Citi managers to own part of hedge fund unit

Citigroup Inc, the third-biggest US 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, said chief operating officer John Havens.

Employees in the Citi Capital Advisors (CCA) division will get a “significant” stake in managing the funds, Havens said in an interview. This would increase, he said, as 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.

“Our competitors are an owner-operated model,” Havens said. “It was always in the plans but you have to actually have a business that you’re comfortable with to go do it.”

Havens and chief executive Vikram Pandit 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 three per cent of hedge funds and private-equity funds and from investing more than three per cent of Tier-I capital in the funds.

“We’re trying to create a client-centric, alternative asset-management business, and this is the final stage of putting that in place,” Havens said.