Citigroup to shut down Vikram Pandit's hedge fund Old Lane Partners

12 June 2008

In a move somewhat embarrassing to current Citigroup CEO Vikram Pandit, the financial institution has decided to close down a hedge fund that he had co-founded and was heading when Citigroup acquired it.

Citigroup announced today that it would shut down operations in hedge fund Old Lane Partners and expects to take a charge in the second quarter related to the closure. The move comes only 11 months after the New York-based bank acquired the fund for $800 million in July 2007. At that point of time, Pandit had reaped a personal windfall of $165 million.

Before the sub-prime crisis hit the markets, many large banks and brokerages saw hedge funds as a lucrative new business. However, as the situation deteriorated, Citigroup was forced to choose between additional fund infusions or shutting it down. That created an awkward situation for the new CEO. Pandit removed himself from the deliberations to avoid the perception of a conflict of interest, it added.

Citigroup officials had considered a plan to replenish Old Lane with anywhere from $1 billion to $3 billion of the bank's own capital, but later decided against it as Citi's resources were already strained without having to bear this additional pressure. Then, Old Lane CEO Guru Ramakrishnan had reportedly said in a memo that the fund had secured a "substantial" amount of fresh capital.

The fund, which has had sluggish returns as global markets skidded due to the credit crisis, will allow investors to cash in their holdings by 31 July. Citigroup said that some of the fund's investments, including equities and fixed-income products, would be integrated into the bank's securities and banking division.

Citigroup said integrating Old Lane would increase its assets by $9 billion. All former Old Lane partners, including Pandit, will be required to maintain their investments in the funds.