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> Citi writes off Pandit’s recruitment fee |
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Citi writes off Pandit’s recruitment fee
posted by
Vivek Sharma
14 Jun 2008, 11:41
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labels: companies, global markets, Investing
Many eyebrows were raised last year when Citigroup bought Old Land Partners, a one-year old hedge fund with around $4 billion under management. The price Citi paid for the purchase was an incredible $800 million, or 20 per cent of assets under management. That is the kind of valuation fund management companies in fast growing emerging markets, let alone mature markets, can only dream of.
Most observers believed that Citi paid the exorbitant premium to get the high calibre team at Old Lane, led by founder CEO Vikram Pandit. Almost all of them were at Morgan Stanley, where Pandit was a star and considered a future CEO. But, he was shunted out of Morgan Stanley in a major top-management restructuring. With a few of his trusted lieutenants, Pandit started Old Lane. Pandit is believed to have earned at least $165 million from the sale to Citi.
When Citi acquired Old Lane, most of the top personnel moved to the former. Investors in Old Lane had an option to exit in the event of a sale and they did, to the extent of more than $2 billion. Pandit entrusted Old Lane to one of his long-time close associates, Guru Ramakrishnan, who ran it as a separate unit. Though the hedge fund’s equity investments continued to do well after the Citi takeover, its fixed income investments floundered.
To make it worse, Citi’s ongoing troubles from the credit crisis made it difficult to support Old Lane. Discussions to pump in additional funds into Old Lane went nowhere as Citi itself was acutely short of capital.
Finally, Citi has decided to kill Old Lane. The fund will be closed, its investments either liquidated or transferred to other Citi funds. Some of the Old Lane staff will move to Citi and the rest will be laid off.
With that, Citi will close the most expensive executive recruitments ever in corporate history!
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