Citigroup will sell its emerging-markets private-equity unit to the Rohatyn Group to comply with new curbs on risky bank investments. Terms weren't disclosed.
The combined firm, dubbed TRG, will have more than $7 billion in assets, including about $6 billion in private equity, according to a statement today from both companies. TRG will have 18 offices globally and investments will include private equity, real estate, infrastructure, hedge funds, fixed income and inflation-linked bonds.
Citigroup Chief Executive Officer Michael Corbat is among U.S. bank chiefs grappling with the Volcker rule, which aims to bar federally backed lenders from making bets with shareholder cash that might lead to a catastrophic failure. The rule would keep lenders from investing more than 3 percent of Tier 1 capital in private-equity and hedge funds or owning more than 3 percent of the funds.
"I've had an ongoing dialog with Citi and a number of other banks through the years," Nicolas Rohatyn, 53, CEO and chief investment officer at TRG, said in a phone interview. "It became clear after the financial crisis with the arrival of the Volcker rule that this was going to put pressure on big banks."
The Citi Venture Capital International unit, or CVCI, manages about $4.3 billion, according to the statement. Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, declined to comment on how much of that sum belongs to the bank. Other CVCI investors include sovereign wealth funds, wealthy individuals and family offices, Rohatyn said.
Marc Desaedeleer, CVCI's chief investment officer, will be appointed interim CEO and was named to TRG's executive committee, the firms said. Most CVCI staff will join the combined firm, Rohatyn said.
Dipak Rastogi, CVCI's founder and leader since inception in 2001, won't stay with the venture, according to an internal memo from Jamie Forese, Citigroup's co-president, and James von Moltke, head of corporate mergers and acquisitions. Rastogi had been with the company for 30 years, according to the memo.
"CVCI has one of the very few teams in the industry that has created value for its investors while operating exclusively in the emerging markets," Forese said in the memo. The deal is part of efforts to comply with the Volcker rule, according to the memo.
Rohatyn is the son of Felix Rohatyn, the former head of Lazard Freres & Co. who was credited with helping to save New York City from bankruptcy during the 1970s. The younger Rohatyn previously worked with JPMorgan Chase & Co.
"We'd observed the trend in the market with a number of banks shedding these operations," Rohatyn said. "Citigroup was certainly active in shedding some of these but so were other banks."