Exclusive: Citi Unloads $900 Million Private Equity Portfolio

Citigroup has agreed to sell a portfolio of private equity interests for more than $900 million, according to multiple sources. Lexington Partners is the buyer, while StepStone Group will provide management services.

This is a big deal – one of the largest secondary transactions ever and a further move by Citi away from private equity. So let’s break it down:

What’s being sold?
The deal includes Citi’s stakes in bank-branded funds-of-funds, mezzanine and co-investment vehicles. Basically what used to be known as Citigroup Private Equity, and managed by John Barber (he left earlier this year).

There had been earlier reports that the package also could include certain third-party stakes in big buyout funds, but I’ve been unable to confirm whether that came to pass.

Who managed the process?
Citi, which held one-off discussions with select suitors rather than run a traditional auction.

Why Lexington?
Why not? There are just a handful of secondary firms with enough capital to pull off such a transaction, and Lexington came the closest to par (small premium to holding value, slight discount to NAV).

Why StepStone?
This is where it gets a bit more interesting. The Citi portfolio requires more active, day-to-day management than would a collection of third-party fund commitments. Moreover, Citi has a lot of private client money invested in these vehicles. As such, it needed to seriously consider future portfolio management in addition to sale price.

StepStone came into the process fairly early, in part thanks to an existing contract to manage certain Citi pension assets. The firm also added Johnny Randel as its CFO and COO back in February, after he had served in a similar capacity with Citi Private Equity. Secondary market sources have snickered at the timing of that hire, but Randel was not directly involved in the sale process before leaving Citi. As best I can tell, his hiring gave Citi extra comfort, but was not a quid pro quo.

My understanding is that the StepStone management agreement was at least tacitly in place when Lexington bid. One source also says that there had been an earlier bid that involved the current Citi Private Equity managers (financed by Coller Capital), but that it was rebuffed on price. No idea if those folks will get moved elsewhere within Citi, or soon will be forced to look for new employment.

What do the deal participants say?
Nothing. Citi and StepStone declined comment, while Lexington did not return a wide assortment of voicemails and emails.