US private equity firms Lexington Partners and Stepstone Group have picked up interests in Citigroup’s private equity funds as the investment banking giant moves to divest itself of alternative asset investments in line with new US regulations.
StepStone has acquired $4bn of private equity fund of funds, mezzanine, feeder, and co-investment funds from Citi, which it is to manage. The deal will also see some Citi Private Equity personnel, including managing partner Darren Friedman, move over to StepStone.
Secondaries specialist Lexington has also purchased a portion of Citi’s private equity fund of funds, mezzanine funds, and co-investment funds. The value of the deal was not disclosed, but reduces Citi’s assets by $1.1bn.
“This portfolio was assembled over the past ten years and reflects the strength of Citi’s global private equity client relationships,” said Brent Nicklas, managing partner of Lexington.
Many large US banking groups are selling off or preparing to 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, will only be allowed to invest three per cent of their total Tier 1 capital in alternatives, such as private equity.
However, several banks, including Goldman Sachs and Bank of America Merrill Lynch, are reportedly continuing their private equity investment activities until the rules come into play.
StepStone has recently expanded its presence in the secondaries space with the acquisition of SilverBrook Private Equity, a firm run by former executives of Pomona Capital and Hamilton Lane.
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