Citigroup Inc. is closing a $400 million convertible arbitrage fund, the final step in winding down its $2 billion Tribeca Global Investments group, people familiar with the plans said.
Tribeca Convertible LP has been hurt by investor redemptions, according to the people, who declined to be identified because the decision isn't public. The fund's managers, Andrew Wang, 31, and Jeffry Chmielewski, 32, are likely to leave New York-based Citigroup and are contemplating starting their own fund, the people said.
The closure of Tribeca Global, set up in 2004 with a goal of attracting as much as $20 billion, comes as Citigroup struggles with its alternative-asset management unit. The bank most recently shuttered Old Lane Partners, the hedge fund Chief Executive Officer Vikram Pandit, 51, co-founded and sold to the bank last year. Citigroup in March started closing its Falcon Strategies hedge funds after suspending redemptions.
The primary strategy of Tribeca Convertible was investing in U.S. and overseas stocks and "equity-related securities" using "convertible securities arbitrage," according to a regulatory filing in April by MetLife Inc., which had holdings in the fund as recently as 2006. Convertible arbitrage involves buying a company's bonds that can be converted into common stock while simultaneously shorting its shares.
Citigroup, the biggest U.S. bank by assets, said in September it was closing Tribeca Global Investments and returning money to clients. About $400 million in convertible and Asian securities would remain invested within Citigroup Alternatives, the bank said at the time.
Fund Returns
Tribeca Convertible was down less than 5 percent this year, people familiar with the fund said. That compares with a 6.7 percent decline in the Fixed Income-Convertible Arbitrage Index, according to Hedge Fund Research Inc. The fund rose 20 percent in
2006 and 5 percent in 2007.
Jon Diat, a Citigroup spokesman, declined to comment or make Wang and Chmielewski available.
"We just don't comment on specific investments we might be making," MetLife spokesman Christopher Breslin said.
Citibank said in 2004 it hoped to attract as much as $20 billion after hiring Tanya Styblo Beder from New York-based Caxton Associates LLC to transform the $600 million Tribeca fund from a convertible arbitrage shop into a multistrategy pool.
Beder left in September 2006. Dean Barr, who took over after her departure, resigned in April 2007, less than a week after Pandit's team was named to run the private-investments group.
Oliver Dobbs, the last head of Tribeca, left in February.
Citigroup's alternative investment division has about 950 employees and about $54 billion under management.
Old Lane Closing
The bank in June closed Old Lane, which returned 2.8 percent in 2007, and took a $202 million writedown on its investment. The fund's holdings have either been disbursed to clients or are being managed inside Citigroup, officials said.
Falcon Strategies Two fell in value by about 80 percent, according to a lawsuit filed by investors this year. The suit was dropped last month after a judge rejected a bid to halt liquidation of the fund.
Hedge-fund clients typically pay fees equaling 2 percent of assets and 20 percent of investment profits. The loosely regulated investment pools can bet on falling as well as rising asset prices, and managers gain substantially from profits on money invested.
Citigroup fell 54 cents, or 2.9 percent, to $18.33 at 9:42 a.m. in New York Stock Exchange composite trading. It has fallen 36 percent this year before today, giving the bank a market value of $102.8 billion.
