PE jostles over Citi’s hedge fund admin unit

Citi is advising on the sale, several sources said. Interested bidders could include PE firms such as TPG Capital, Kohlberg Kravis Roberts & Co. LP, Advent International, and Hellman & Friedman, as well as strategics like SS&C Technologies Holdings Inc., private equity and banking sources said.

However, a separate banking source said Citi’s hedge fund administration unit is too small for large buyout shops. The Citi unit produces EBITDA in the mid-$20 million range and could sell for 8x to 9x, the banking source said. The source pointed to middle-market LBO firms focused on turnaround or corporate divestitures like Marlin Equity Partners, GTCR, Platinum Equity, Golden Gate Capital and Gores Group, which might be interested. Strategics such as State Street Corp. or The Bank of New York Mellon Corp. could also be involved.

“We’re looking at it,” said an executive at an upper middle-market firm.

In January, Citi said it was exiting certain non-core institutional businesses like its hedge fund administration unit. Other Citi groups to be jettisoned include prepaid cards, certain transfer agency operations, and wealth management administration. Citi executives, in a January earnings call, said “active processes” are underway to exit the businesses “in a timely and economically rational manner.”

The Citi hedge fund administration unit manages $326 billion in single hedge fund assets across 258 manager and 996 funds, HFMWeek.com said. The unit has $55.5 billion in fund-of-hedge-funds assets across 44 managers and 233 funds, the hedge fund news site said. 

The sector has seen activity in the past couple of years. In 2013, BV Investment Partners sold Butterfield Fulcrum to Mitsubishi UFJ Trust and Banking Corp. BV Investment Partners bought Butterfield, a hedge fund administrator, in 2011 from 3i Group. The Carlyle Group had reportedly owned a stake in Butterfield.

One of the more noteworthy deals occurred in 2012. TPG early that year agreed to buy GlobeOp Financial Services, a hedge fund administrator, for $801.5 million. Advent International had reportedly been interested but bowed out after TPG made its offer. TPG subsequently abandoned its offer after SS&C made a rival bid of $818 million for GlobeOp, the New York Times reported.

SS&C is likely too busy with its $2.3 billion buy of Advent Software to bid for the Citi unit, bankers said.

Executives for Citi, KKR, TPG, Hellman & Friedman and Advent declined comment.