World Business

Citigroup 'plans to raise $3b' for funds

By Bradley Keoun (China Daily)
Updated: 2010-06-19 10:03

Move despite new US rule to avoid bailouts by curbing risk-taking

NEW YORK - Citigroup Inc plans to raise more than $3 billion for its private-equity and hedge funds, even as US lawmakers consider banning banks from owning and investing in so-called alternative funds, people with direct knowledge of the plan said.

Citi Capital Advisors (CCA), which oversees about $14 billion, may seek $1.5 billion for private equity this year and $750 million for hedge funds, said the people, who declined to be identified because the plans aren't public.

An additional $1 billion is targeted next year for hedge funds, the people said.

"Citi must be comfortable enough that whatever happens, even in the extreme version, they'll be able to move ahead with these businesses," said Steven Kaplan, a professor at the University of Chicago Booth School of Business who studies the private-equity industry.

"I don't think any of these bills envisioned not being able to manage someone else's money. It's the bank capital that's still an open question."

The Volcker rule, named for former Federal Reserve Chairman Paul Volcker, seeks to avoid future bailouts by curbing risk-taking.

The Securities Industry and Financial Markets Association, Wall Street's biggest lobbying group, and the Financial Services Roundtable, a Washington-based trade group, have expressed concerns that the measure restricts banks from businesses that didn't cause the financial crisis.

Lawmakers are reconciling House and Senate bills this month to overhaul regulation of Wall Street.

Citigroup's rivals aren't waiting for final legislation to move forward with growth plans for their in-house money-management funds.

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Last week, Morgan Stanley announced it had raised $4.7 billion for a new global real estate fund, including $400 million of the New York-based securities firm's own money.

Citigroup has about $5 billion of its own money in Citi Capital Advisors funds.

"Regardless of the ultimate outcome of financial reform, our priority will always be protecting the interests of our clients, who have selected us to be the fiduciary manager of their assets, and ensuring the soundness of the CCA platform moving forward," spokeswoman Danielle Romero-Apsilos said.

The proposed legislation would restrict banks' ability to trade financial instruments such as stocks, bonds and commodities on their own account, and bar them from owning or sponsoring hedge funds or private-equity firms.

Federal banking agencies would have the power to exempt institutions who do such trading on behalf of a customer or to hedge risk.

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