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Citi redeems $250 mln from Claren Road after seeding firm

Date: Wednesday, November 18, 2009
Author: Alistair Barr, MarketWatch

Move comes as giant bank reorganizes its alternative investments business

Citigroup Inc. recently redeemed its investment with Claren Road Asset Management after helping launch the hedge-fund firm in 2005, according to two people familiar with the matter.

Citi redeemed all of its investment, roughly $250 million, the people said on condition of anonymity.

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The decision to withdraw wasn't driven by Claren Road's performance, which has been solid through the financial crisis. The New York-based firm has generated returns of more than 20% this year and was up roughly 10% in 2008, according to one of the individuals.

Claren Road told one person that Citigroup pulled its investment as part of a broader decision to redeem holdings from outside hedge funds. Suzanne Murphy, head of strategic development at Claren Road, declined to comment.

In 2005, in the middle of the credit-market boom, Claren Road was started by former Citigroup credit traders Brian Riano, John Eckerson and Sean Fahey. The bank seeded the firm, which means it was among the first major investors in its hedge funds. Last year, the Petershill Fund, a private-equity fund run by Goldman Sachs Group /quotes/comstock/13*!gs/quotes/nls/gs (GS 176.60, -0.65, -0.37%) , bought a passive minority stake in Claren Road.

Since 2005, Citigroup has fallen on hard times. The bank has been one of the largest recipients of bailout money from the U.S. government, and is now roughly a third owned by taxpayers. It's been selling many businesses while reorganizing others and will likely end up a much smaller institution. See story on breaking up big banks.

As part of that effort, the bank has restructured its Citi Alternative Investments unit, which includes its hedge-fund operations.

"As we completed this mission for the alternative investments unit, the resulting entity had changed significantly -- transforming into a tighter, more focused asset mix of alpha-oriented direct investment strategies," Citi said in an internal memo last week.

Citigroup changed the name of the unit to Citi Capital Advisors, or CCA.

The business now has three segments. The private-equity part includes Metalmark Capital and Citi Venture Capital International.

Market Strategies includes funds focused on mortgages and corporate credit, emerging markets, equities, global macro and municipal debt, according to the memo.

The last part is infrastructure, which houses Citi Infrastructure Investors.

Alistair Barr is a reporter for MarketWatch in San Francisco.