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Citigroup continues to wind down alternative investment activities

15 Aug 2013

US banking giant Citigroup is reported to be winding down its alternative investments unit as part of a continued bid to reduce its exposure to these assets, according to the Wall Street Journal.

Many large US banking groups have been forced to close down or sell off their alternative investment divisions as a result of regulations prohibiting them from investing their own capital in alternative investments.

Under the Volcker rule, they will only be allowed to invest three per cent of their total Tier 1 capital in alternatives, such as private equity.

The Citigroup Alternative Investments unit comprises a selection of assets that escaped the cull.

It includes the $3.4bn 2007-vintage infrastructure fund, which will make no further investments.

It is also looking to exit certain assets, the report said, citing an internal memo.

Assets that are said to be up for sale include UK water operator Kelda, which earlier this year was reported to be up for sale.

Alongside regulatory pressure, Citigroup has suffered a number of high profile failures, the report said, including an unsuccessful takeover of the Pennsylvania Turnpike and an unsuccessful privatisation attempt of Midway Airport.

Citigroup has already significantly reduced its alternatives activities in the face of new regulation.

In October 2010, Lexington Partners and Stepstone Group acquired a sizeable portfolio of private equity fund stakes, including funds of funds, mezzanine funds and co-investment funds.

In June 2011, AXA Private Equity bought a $1.7bn sheaf of private equity assets from the bank in one of the largest secondary transactions of all time.

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