Citigroup has agreed to sell a portfolio of private equity assets to AXA Private Equity for $1.7 billion, the French insurer said on Wednesday, the latest move by the U.S. bank to unload non-core assets.

For AXA Private Equity, the deal is part of a series of acquisitions of private equity investments originally owned by other investors, including the purchase of a $1.9 billion portfolio from Bank of America in April 2010.

AXA and other funds who have been buying private equity portfolios on the secondary market are betting that such assets -- which have begun to recover since the 2008 financial crisis -- will appreciate further and that they can extract more value from them.

AXA Private Equity CEO Dominique Senequier said in a conference call that she expected further acquisition opportunities as U.S. banks -- which are restricted under the Dodd-Frank financial reform law to investing 3 percent of their Tier 1 capital in private equity and hedge funds -- further cut such holdings, now at an average level of 8 percent.

We know that in the next four to five years, the secondary asset market will total over $30 billion, she said, adding that AXA had been in exclusive negotiations on the portfolio with Citigroup since April.

'STRONG POTENTIAL'

The Citigroup portfolio comprises 207 stakes in various buyout funds as well as some direct stakes in companies, AXA said, adding that Citi -- which has been looking to focus on its core businesses -- was financing the purchase.

This sale marks the completion of a significant share of Citi Holdings' proprietary private equity investments and demonstrates the progress the Citi Holdings team is making in reducing non-core assets on our balance sheet, Mark Mason, Chief Operating Officer of Citi Holdings, which groups the U.S. bank's non-core holdings, said in a statement.

The portfolio, which AXA called some of the best-managed funds offering strong potential in terms of value creation, does not include private equity funds which Citigroup manages or previously managed.

About a quarter of the fund comprises direct stakes in such companies as First Data, controlled by private equity firm KKR & Co , while the other 75 percent comprises stakes in funds managed by KKR, Blackstone , Carlyle , Clayton, Dubilier & Rice and Providence Equity Partners, Senequier said.

Last year, Citigroup sold a portfolio of private equity interests worth about $1 billion to Lexington Partners.

Banks on both sides of the Atlantic have been offloading private equity assets they built up before the financial crisis as they seek to shrink their balance sheets and focus on their core retail and investment banking businesses.

Bailed out lender Lloyds Banking Group , for example, agreed to sell its private equity business last July to buyout firm Coller Capital in a deal valuing the portfolio at 480 million pounds ($786.2 million).

(Additional reporting by Alexandre Boksenbaum-Granier; Editing by Geert De Clercq, Hans Peters and Jane Merriman)

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