(Bloomberg News) Citigroup Inc., the third-biggest U.S. bank by assets, will let managers of its hedge funds own part of the business ahead of rules that limit shareholders' cash in the unit, Chief Operating Officer John Havens said.
Employees in the Citi Capital Advisors division, or CCA, will get a "significant" stake in managing the funds, Havens said in an interview. This will increase, he said, as New York-based Citigroup withdraws its own money and attracts outside investors to comply with the Volcker rule, which restricts deposit-taking banks from making bets with their own capital.
Havens and Chief Executive Officer Vikram Pandit, 55, are seeking to replace the company's cash in CCA with funds from outsiders as regulators draft the Volcker rule's final language. The proposed rule would prohibit banks from owning more than 3 percent of hedge funds and private-equity funds and from investing more than 3 percent of Tier 1 capital in the funds.
Former Morgan Stanley executives Jonathan Dorfman and James O'Brien run CCA, which managed $18.2 billion in private-equity, venture-capital and hedge funds, Citigroup said in August.
Citigroup had at least $5 billion in the funds, a person familiar with the matter said in May. The company also invested about $800 million of its money in internal private-equity and hedge funds in the third quarter, according to a November regulatory filing.
Attracting external capital would help Citigroup withdraw its money without forcing the closure of funds that hold mostly company cash. Citigroup didn't provide details about how it would divest its ownership of the hedge-fund unit.