Citigroup Names $6.8 Billion Fund-Unit Spinout Napier Park
Citigroup Inc., the third-biggest U.S. bank, renamed an internal hedge-fund unit Napier Park Global Capital as it spins out the business with about $6.8 billion in holdings under management.
Regulators have granted key approvals for the move, and the firm is almost done gathering consent from investors and counterparties, the New York-based lender said today in a statement. The business will contain hedge funds that have been managed by the bank’s Citi Capital Advisors unit.
Former Citigroup Chief Executive Officer Vikram Pandit, 56, oversaw the plan to spin out internal hedge funds in response to the Volcker rule, which restricts banks from making wagers with their own money. The lender is giving about 75 percent of the fund unit to managers for free, people with knowledge of the matter said in December.
“We are very pleased with the progress we have made as we prepare to officially launch Napier Park as an independent asset-management firm in the coming months,” said James O’Brien, co-head of CCA. “The support of our investors has been overwhelmingly positive and we are grateful for their partnership.”
The new name was inspired by the 16th-century Scottish mathematician and physicist, John Napier, known for his groundbreaking work on logarithms, Citigroup said.
O’Brien and CCA co-head Jonathan Dorfman will share about 25 percent of the new fund, said the people familiar with the deal in December. Fund managers and employees will control 50 percent while Citigroup will retain a 25 percent stake, said the people, who requested anonymity because the matter isn’t public. Granting managers a stake in the new firm may provide incentive to improve returns and maximize the bank’s stake.
CCA’s hedge funds make bets on assets including risky European loans, complex credit instruments, municipal bonds, mortgage-backed securities and the debts of struggling companies. Citigroup had as much as $2.5 billion invested in the funds, according to the people.
The Volcker Rule, named for former Federal Reserve Chairman Paul Volcker, seeks to restrict banks that accept deposits from owning more than 3 percent of a hedge fund’s assets or investing more than 3 percent of Tier 1 capital in the funds. Citigroup is going to gradually pull out assets to comply with the rule, the people said.
Danielle Romero-Apsilos, a spokeswoman for the bank, declined to comment on how much Citigroup has invested in the funds.
The Napier Park unit has about $2.4 billion under management through collateralized loan obligations, according to the statement. CLOs pool high-yield, high-risk loans and slice them into securities of varying risk and return.
“Significant progress has been made towards the separation,” the hedge-fund business said in the statement.
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