Sharma, 48, has held discussions with potential investors about raising money for his own firm, said the people, who asked not to be identified because the information is private. Sharma, who’s based in London and leads the bank’s Principal Strategies unit, may be joined at the fund by members of his team, two people briefed on the moves said.
Citigroup executives have been discussing what to do with the company’s proprietary traders since last year, when the US Congress approved legislation that restricts banks from using their own money to wager on securities and markets. The change, which hasn’t yet taken effect, was advocated by Paul Volcker. The former Federal Reserve chairman said banks backed by US deposit insurance shouldn’t be allowed to speculate. Sharma’s team manages about $2 billion, one of the people said.
“Even though the rule itself doesn’t go into effect for at least another year, you’d be crazy not to start thinking about moving elsewhere,” said Charles Whitehead, an associate professor of law at Cornell Law School in Ithaca, New York.
Citigroup Chief Executive Officer Vikram Pandit, 54, met with Sharma this month to discuss his plans, one person said. The New York-based bank was considering moving Sharma and his team to a division that manages money mostly for outside investors. Sharma decided he’d rather run his own multi-strategy hedge fund, a choice the bank supports, one of the people said. The fund would be started next year.
Danielle Romero-Apsilos, a spokeswoman for Citigroup, declined to comment. Sharma didn’t respond to emails seeking comment.
Sharma and Toby Lingard, who also works for Citigroup’s Principal Strategies unit, registered a firm last month called Portman Square Capital LLP, according to a July 14 filing with the UK’s Companies House. Lingard, 36, declined to comment.
Sharma’s career has tracked Pandit’s for years, after they joined Morgan Stanley in the 1980s and later worked together at Pandit’s hedge fund, Old Lane Partners LP. At New York-based Morgan Stanley, Sharma became head of global proprietary trading, and Pandit rose to lead sales, trading and investment banking.
Pandit quit in 2005 following a dispute with Morgan Stanley’s then-CEO, Philip Purcell, and formed Old Lane, a multi-strategy fund. Citigroup bought the fund in 2007 for $800 million in a deal that eventually led to Pandit becoming CEO of the bank in December 2007. Some of Sharma and Pandit’s other ex-Morgan Stanley and Old Lane colleagues have also worked in the Principal Strategies unit.
Traders have been leaving banks to start or join hedge funds after US lawmakers approved the Dodd-Frank Act last year. The law, which includes the Volcker provision, increased oversight of Wall Street in response to the worst economic slump since the Great Depression.
Pierre-Henri Flamand stepped down in 2010 as head of a Goldman Sachs Group Inc unit that traded equities to start Edoma Partners LLP. Karl Devine, Andrew Dausch and Brad Lord, three traders who worked for Goldman Sachs’s global macro proprietary desk, left this year to join Brevan Howard Asset Management LP after the New York-based bank decided to shut down the unit.
London-based Brevan Howard is Europe’s second-biggest hedge fund, with $32.6 billion under management.
The Fed said in February that banks would have two years to comply once the rule takes effect.
Citigroup “has every incentive to go ahead and take it up to the very last moment if they’re making great returns,” Whitehead said. “But if you’re running the group, why would you want to stick around until the very last second?”
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