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Citi still selling

The sale of emerging markets-focused CVCI leaves Citi with an uncertain future in private equity.

In September, The Rohatyn Group acquired Citi Venture Capital International, the emerging markets private equity group with $4.3 billion of investments and committed capital across five funds.

The combined entity, operating under the name TRG, will manage more than $6 billion of private equity assets, making it one of the largest emerging markets-focused private equity funds in the world.

For Citi, CVCI is just the latest of a string of alternatives businesses that the bank has offloaded as a result of the new regulatory environment in the US, which dictates that banks must limit their exposure to alternatives to no more than 3 percent of their Tier 1 capital and cannot own more than 3 percent of any private equity or hedge fund group.

“Further to our efforts to ensure our compliance with the Volcker Rule, Citi has decided to transfer its fiduciary responsibilities and business management of CVCI Private Equity to The Rohatyn Group,” James Forese, copresident and chief executive officer of Citi’s Institutional Clients Group, wrote in a memo to CVCI’s employees seen by Private Equity International.

The sale leaves Citi Capital Advisors – the bank’s unit for institutional assets – with just one active fund: North America focused Metalmark Capital, a Morgan Stanley spin-out Citi acquired in 2007. But according to reports, Citi is also trying to sell this $2.5 billion vehicle to management. 

Back in 2009, Citi split itself into two entities: Citicorp (assets the bank wanted to keep) and Citi Holdings (assets the bank wanted to sell). The latter included Citi Private Equity (CPE) which managed $8 billion of assets.

At the time, the rationale behind selling CPE and keeping its other private equity platforms was that Citi was moving to a more client-driven, asset management model rather than a proprietary, from-the-balancesheet investing. CPE’s funds were majority seeded by Citi, including employee contributions and third-party commitments. 

In 2010, Citi transferred the management and proprietary interests in $4 billion of fund of funds, feeder funds and co-investment funds from CPE to StepStone Group, as part of a larger secondaries deal that also included Lexington Partners. 

Citi’s extensive history in private equity goes back to the 1960s, when it formed Citibank Venture Capital (the US arm of which spun out to form Court Square Capital Partners in 2006). The unit had several names over the years, including Citigroup Venture Capital, Citicorp Venture Capital, and CVC Equity Partners. A new US unit was formed a year after the Court Square team left, with $500 million to invest in the mid-market – but the bank closed down the division in 2008 after less than two years in operation.

Citi is not getting out of private equity altogether. Citi Private Equity Servicing business, which provides administration, reporting and related services to private equity firms and investors, has been steadily growing its alternative assets under administration, from $190 billion in 2012 to nearly $215 billion as of August 2013. It launched in Luxembourg through a Centre of Excellence for closed-ended funds, which allows the bank to cover the EMEA region too.

Nowadays, the vast majority of the division’s capital under administration, which supports more than 130 clients and nearly 900 private equity funds, is for external clients – with only a nominal amount related to servicing Citi or Citi-related products.

Who would have thought ten years ago that this huge institution – once such a sizeable and formidable player in the asset class – would soon see private equity primarily as a client base for fund administration services?