(Bloomberg) -Citigroup Inc. There was what looked like the perfect way to grab some of the money that came from rich individuals to private capital firms: playing match creators between her wealthy clients and a future firm.
More than a decade after its start in 2012, the Qiti experiment ended with disappointed billionaires, a bitter legal battle and a lesson on private property marketing traps.
Saga revolves around the creation of the Silverfern Capital Club, the product of a partnership between Citi and Silverfern Group that was sampled From the chief executive are Fraser again when she headed the private bank. The club was created to provide exclusive investment opportunities for some dozen elite clients; Silverfern brought the expertise, Citi brought clients and both would share fees.
Emails, documents and evidence from the years of litigation recount how Citi viewed the Silverfern Capital Club as a possible model for the future. However, by 2016, species began to appear in partnership, and internal communications show that Citi Bankers began to dive into Silverfern while customers complained about poor performance. The club closed and the lawsuits followed, along with a trial that began last September. On February 27, a New York judge ruled that Silverfern owed Citi millions in fees he had not paid.
A New York -based Citigroup representative refused to comment. Neither Silverfern nor her lawyers responded to requests for comment; The firm is appealing to the judge's decision.
Partner
While the model failed for Citi, the challenge the club was intended to address exists today while Wall Street banks try to offer high -value customers access to private markets as they grab some fees for themselves. Gaining more investment dollars is a key goal of a fresh reconstruction of the asset unit under the new head Andy Sieg. Specialists in private assets like Blackstone Inc. and KKR & Co. They are making an even greater impetus to touch wealthy individuals, with the money potentially for caught up in trillions.
Read more: Citti bonuses buy time for the rush of the new wealth chief to rebuild
The Silverfern Club was an early attempt to use those funds in a golden age for private capital. Silverfern would provide the best customers as an exclusive opportunity to invest in a flow of private capital agreements, mainly co-investments with larger firms. In exchange for access to those clients, Silverfern was willing to give quotation half of its annual management fee 2% and a quarter of its 20% performance fee.
“We have to get this offer to our biggest clients and prospects in a systematic and complete way,” wrote private bank executive David Bailin in May 2012 memorandum by email on the fraser. “We believe we can earn new clients and earn new dollar investment dollars from existing ones through Silverfern.”
Citi signed 39 of his richest clients as members of the club with $ 470 million. These included the billionaire dynasties in Europe and Mexico, a Hong Kong -based defense manager who previously led derivative trading for a large bank and a technology -based technology entrepreneur. Indoor e -mail Show Fraser clearly wanted to target “big boy” customers who had their proper care skills.
Exposure
Then as now, the Private Bank Citi mainly provides its clients with exposure to private capital through various funds managed by big names like Blackstone, TPG Inc. and Carlyle Group Inc. When customers invest in such funds, banks often only make a reference fee once, so the ability to earn repeated revenue with a model like Silverfern Club was very attractive. Bailin emphasized this in his memorandum, but stressed that the bank would make money “doing what is best for our clients.”
Silverfern reached only $ 50 million in 2010, though he had already co-operated in agreements led by Cerberus Capital Management, Oaktree Capital Management and others. Its founders, Clive and Reeta Holmes, also came to the club with the impressive Wall Street credentials. Clive had been co -director of North American unions and purchases at Deutsche Bank AG, while Reeta previously worked on the management of the Blackstone and Soros Fund.
At the time the club began, big -name private capital firms were starting only by direct access and relied on banks to be their distribution partners. But the threat was already known within Citi.
“GPS, private capital firms, were building their own private property distribution networks,” the managing director of Citi Mercedes Garcia-oni testified during the Silverfern trial. “So they were going directly to our customers.”
COUNTRIES
During their 2012 path, Holmeses were widely appreciated within Citi for their convincing client presentations. But tensions appeared quickly. Citi wanted to offer a buffet of opportunities for his richest clients, who were also able to participate with relatively small engagements. This did not sit well with Silverfern, which was under constant pressure from sponsors of agreements to fulfill its allocations.
At first, Clive Holmes expressed annoyance that a club member described by a Citi banker as “worth 4x George Soros” was ready to put only $ 500,000 in the first Silverfern deal, a co-investment with the group of O-Tex Holdings oil services.
“My car cost more than that!” Holmes wrote in an email in August 2012 for a Citi banker.
In March 2014, after Reeta defended an email she sent, noting that a club member had participated in just one of Silverfern's four agreements, Bailin sent a special message to Dan O'Donnell, another senior private bank executive.
“She doesn't think their approach is at all a matter,” he wrote. “Likes as if they don't know how to” make friends. ” “
Some of Silverfern's bids were in the oil and gas sector, including investments in Sequiti energy sources and the new Energy Enterprise along with O-Tex. These three agreements underestimated, with club members asked to offer subsequent investments in O-Tex and sequet or face thinning. Silverfern said in court that this was part of the wider decline in the sector at the time.
Wing
However, for Citi, a big attraction of the Silverfern club was that the bank was not responsible for carrying out the proper care of agreements – it was merely a mediator – and e -mail show that bankers often reminded customers that they were unable to think about transactions. However, they heard from clients disappointed by the investments that did not go well.
Club members ultimately set only $ 220 million in the Silverfern deal, less than half of their soft commitments, with a small part of all passing. The legal battle that exploded between Citi and Silverfern was largely for what caused the absence. Citi said clients were not satisfied with Silverfern and the performance of its agreements. But Silverfern claimed that the bank actively turned its clients against its smaller partner.
A checkpoint came in 2016, when Holmeses began making a deal for club members that was more like a fund. This was allowed on the basis of Citi Agreement, which would still be entitled to tariffs. But in April of that year, O'Donnell sent a paper For all members of the club who declare that Citigroup was not included in the new offer and would not serve it.
Cold effect
O'Donnell later proved that the letter was sent only because of regulatory concerns, especially in Asia. Silverfern did not see the letter at the time, but Clive said he believed he quickly had a cold effect. “This was clearly Citibank distanced from Silverfern,” he testified.
A member of the Hong Kong -based club told his bankers Citigroup that he was rejecting most of the clive because he praised the bank's involvement.
“I explained that I like the Qiti -provided supervision for all transactions for his small/medium firm,” the client said in a September 2016 e -mail. “While learning that Citi would not be included by moving forward, I have refused, as this changes the return on the risk of investing with the High Level PE managers.”
By the end of 2018, Silverfern had banned the payment of its fees, and both parties headed to court next year. After all, Judge Margaret Chan decided that the letter quoted for the club members was neutral, the bank had fulfilled its obligations to Silverfern, and that Citi owed $ 9 million.
In the years the club began, private capital firms have increased more aggressive in the direct judgment of wealthy individuals. Garcia-Yuso, who now runs the quotation investment counseling team for much of Latin America, seemed to reflect on him while in September.
“I mean, I look at the list of clients who were in the club,” she said. “I don't think any of them has made any private capital with us for a few years now.”