The departure of Juan Béjar as co-head of Citi Infrastructure Investors has tripped a “key man” clause for the $3.4 billion infrastructure fund managed by Citi Alternative Investments (CAI), prompting its limited partners to impose a freeze on new investment activity until his position is filled.
A so-called “key man” clause typically states that if a number of executives in a fund cease to devote a specific amount of time to the partnership they manage then the end-investors in the fund, known as limited partners, can take a vote to decide the future activity of the fund. This may include taking a vote on dissolving the fund or prohibiting it from making new investments for a specified amount of time.
In the case of Citi, Juan Béjar was named a key man and his departure gave the limited partners the right to take such a vote, according to a limited partner in the fund. Béjar officially began his tenure as the new chief executive officer of infrastructure developer Global Via Infrastructure on 15 July, according to Global Via. Citi publicly disclosed his departure as co-head of the fund early last month, announcing that Béjar’s New York-based co-head Felicity Gates would become the sole chief executive of the firm. Limited partners had been briefed about the possibility of his departure prior to then, the source said.
In the end, the limited partners took a vote and decided to prohibit Citi Infrastructure Investors from making new investments until the firm hires a replacement for Béjar, according to the source. But the restriction only applies to new investments, not opportunities already under consideration, according to the person.
An earlier report from the Wall Street Journal, which first reported on the key man issue for Citi, cited the prohibition period as at least 120 days.
A spokesperson for CAI declined to comment on the Wall Street Journal story. However, she said that “CAI is a highly valued part of Citi's core franchise” with “world-class individual talent and teams”.
Even as it edges closer to the successful completion of its nearly €3 billion acquisition of a controlling stake in Spanish toll road operator Itinere, Citi has seen a number of high-profile transactions fail to reach completion in recent months.
Last year, a $12.8 billion bid for the Pennsylvania Turnpike in which it was a minority equity participant fell apart because the state’s legislature did not vote on the bid offer. More recently, its $2.5 billion bid for Chicago’s Midway Airport did not reach financial close because the firm was unable to raise the necessary financing. In the end, Citi’s bidding consortium paid a $126 million break fee to the city of Chicago and walked away from the deal.
The latter transaction has angered some in the infrastructure community who are highly critical of Citi’s bidding tactics in the Midway deal. The next highest bid, critics point out, at about $1.8 billion, was a fully financed bid, whereas Citi submitted its bid on an all equity basis and was not able to close.
“They’ve made some investments that are going pretty well. Yeah, they’ve had some unsuccessful bids, that’s true, and in particular the Midway deal there was a fee attached to that [that] may hurt the fund over time. But the game’s not over yet,” the limited partner said.