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Citigroup's Old Lane Hedge Fund Lost 5.9% in August

Date: Wednesday, September 12, 2007
Author: Jenny Strasburg, Bloomberg

Sept. 12 (Bloomberg) -- Old Lane LP, the hedge-fund firm acquired two months ago by Citigroup Inc., lost 5.9 percent in August, quadruple the industry's average decline, as bond and emerging markets fell.

The drop left funds run by Old Lane with a 1.9 percent gain for the year, according to an investor report that was obtained by Bloomberg. The New York-based manager, which oversees $4.4 billion, trailed the average 1.31 percent loss for all hedge funds last month, the industry's worst performance since May 2006, according to Chicago-based Hedge Fund Research Inc.

Old Lane, run by Vikram Pandit, John Havens and other former Morgan Stanley executives, struggled last month amid a global increase in borrowing costs that triggered declines in equity markets. Multistrategy managers like Old Lane trade a range of stocks, bonds and commodities in an effort to profit from price differences between securities.

``They've got some time to have some positive months that would more than offset the losses and put them back into contention for being a superb manager,'' said Geoffrey Bobroff, an independent investment consultant in East Greenwich, Rhode Island. ``To have that, you have to take more risks, and it means becoming more aggressive.''

New York-based Citigroup, the biggest U.S. bank, paid about $800 million for the firm in July and is closing its Tribeca Global Investments LLC hedge fund, which follows a similar strategy. Citigroup spokesman Jon Diat declined to comment.

Citadel Outperforms

Chicago-based Citadel Investment Group LLC, a multistrategy hedge-fund manager run by Kenneth Griffin, returned about 15 percent this year through August. The average multistrategy fund gained 5.71 percent in 2007, according to Hedge Fund Research.

Multistrategy managers have outperformed macroeconomic funds, which make bets on the direction of interest rates, currencies and commodity prices. Macro funds have posted an average gain of 4.23 percent this year.

Macro funds run by Paul Tudor Jones, Louis Bacon, Bruce Kovner and Barton Biggs dropped at least 2.5 percent in August as global stocks fell and the yen unexpectedly rose against all major currencies.

Jones's $10 billion Tudor BVI fund lost 5.5 percent and Bacon's Moore Global Investment Fund Ltd. declined 5.7 percent through Aug. 28, according to investors in the funds.

Citi Alternative

Pandit, 50, who founded Old Lane last year after leaving New York-based Morgan Stanley, became head of Citi Alternative Investments in July as part of the bank's purchase of his firm. The Citigroup division oversees about $59 billion, including real estate and private-equity assets. It has about $23 billion in hedge-fund assets, including client money allocated to outside managers.

Hedge funds are largely unregulated investment pools that can bet on falling as well as rising asset prices. Their managers gain substantially from profits on money invested.

Citigroup's Tribeca trailed the industry this year after producing below-average returns in 2006. It declined about 1.2 percent this year through August. It gained 8.5 percent last year, compared with the 13 percent industry average, according to Hedge Fund Research.

Tribeca clients representing about $500 million in assets in that fund have the option of transferring money to Old Lane, according to a Sept. 5 memorandum to Citi Alternatives employees from Havens that was obtained by Bloomberg.

To contact the reporter on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net .