Pandit: A More Than $800 Million Man?

We posted this in June:

The Wall Street Journal reports today that Citigroup is shutting down Old Lane Partners, a hedge fund started by Vikram Pandit that the bank acquired a mere 11 months ago. The bank decided it couldn’t spare the capital to shore up the struggling hedge fund. The article noted:

Old Lane has essentially broken even since its inception. That isn’t terrible, considering the perilous financial markets of the past year. But it fell far short of the highflying performance craved by hedge-fund investors. Citigroup never marketed Old Lane to new investors, even after the fund was designated by Citigroup as its primary hedge-fund vehicle last summer, replacing the struggling Tribeca Global hedge fund.

So that means that Citi in effect paid $800 million to secure the services of Vikram Pandit.

Believe it or not, that sort of deal isn’t unheard of. In 2000, Chase acquired a merchant bank called Beacon Group for $500 million. The asset it really wanted was the firm’s founder, Geoff Boisi, who had headed the Goldman M&A department during the 1980s and was considered a premier dealmaker. Beacon itself was focused on the energy business, which was not an area of expertise for Boisi personally, and oil industry hands I knew thought that the firm was overstaffed and not particularly astute in its investments.

However, this precedent does not bode well for Citigroup. Boisi joined Chase as vice chairman, and given the high aspirations for him versus his near invisibility after he joined, it’s a safe bet that their return on the Beacon investment was not attractive.

For the record, Steve Jobs does not count. The proceeds of the $450 million Apple acquisition of NeXT Computer went to Canon and Perot, the big equity holders. Apple got a desperately needed new operating system at a time when its survival depended on it. For the record, NeXTStep is far better than the current Mac OS.

Today, the Financial Times (hat tip reader Steve) gives an update on the wind-down of some other Citi hedge funds that were part of Pandit’s empire. The article is a bit vague, but it appears that Citi may not only have lost pretty much all of its equity investment, but also took a big hit on loans to its hedge funds. Does that mean that Pandit was a more than $800 million acquisition, all in?

Citigroup’s Corporate Special Opportunities hedge fund is returning only 3 cents on the dollar to investors, underscoring the depths of the difficulties at the alternative investment unit once headed by the bank’s current chief executive, Vikram Pandit.

The amount being returned is less than had been expected when the company decided to wind up the fund last year…

Citigroup also stands to lose hundreds of millions of dollars it lent to CSO. It provived the fund with as much as $450m in credit lines and $320m in equity, while also placing assets with a nominal value of $1bn that it had bought in the fund.

Without the support from Citigroup, the hedge fund, which invested in corporate debt, would have had negative equity, according to a person with direct knowledge of the matter.

“Every fund that invested in bank loans in Europe and used leverage did not survive,” a Citi spokesperson says. “At least we are giving investors cash.”…

However, even by the current dismal performance standards for hedge funds investing in debt, the setback at the hedge fund is a major black eye for Citi Alternative Investments. In 2008, Citi Alternative Investments had to close or rescue troubled funds nine times.

The latest revelation is also likely to increase the pressure on Mr Pandit, who was responsible for the alternative investment unit for most of 2007. He and John Havens, who now heads Citi’s institutional securities business, joined Citi during 2007 after selling their Old Lane hedge fund to the bank for $800m.

By June 2008, Citi found itself in the embarrassing position of shutting down Old Lane, a move that forced the bank to put $9bn of the hedge fund’s assets on to its balance sheet and to take a writedown of more than $200m.

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  1. Anonymous

    NeXTStep is far better than the current MacOS? As a computer scientist and user of both systems for many years, I think this assertion is ridiculous.

  2. Yves Smith

    Did you actually use and develop on a NeXT? I used one for over ten years.

    The developers I know, most of whom are also computer scientists (including a professor at MIT), disagrree with you. A number of compromises were made to integrate the old Mac features.

    The NeXT GUI was better. The computer was virtually crash proof, and in that day that was really a standout quality (there was one particular sequence of user errors that I knew of that would freeze the computer), and apps very very rarely did. The current Mac OS is more unstable than the old NeXT, even though the the last version of NeXT was what, 1995?.

    I could and did leave the NeXT on for months. I never needed to reboot save when I wedged it, which occurred maybe a couple of times a year. You are going to tell me the Mac is that stable? The Mac locks up on me far more often, I’d say twice a month at least. The only reason I ever rebooted (aside from wedging the computer) was when I shut the compute to leave town or had a power outage.

    The multitasking was better. It does not work as well on the Mac, I can tell that as a user (and having the activity monitor open to see what is happening) despite more than 50 time more RAM.

  3. bb

    bandit has got no investment talent, has recruited and then managed people with no investment talent. what a better pick for someone to close the citi shop?

