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Credit Suisse to Vend Private Equity Unit

Zacks Equity Research

In an attempt to discard its non-core businesses, Credit Suisse Group AG (CS) plans to vend its private-equity unit – Customized Fund Investment Group – to Chicago-based Grosvenor Capital Management LP. The deal is expected to be announced at the end of the current week.

The agreement is anticipated to be valued at an amount exceeding $200 million in the form of cash and other considerations that would comprise future payouts based on the performance of private-equity investments. Moreover, the agreement between Credit Suisse and Grosvenor Capital is yet to be finalized.

Like other banks, Credit Suisse has been affected by the implementation of new rules on capital requirements and investment activities. This has compelled the bank to shed its non-core business units in order to conform by stricter rules for managing capital and risk.

Credit Suisse’s private equity unit manages revenue-generating client assets invested in third-party private equity funds and collects fees on these assets.  At present, Credit Suisse manages revenue-generating assets worth $20 billion. Additionally, it has $10 billion in commitments and other assets.

On the other hand, Grosvenor Capital, a privately owned investor in hedge funds, oversees client assets invested in hedge funds worth $23 billion. On successful completion of this transaction, Grosvenor Capital’s client assets are expected to double in size, thereby expanding the company’s business.  

Of late, Credit Suisse has been shedding its private-equity units that allocate money to hedge funds and other investment managers. Earlier in Apr 2013, Credit Suisse declared its intention to sell its secondary private equity business, Strategic Partners, to The Blackstone Group L.P. (BX). The deal, which is expected to be completed in the third quarter of 2013, is subject to customary closing conditions.

Upon completion, the deal is expected to reduce Credit Suisse’s expenses. Moreover, by discarding its non-core businesses, the company will be able to focus more on its core operations. Additionally, it would help the firm in fulfilling the stringent regulatory requirements.

Credit Suisse currently carries a Zacks Rank #4 (Sell). However, some stocks that worth a look include BBVA Banco Franc (BFR) and Sumitomo Mitsui Financial Group Inc. (SMFG). Both of these stocks carry a Zacks Rank #1 (Strong Buy).

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