H.L. Mencken famously said, "no one ever went broke underestimating the intelligence of the American public." But Citigroup's hedge fund and private equity business seems intent on proving the great skeptic wrong.
An awful lot has gone wrong at C in recent years, so maybe the woes of Citi Alternative Investments have passed by your notice. Allow us to recap: Seeking a potential successor to CEO Chuck Prince, Citi ponies up $800 million to buy Old Lane Partners in April 2007, founded by former Morgan Stanley exec. Vikram Pandit, who is named head of Citi AI. Citi quickly guts its existing flagship hedge fund, Tribeca Global Management, to accommodate Pandit. On the one hand, this worked out, because Pandit was running the show at Citi by the end of 2007. On the other hand, it did not work. At all.
That very year, Citi was already bailing out one of its hedge funds, Corporate Special Opportunities, to the tune of almost $1.8 billion. It did not work. Just a month after Vikram took the helm at Citi, CSO froze redemptions, when it went under earlier this year, investors got back just 3 cents on the dollar and its former manager sued the firm for wrongful termination.
But CSO wasn't the only Citi hedge fund in trouble: The firm also bailed out its Falcon funds to the tune of $1 billion. That also did not work, and Citi was quickly fighting several class-action lawsuits.
By April of 2008--just a year after Pandit joined Citi--Citi AI was posting more than $350 million in losses and had to take a $202 million write-down tied to Old Lane, which was put out of its misery that June. Since Pandit took the reins, Citi AI's assets under management have fallen by more than three-quarters.
No matter: In order to raise the $2.5 billion it wants, all Citi AI needs is a new name. So welcome Citi Capital Advisors, which should clearly fool investors into thinking that all is well at Citi's hedge fund arm. Unless they see the word "Citi" at the beginning.
Citi to relaunch troubled unit [FT]