Citigroup planning $3.5b fund for buyouts
NEW YORK -- Citigroup Inc.'s private-equity unit is raising a $3.5 billion fund to help finance acquisitions by leveraged buyout firms, said a person with direct knowledge of the effort.
Citigroup Alternative Investments has gathered about $2 billion from the bank and employees, said the person, who declined to be identified because the fund hasn't been completed. It plans to solicit $1.5 billion from investors such as the Oregon Public Employees Retirement Fund.
By joining LBO firms in their own investments, New York-based Citigroup may avoid criticism that it's competing against investment-banking clients for takeovers. JPMorgan Chase & Co. last year decided to shed a buyout unit, JPMorgan Partners LLC, after customers including Texas Pacific Group complained the New York-based bank was putting its interests ahead of theirs.
``To the extent the banks don't compete and co-invest with the private-equity funds, I imagine buyout firms will welcome them," said Joseph Smith, a partner in the private-equity practice at the law firm Dewey Ballantine LLP in New York.
Buyout firms paid investment banks about $8.8 billion last year for advising and raising money for acquisitions, as well as selling companies through stock sales, according to data compiled by New York-based Freeman & Co.
Private-equity funds are on course to raise a record $300 billion in 2006, following $283 billion last year, according to Private Equity Intelligence Ltd., an industry research firm in London.
The Citigroup unit contacted Oregon's state pension fund, which oversees $57 billion, on July 25 about its new fund, said Kevin Max, a spokesman for the state system. Citigroup spokesman Jon Diat declined to comment.
Foundations and endowments have an average 26 percent of their assets in private equity, after increasing their allocations by 5.5 percentage points during the past five years, data compiled by Chicago-based Northern Trust Corp. show.
