Citigroup to triple hedge fund offerings for wealthy clients

Citigroup Inc.’s private bank will triple the number of hedge funds such as Paulson & Co. that its wealthy clients can invest in, under a push to increase money-management revenue.

The private bank will expand its HedgeForum service to offer 75 hedge funds by the end of 2011 compared with 24 now, said David Bailin, Citi Private Bank’s head of managed investments. Customer assets on HedgeForum, which stood at $2.9 billion as of June 30, will rise by more than $1 billion this year, and by a “multiple of that” during the next two years, he said in an interview.

Executives at the private bank, which serves clients with more than $25 million, are retooling HedgeForum after salvaging it from among $465 billion of Citigroup assets tagged for sale or closure, Bailin said. Chief Executive Officer Vikram Pandit, 53, who announced plans to shrink Citigroup after a $45 billion U.S. bailout in 2008, has shifted some businesses originally marked for disposal back into other parts of the New York-based company.

“The refocusing of the business is already being greeted with a lot of success, in terms of both inquiries and new business for Citi Private Bank,” said Bailin, 50.

Citi Private Bank, led by former McKinsey & Co. consultant Jane Fraser, took over HedgeForum in March, Bailin said. The service vets hedge-fund managers on behalf of clients and then acts as a conduit for their investments, he said.

Paulson, Brevan Howard

HedgeForum has 15 employees, Citigroup spokesman Mark Costiglio said. It’s led by Victoria Rock, who reports to Bailin, he said. Francis “Frank” Frecentese, 41, and Eric Siegel, 36, helped pick the fund managers on the platform as co- heads of fund research, Costiglio said.

The managers include New York-based Paulson, the world’s third-biggest hedge fund according to Pensions & Investments magazine, people with direct knowledge of the matter said. The fund, run by billionaire John Paulson, 54, made $15 billion betting on the decline in subprime mortgages in 2007.

Other funds offered through HedgeForum include London-based Brevan Howard Asset Management LLP, the fourth-biggest hedge fund, and New York-based GoldenTree Asset Management LP, according to spokesmen at those firms. Citigroup doesn’t identify the funds on HedgeForum’s roster.

Brazil, India, Eastern Europe

HedgeForum plans to add managers focused on emerging markets including Brazil, India, Asia and Eastern Europe, Bailin said. The bank will rely on a “network of knowledge and contacts in the emerging markets, in terms of managers that we know and the investment strategies that they apply,” he said.

Fraser, who served as Pandit’s strategy chief before taking over as the private bank’s CEO in April 2009, has tried to increase revenue from investment management. The push aims to reduce the unit’s dependence on interest income from loans on businesses, real estate, airplanes and art.

Citi Private Bank, which says it serves a third of the world’s billionaires, reported $1 billion of revenue for the first half of 2010, up 2 percent from the same period a year earlier. It doesn’t disclose the breakdown of revenue between lending and investing, and Bailin declined to detail HedgeForum’s contribution. The world’s 1,011 billionaires control $3.6 trillion, according to Forbes.

Transferred Out

Earlier this year, the private bank announced a plan to double its ranks of advisers in North America to at least 230 during the next several years. Fraser has also hired executives to lead the investing push, including Bailin, recruited from Bank of America Corp.’s wealth-management business in December 2009.

In January 2009, when Pandit formed a new division called Citi Holdings to encompass non-core businesses he planned to eventually unload or close, HedgeForum was included. The company also put its fund-of-hedge-funds business, a private-equity unit and a commercial real-estate investing arm into the group.

While the three investing businesses were sold earlier this year, Bailin and Fraser decided they could use HedgeForum to manage their own clients’ hedge-fund investments, and arranged to have it transferred out of Citi Holdings, Bailin said.

The transfer had no material impact on Citi Holdings’ balance sheet or cash flow, Citigroup spokeswoman Shannon Bell said.

Related Topics: Citigroup Inc., Wealth Management