In order to comply with regulations, Citigroup Inc (C - Analyst Report) intends to divest Citi Venture Capital International (CVCI) – a private equity fund – to investment firm Rohatyn Group. The deal will expectedly close in the fourth quarter of this year, subject to customary closing conditions. However, the financial details have not been disclosed yet.
CVCI is a division of Citigroup’s alternative asset management unit, Citi Capital Advisors. CVCI, which was formed in 2011, operates entirely in emerging markets such as Singapore, Hong Kong, Mumbai, New Delhi, London, New York and Santiago. Presently, CVCI administers five funds as well as other investments, and has roughly $4.3 billion in equity investments and committed capital.
On completion of the deal with Rohatyn, Citi Capital Advisors will have only one fund left to offload. This will be the North American private equity fund Metalmark Capital, which it is already trying to sell to its management.
New York-based Rohatyn Group is a major emerging markets asset management firm, which operates around the globe. Upon completion, the deal will further diversify Royalty’s market operations. Additionally, it will provide Rohatyn a global footprint and nearly $7 billion in total assets under management.
Of late, the private equity business has become less lucrative for banks due to stringent regulations that restrict proprietary trading and investment activities. As per the Volcker Rule (a provision of the 2010 Dodd-Frank law), a company is prohibited from investing more than 3% of the private equity funds raised or 3% of the lender’s Tier 1 capital. This provision is expected to adversely affect the future of the bank-owned private-equity units and will make them less attractive.
Over the past few years, several banks have been spinning off their private equity operations to conform to the requirements of the Volcker Rule. Recently, Credit Suisse Group AG (CS) agreed to sell its private equity business to The Blackstone Group L.P. (BX - Analyst Report). The deal is expected to close at the end of third-quarter 2013.
In 2011, Bank of America Corporation (BAC - Analyst Report) announced the divesture of BAML Capital Partners, clearly reflecting the impact of the Volcker Rule. JPMorgan Chase & Co. (JPM - Analyst Report) is also set to divest its private equity arm, One Equity Partners and establish it as an independent firm.
Citigroup currently carries a Zacks Rank #3 (Hold).