It’s Good to Be Vikram Pandit
here was a time when the rule of thumb for valuing money managers was around 2% of assets under management. But that was then. Now we’re in the golden age of hedge funds and private equity firms, and the people who run them are Wall Street’s new royalty.From the Wall Street Journal today, we learn that Citigroup is considering a $600 million acquisition of Old Lane, a hedge fund that despite its name is only a year old, and is thought to have some $4 billion of assets under management.
In other times, Old Lane — founded by former Morgan Stanley executives Vikram Pandit and John Havens — might have fetched something closer to $100 million. But with private-equity firm Blackstone getting ready to go public in a deal valuing it at $40 billion, and Fortress, the hedge fund that went public this year now worth $11 billion, Citi is going to have to pay up for the privilege.
Should it go through with the high-priced deal though, the real reason may not be that it’s trying to strike hedge-fund gold. After all, Old Lane is a peanut compared with Citi’s existing alternative-asset division, which already has $49 billion in assets and more than $1 billion of earnings last year.
Citigroup Chief Executive Chuck Prince has been busy rearranging his management ranks as the bank struggles to get out of a multiyear funk. Bringing in Pandit to run the alternative-asset division, which is apparently the plan, would bring a well respected leader to a business whose top job has been vacant for more than a year.
Still, is any one person outside of Howard Stern worth that kind of money? (And is he even worth what Sirius Satellite had to pay to get him?)
That’s why we can’t help but view today’s news as a reminder of the recent dysfunctionality under the red umbrella, where no clear successor to Prince has emerged. Should the need to look for new blood at the top of the $250 billion giant arise any time soon, $600 million may end up looking like a bargain.
