeem their investments in the fund, without restriction, effective 31st July, 2008.

As part of the restructuring, certain Old Lane strategies – convertible equities, credit fixed income, and structured credits – will be integrated into the proprietary activities of Citi's Securities and Banking business. These three particular strategies will be managed from a single platform.

Old Lane will establish a number of single-strategy funds with future offerings designed to meet client demand as part of the Citi Alternative Investments (CAI) client platform.

Citi will purchase substantially all of the assets of the multi-strategy hedge fund at fair value, subject to independent third party validation, which will enable Old Lane to facilitate client redemptions at 31st July.

"These steps will maximize the synergies and talent that are housed within Old Lane and are consistent with Citi's continuing effort to optimize resources, both within the Institutional Clients Group (ICG) and across Citi," explained Ned Kelly, President and Chief Executive Officer of CAI, continuing:

"As such, our hedge fund offerings are important to our success and we must focus our resources and shape our organization accordingly."

All former Old Lane individual partners, including Vikram Pandit and other senior Citi executives will, as set out in the original Old Lane transaction agreements, be required to maintain their investments in Old Lane funds or other designated CAI funds.

"All investors in the fund – third parties, Old Lane employees, Citi senior management and Citi proprietary investments – will be treated consistently during the unwind process," Mr Kelly added.

The estimated second quarter 2008 financial impact from Old Lane's restructuring is an increase in Citi's GAAP assets of approximately USD9bn.

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