The year that followed was difficult for Pandit. He was out of a job. And his mother, Shailaja, died of breast cancer, a blow that cracked his otherwise cool façade. He nearly broke down while telling a fellow executive the details, pausing to collect himself before he could speak again. In her memory, Pandit started the Maina Foundation for Raising Breast Cancer Awareness.
That same year, 2006, Pandit regrouped by forming a boutique hedge fund called Old Lane Partners with John Havens, Guru Ramakrishnan, and several other Morgan Stanley refugees. The name gave it the air of a Waspy clubhouse, but during a charity roast for Pandit in 2007, an Indian colleague joked that it should be called “Brown Brothers and Havens” because of all the Indians working there. Ramakrishnan, the only one with hedge-fund experience, was named CEO. He spearheaded $500 million in infrastructure projects in India.
Early on, Pandit and Havens went looking for investors and arrived at the door of Citigroup. Pandit had a friend in Robert Rubin, the company’s director. Rubin first saw Pandit at a private panel discussion in 1999 that was hosted by former SEC chairman Arthur Levitt. He was so impressed by Pandit’s intellect he asked to meet him. The two men struck many as kindred spirits. Like Pandit, Rubin favored intelligence over less quantifiable assets like charisma. In their views, such retail-business talents were secondary to cool analysis. “Vikram,” says Barton Biggs, “is an Indian version of Bob Rubin.”
Citi executives vetting Old Lane refused to stake client money on the investment, feeling Pandit’s team didn’t have enough experience. If they wanted Citi to invest, then Citi’s top executive, chairman and CEO Chuck Prince, would have to personally approve the deal. And Prince did: Citi invested $100 million in Old Lane.
Old Lane was performing poorly, earning only a net 3 percent return in 2007, worse than a money-market account. It was clear to everyone who knew him that Pandit was unhappy managing a hedge fund. He was restless and dissatisfied. “He wanted his shot at running something really big,” says Biggs.
Rubin and Citigroup were eyeing Old Lane as an acquisition—not for high-yield returns, but for Pandit, a potential candidate to one day run Citi. In April 2007, Pandit sold Old Lane to Citi for $800 million, a price tag that boggled the minds of Wall Street observers. Pandit personally reaped a huge bounty, what amounted to $165 million in cash. With his windfall, he bought a ten-room, $17.9 million co-op apartment on Central Park West, the former home of the late actor Tony Randall. Rubin made little pretense about why Citi had spent so much money: He publicly called Pandit “a genius.”
Pandit was made chief executive of Citi Alternative Investments (CAI), the hedge-fund arm of the company under which Old Lane now resided. At a company town-hall meeting, Rubin stood by him beaming, as Pandit announced that he would double the company’s hedge-fund business over the next few years. Havens, Pandit’s de facto No. 2, explained to their new underlings at CAI that “we need good DNA in here”—which meant, says one former Citi staffer, purging their colleagues and bringing in “a bunch of rejected Morgan Stanley guys.” Citi executives bristled at what they considered Havens’s swaggering leadership style. “He made it very clear he thought they were all morons,” says the former Citi executive. Pandit rarely showed up at CAI, instead spending time in Citi’s corporate suite near the top brass on Park Avenue. The hedge-fund wing was just a place to park until the real opportunity presented itself.
Six months later, Pandit was asked to investigate the bank’s books and discovered what would turn out to be billions in subprime losses—leading Chuck Prince to step down as CEO. Rubin immediately lobbied to have Pandit replace him, but there was unexpected resistance from a number of board members, including Alain Belda, chairman of Alcoa, and C. Michael Armstrong, the former AT&T CEO, who did not believe Pandit was ready to lead and thought Citi had overpaid to get him in the first place. Meanwhile, Citigroup founder Sandy Weill was advocating for Tim Geithner, a former protégé of Rubin’s then working for the New York Federal Reserve (and now, of course, Treasury secretary). Rubin began telling board members that Pandit might leave if they didn’t give it to him, making a mockery of the $800 million they’d paid for his hedge fund—a claim that detractors took as explicit arm-bending.
Rubin sold Pandit as the consummate problem-solver and a man who could see around corners—the sorts of descriptors that were often applied to him. Pandit’s pedantic style and reputation for risk-aversion dovetailed with the going mood, a balm for the go-go era of high risk that was battering the investment banks. After all, hadn’t Pandit resisted the leveraged risk favored by Mack and Cruz at Morgan Stanley?