Why CitiGroup Hid its Hedge Fund Numbers

Date: Thursday, March 1, 2012
Author: Alex Akesson, HedgeCo.Net

This coming April issue of Bloomberg Markets magazine reports that four of Citi’s seven biggest hedge funds have underperformed their indexes since they started, according to investors. Five of the seven lost money in 2011.

The last time Citigroup told shareholders how its Citi Capital Advisors hedge fund group (CCA) performed was the first quarter of 2008, when the unit lost $509 million.

Citigroup told the magazine that the bank planned to sell a “significant” portion of its hedge fund group (CCA)  to managers of the group.

This decision to sell the hedge and private-equity funds comes at a time when Citigroup is still recovering taking $45 billion from the Troubled Asset Relief Program, $99 billion in loans from the Federal Reserve and $301 billion in government asset guarantees to stay alive.

Other highlights Bloomberg uncovered include:

In the third quarter of 2011, CEO Vikram Pandit invested $800 million of the bank’s own money — not cash from investors or clients — into CCA, even as traders from Goldman Sachs Group Inc. (GS) and other banks were jumping ship to start their own hedge funds in advance of the Volcker rule. The Volcker rule says a deposit-taking bank’s proprietary capital can’t account for more than 3 percent of any hedge fund.

The worst performer among the seven largest funds last year was the Strategic Credit Fund, which lost 14.2 percent, according to people who were solicited to invest. Credit funds, on average, climbed 1.5 percent in 2011, according to data compiled by Bloomberg. The $200 million fund is run by Fred Hoffman and manages mostly Citi capital.

The $400 million Mortgage/Credit Opportunity Fund, managed by Rajesh Kumar, lost 4.2 percent in 2011, including a 10 percent dive in August. The loss is striking because mortgage funds were the best performers among hedge funds, gaining an average of 14.5 percent, according to Bloomberg data.

Alex Akesson
Editor for HedgeCo.net