  4. Anonymous

    Just couldn’t make this sh*t up.

    Lose the bank hundreds of millions on a lousy investment and end up running the place. What a great country.

  5. williambanzai7


    (Yes We Have No Bananas)


    Sing along link:

    There's a financial supermarket on our street
    It's called CITI and its run by Pandit the geek.
    And he keeps lots of dodgy things for the markets to eat
    But you should hear him speak!
    ''When you ask him anything, he never answers "no".
    He just "yes"es you to death, and as he takes Uncle Sam's bailout dough
    He tells you
    "Yes, we have lots of bananas
    We have lots of bailout bananas for sale today.
    We've got Smith Barney string beans, and securitized onions
    collateralised cabbages, and private label scallions,
    And all sorts of rotten over leveraged fruit and say
    We have an old ashioned Solomon to-mah-to
    And an off balance sheet po-tah-to
    But yes, we have lots of bananas.
    We have bailout bananas for sale today."

    Business got so busy for him that he wrote home today,
    "Send me Johnny and Chuckie and Sandy and Bobby; I need help right away."
    When he got them in the store, there was fun, you bet.
    Someone asked for a "mark down" and then the whole quartet
    All answered
    "Yes, we have bailout bananas
    We have bailout bananas for sale today.
    Just try those Primerican coconuts
    Those Alt-A walnuts and all sorts of asset backed doughnuts
    They ain't got FIG nuts like these over at AIG
    We'll sell you all kinds of red herring,
    Dark brown, and ball-bearing.
    And yes, we have bailout bananas
    We have bailout bananas for sale today.

  6. DownSouth


    You make an important point, and that is that, with the Bush administration and apparently with the incoming administration as well, it is the taxpayer who ultimately ends up paying for all this nonsense.

  7. Anonymous

    For the record, NeXTStep is far better than the current Mac OS.

    Oh boy, you’re just itching for a fight, aren’t you Yves? Sticking your fist in a bees’ nest on this one I think. :)

  8. Anonymous

    I bet my six-year-old would do a better job of managing Citi. Some people complain about hedge fund shorting exacerbating the financial markets mess but at least these folks have the cojones to do something about incompetent management while the rest of America just complains and does nothing.

  9. Anonymous

    nextstep a winner in the OS market – pretty funny
    which MIT professor endorses this line of reasoning?

  10. Ja

    Mac OS X 10.5 (which really is NeXTStep 9.0, as it goes) is much more complex – others would say bloated – than NS ever was, both in terms of computers and peripherals it supports, kernel and architecture layers and APIs, including the UI, on top of it. Despite this, it is quite stable: you only need to reboot more often lately because updated components in Software Update – case in point: Safari – require you to do so, or you have bad drivers. If you don’t want to reboot, don’t update.

    I don’t think OS comparisons are apt, except on the same hardware. And NeXTStep 3.3 does not run, or would run rather poorly, on current hardware.

  11. cent21

    Isn’t that special. Citi, first in line for government bailout funds, proclaiming the debasement of currencies will push gold to $2000.

  12. Yves Smith


    Yes, whether the OS was written to the metal makes a huge difference. I had a NeXT machine. I can’t comment on the versions designed to run on Intel chips.

    I find I need to reboot between updates, even when I am using browsers other than Safari (which slows down the whole system the longer you keep it running…..)

  13. Steve

    NeXTStep was a thing of beauty. In its day, it had the best GUI and the best development tools. Sure Mac OS/X has more features and APIs and it’s the bees knees but it’s not done as elegantly as NeXTStep either on the surface or under the hood.
    I miss my old NeXTStation :-(

  14. jpm.jpm

    NeXTSTEP OS and NeXT slabs…thanks for re-awakening some great memories. Way ahead of its time in the early ’90s–came with built-in ethernet, NeInfo network database, and UNIX under-the-hood.

    Ditto the development system. When the older bundled Sendmail stated to become an open spam sieve, I was able to port more recent versions of Sendmail that closed the open relay. Others did similar things–i.e. there was an organic community that made the whole much greater than the sum of the parts.

    Still have one NeXT system, no longer running but in the original boxes.

    If the same dedication and drive for performance behind the NeXT existed in today’s financial community we’d be discussing different things than why it costs billions of $$$ to hire folks who are only best at cannibalizing the system.

  15. Mara

    Geez, where do they keep the smart people at Citi who make money for the firm? It certainly isn’t at the top. Buying an entire fund because you want one guy is galactically stupid! Are they saying that no one else on earth could’ve possibly done that job?! And then the evidence of the fund’s performance is so nose-holdingly bad that it goes tits up without a whimper? Seriously, did Pandit have pictures of the board in lace panties, ‘cos I can’t see how this works at all otherwise.

Comments are closed.