Barclays Global Investors, part of UK banking group Barclays, has agreed to sell iShares, its exchange traded funds business, to CVC Capital Partners for £3 billion ($4.4 billion).

CVC Capital Partners, a Luxembourg-based private equity and investment advisory firm, is reported to have fended off rival bids from Goldman Sachs, Bain Capital and Colony Capital, Hellman & Friedman and Apax Partners to buy iShares, which at the end of 2008 had £226 billion in funds under management.

The deal with CVC will be 70 per cent funded by Barclays, which will provide £2.1 billion of financing. Barclays has agreed to hold no less than 51 per cent of the total financing for the first five years and may syndicate the remaining 49 per cent after the first year. The remainder of the consideration will be funded by equity provided by Bidco.

Barclays expects to make a net gain of £1.5 billion from the sale and is also entitled to 20 per cent of the equity return from iShares once CVC Capital Partners has reached certain minimum returns.

"iShares has experienced rapid growth over the past several years and has reached a point where it can develop further on a standalone basis. Barclays shareholders will benefit from a reinforcement of our capital base and an ongoing commercial relationship with iShares," said John Varley, group chief executive of Barclays.

The sale of iShares will enhance the capital position of Barclays the bank said in a statement, adding an estimated 54bps to its Equity Tier 1 pro forma as at 31 December 2008.

“Taking into account the expected net gain on the sale of iShares, conversion of the Mandatorily Convertible Notes issued in November 2008 and all innovative Tier 1 capital, on a pro forma basis, Barclays would have reported an estimated Tier 1 ratio of 10.3 per cent and an estimated Equity Tier 1 ratio of 7.2 per cent as at 31 December 2008,” the statement continued.

Unlike several of its peer UK financial institutions, Barclays declined to receive government aid in the wake of the credit crisis, opting instead to seek funds from Abu Dhabi and Qatar.