The Wall Street Journal reports today that Citigroup is shutting down Old Lane Partners, a hedge fund started by Vikram Pandit that the bank acquired a mere 11 months ago. The bank decided it couldn’t spare the capital to shore up the struggling hedge fund. The article noted:
Old Lane has essentially broken even since its inception. That isn’t terrible, considering the perilous financial markets of the past year. But it fell far short of the highflying performance craved by hedge-fund investors. Citigroup never marketed Old Lane to new investors, even after the fund was designated by Citigroup as its primary hedge-fund vehicle last summer, replacing the struggling Tribeca Global hedge fund.
So that means that Citi in effect paid $800 million to secure the services of Vikram Pandit.
Believe it or not, that sort of deal isn’t unheard of. In 2000, Chase acquired a merchant bank called Beacon Group for $500 million. The asset it really wanted was the firm’s founder, Geoff Boisi, who had headed the Goldman M&A department during the 1980s and was considered a premier dealmaker. Beacon itself was focused on the energy business, which was not an area of expertise for Boisi personally, and oil industry hands I knew thought that the firm was overstaffed and not particularly astute in its investments.
However, this precedent does not bode well for Citigroup. Boisi joined Chase as vice chairman, and given the high aspirations for him versus his near invisibility after he joined, it’s a safe bet that their return on the Beacon investment was not attractive.
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I am glad you picked up on this.
Here’s a link to what I wrote a couple of months ago. http://blog.metro-real-estate.com/?p=351
I hate to gloat (NOT!.)
I read this article and think the WSJ spun it in a manner favorable to Pandit. The headline reads, “Citigroup to Close Hedge Fund: Blow to CEO”. Was it a blow to Pandit, or is this what he bargained for all along? He goes to Citgroup and got “$165 million when Citigroup bought Old Lane”. The WSJ writes, “Citigroup was forced to choose between pumping new money into it or shutting it down”. I think when Citigroup “bought” Pandit, this was contemplated.
Citigroup paid $800 million for Old Lane which was formed in 2006. Crazy! It paid a fortune for Pandit’s “thick Rolodex”. “Old Lane has essentially broken even since its inception”. “Pandit was required to park in Old Lane about $100 million of his proceeds from the hedge fund’s sale to Citigroup”. HERE’S THE RUB! By closing Old Lane Citigroup freed up Pandit’s $100 million. This transaction stinks to high heaven. “With Old Lane closing, Mr. Pandit will have to move that money to other Citigroup investment vehicles”. Poor baby. All of Citigroup’s directors should be forced out over this. Where’s the plaintiff’s bar to sue over “waste of corporate assets”, or some such thing.
Hey Citigroup directors, you can buy my Rolodex for a mere $80 million. Waddayasay?
Citi sucks. Weill was a megalomaniac, serial takeover junky and a cold-blooded banker to the worst scum of Africa, gleefully laundering blood money.
Chuck “Dancing Fool” Prince was an incompetent buffoon who was put in place for the sole purpose of protecting Weill from criminal prosecution. And now Pandit, a third rate hedge fund owner who has accomplished nothing.
Citi should not only be broken up, it should be smashed and burned.