NEW YORK — Citigroup is near a deal to sell a portfolio of over $900 million worth of private-equity investments to Lexington Partners Inc., according to people familiar with the situation, a transaction that would be one of the biggest ever in the market for secondary private-equity interests.
New York-based Lexington is among the more prominent players in the niche secondary private-equity market, in which investors buy second-hand interests in private-equity holdings, typically at a discount to their face value.
Activity in the secondary market is showing signs of picking up after a fallow stretch. The extreme market volatility over the past two years made it difficult to value private-equity stakes, but as markets have stabilized and portfolio values recovered, deals are getting done. Last month Bank of America Merrill Lynch, part of Bank of America Corp., announced a $1.9 billion sale of its portfolio of investments to Axa Private Equity.
Citi's efforts are part of the banking giant's initiative to offload more than $500 billion in non-core assets to reduce its size by about one-third. It also comes at a time when Congress is weighing new rules that could curb banks' private-equity investments.
Citi and other large banks such as Bank of America and Lehman Brothers Holdings Inc. aggressively built out their private-equity investments during the buyout boom. The banks believed that investing alongside large private equity firms in their buyout deals would not only generate strong returns but also help the banks in competing for assignments underwriting bank loans or bonds for such deals.
But after a series of government rescues during the financial meltdown of 2008 and 2009, Citi and other banks are looking to offload non-core, less-liquid holdings such as private-equity stakes.
News of the planned Citi sale was earlier reported by the private-equity blog PE Hub.
In a complex deal, Citi would sell private-equity investments to Lexington, including an interest in Citigroup Capital Partners II, a $3.3 billion fund that invested alongside private-equity firms in the large deals struck during the buyout boom. Lexington is expected to pay a slight discount to Citi's holding values in deals such as discount retailer Dollar General, lender GMAC LLC and hospital giant HCA, say people familiar with the transaction.
While Lexington would purchase the underlying assets in the funds, La Jolla, Calif.-based private-equity advisor StepStone is expected to manage the Citi funds. A StepStone representative declined to comment.
The Citi funds require ongoing management services because in addition to investing its own money, Citi sold interests in the funds to clients of its private bank and its Smith Barney brokerage arm, as well as to Citi's own senior executives.