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Week In Review

Citi to Raise $3 Billion for Hedge Funds, Private Equity

Citigroup Inc. plans to raise more than $3 billion for its private-equity and hedge funds, a person familiar with the matter said.

Citi Capital Advisors, Citigroup's alternative asset management platform, may seek $1.5 billion for private equity this year and $750 million for hedge funds, and an additional $1 billion of fundraising for hedge funds is targeted next year, this person said. Citi Capital Advisors currently oversees assets of about $14 billion.

The person familiar with Citigroup's fund raising plans did not elaborate on how the money might be invested.

The plans come as U.S. lawmakers are considering a proposal that would bar commercial banks from making speculative trading in derivatives for their own accounts. The proposed rule, named after former Federal Reserve Chairman Paul Volcker, would also cap the size of big banks and force them to divest their hedge fund and private equity units.

A Citigroup spokesman said, "Regardless of the ultimate outcome of financial reform, our priority will always be protecting the interests of our clients, who have selected us to be the fiduciary manager of their assets, and ensuring the soundness of the CCA platform moving forward."

IRAs Overtake 401(k)s

Individual Retirement Account assets have overtaken assets held in 401(k) plans and 403(b) plans for the first time, according to Cogent Research.

While ownership of all three types of account are down from 2006's participation, IRA ownership by affluent and high-net-worth individuals has fallen just 5%, compared to 23% of qualified retirement plans in the workplace.

The average wealthy investor now typically holds 31% of assets in IRAs, and 25% in an employer-based plan.

"We think job loss has something to do with it," said Meredith Lloyd Rice, senior program director at the Boston firm. "But there are a number of things going on." She points to an increase in forced early retirement but also a growth in the number of boomers starting their own businesses and rolling over assets in IRAs from the corporate jobs they left behind. Further slowing 401(k)s' growth, fewer Gen X and Yers are enrolling, focusing instead on more immediate concerns, such as student loans.

Cogent doesn't separate out traditional and Roth IRAs, and the data for this survey were gathered last October, before the income limits on Roth IRA participation were lifted, but Roth IRAs' newfound attractiveness to wealthy investors will likely only add to IRAs' dominance over 401(k)s.

"It's a reason for advisers to reach out" to clients and prospects, Rice said. "Rollovers are top of mind for a lot of people, and the new Roth rules will only further highlight that in people's minds."

Merrill Edge Discount Brokerage Debuts

Merrill Lynch debuted its first-ever online brokerage window, Merrill Edge, consisting of 500,000 investors it inherited from Bank of America out of the gate. The brokerage giant intends to compete with Fidelity and Schwab, where, Merrill advisers boast that more sophisticated investors experiment with "play money" independent of their financial planner. To gain traction among both the high-net-worth and younger investors, Merrill isn't paying financial advisers any fees for trades on Merrill Edge; only for referrals.

Money Management Executive's take: Merrill might find Fidelity, Schwab, E*Trade, TradeKing and others more formidable competitors than they expect, because wealthy investors-especially the sophisticated ones and those who have been stung by the recession-are more interested in powerful trading engines and low costs. And "play money" at Fido and Schwab? Merrill Lynch advisers might be very surprised to find that investors planning for retirement are very comfortable working with the two mutual fund giants.

Eight States Get Reprieve On IRS 401(k) Deadline

The Internal Revenue Service is extending some deadlines for sponsors of defined-contribution retirement plans, such as 401(k) plans, that were affected by storms and other severe weather in Alabama, Connecticut, Massachusetts, Mississippi, New Jersey, Rhode Island, Tennessee and West Virginia.

The relief applies to those counties that were declared Presidential Disaster Areas from March 1 through May 31, 2010.

IRS Notice 2010-48 administratively extends to July 30, 2010, the April 30 deadline for restating affected pre-approved defined-contribution plans and, if applicable, for submitting determination letters to the IRS, to July 30, 2010. The Section 401(b) remedial amendment period for these retirement plans is also extended to July 30.

The relief is in addition to statutory relief already provided by the IRS, under Section 7508A of the Tax Code, to taxpayers affected by the federally declared disasters in these eight states during the period from March through May 2010.

ICP in SEC Sting in Four Multi-Billion CDOs via AIG

The SEC charged ICP Asset Management LLC and its founder and President Thomas Priore with defrauding investors in four multi-billion-dollar collateralized debt obligations that were insured by American International Group.