ValueAct takes $1.2 billion stake in Citigroup

The investment by the activist hedge fund, which prefers to conduct discussions with companies behind closed doors rather than on cable television, revolves around Citigroup’s reliable revenue source and low risk factor.

ValueAct Capital Partners has invested $1.2 billion in Citigroup Inc citing its reliable revenue and low risk factor; it has also not called for any major changes in its management.

ValueAct Capital Partners has also invested nearly $1 billion in SLM Corp’s Sallie Mae.

With the news reaching the market, Citigroup’s shares rose by 1.5% while SLM’s shares saw little change.

In a letter to clients, ValueAct stated over a period of 4 to 5 months, it had built roughly a $1.2 billion position in Citigroup and is adding to it “opportunistically.”

The letter also states, Citigroup could return nearly $50 billion in cash to shareholders over the next two years; this means it would be $10 billion more than the $40 billion Citigroup’s management has said it intends to return to shareholders, originally.

“We have been having constructive conversations with ValueAct and welcome them as investors,” said Citigroup.

As per the San Francisco-based ValueAct Capital Partners, this is the right time to invest in the U.S. banking system given the greater transparency and effective intervention by regulators after the 2007-2009 financial crisis.

“The U.S. banking system now has a structurally lower risk profile than any time in our investing lifetimes,” reads ValueAct’s letter.

According to the letter, the investment centers around Citigroup’s reliable banking business and its dependency as a source of reliable revenues.

Citigroup services large MNCs with day-to-day activities, including managing their cash, the timing of their receipts and payments as well as hedging out currency risks.

Although, Citigroup is less active, in comparison to its peers, in the flashier mergers and acquisitions scene, that could however be a plus, according to ValueAct’s letter.

ValueAct sees the bank “growing in a sustainable fashion” and is “less exposed to both earnings volatility and risk of capital impairment and is better capitalized and more securely funded than at any point in our lifetime.”

ValueAct prefers to conduct business discussions with companies behind closed doors rather than on cable television, like many of its activist investor peers. As a result, it is often asked to join the board of companies, its investment targets; it said that, Brandon Boze, its partner, has been named chair at the CBRE Group Inc board, where ValueAct has invested roughly $1 billion.

ValueAct has allocated around 40% of its capital to the financial sector, including investments in Morgan Stanley and KKR & Co LP.

Earlier this year, ValueAct returned nearly $1.5 billion in capital to investors and is now said to be fully invested.

Many large hedge funds have chosen to return money to investors as the going gets tough to find new opportunities to invest in.

Since its launch in 2000, ValueAct’s flagship fund has gained an average 14.6 percent a year after fees, making for one of the industry’s best long-term records.

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Categories: Creativity, Economy & Finance, Entrepreneurship, HR & Organization, Strategy

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