March 23 (Bloomberg) -- Hellman & Friedman LLC is putting together a group of private-equity firms that may bid for Barclays Plc’s iShares unit in a transaction valued at as much as $5 billion, a person with knowledge of the situation said.

Barclays, the U.K.’s third-largest bank, set a deadline for offers to be received by the end of this week, said the person, who declined to be identified because the talks are private.

The bank is selling iShares, a unit of its Barclays Global Investors fund-management arm, as it tries to bolster capital without handing over a stake to the government. Barclays said March 16 that it had begun talks with the Treasury about taking part in a program capping losses on risky assets. Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc gave shares to the government when they joined the plan.

“The sale gives Barclays scope to take part in the asset- protection scheme,” said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London who has a “reduce” rating on the stock. “In more normal circumstances it would be viewed as a strategically important asset, but this is a pragmatic decision to raise money.”

San Francisco-based Hellman & Friedman raised $8.4 billion for its latest fund, which closed in April 2007. The firm already owns U.K. fund manager Gartmore Investment Management Ltd. It joined with Bain Capital LLC to bid for bankrupt Lehman Brothers Holdings Inc.’s asset-management unit, only to be topped in December by an offer from the unit’s executives.

Asset Insurance

A New York-based spokesman for Hellman & Friedman declined to comment on a possible bid. Nicola Hankey, a Barclays’ spokeswoman, declined to comment.

Goldman Sachs Group Inc. has also expressed interest in iShares, according to two people familiar with the situation. The firm hasn’t made a bid, said the people, who asked not to be identified because the talks are private.

Joanna Carss, a Goldman Sachs spokeswoman in London, and Alistair Smith, a spokesman for Barclays, declined to comment.

Barclays may finance as much as 80 percent of the sale price of the iShares unit, the Wall Street Journal reported yesterday.

“With Barclays potentially providing the financing for up to 80 percent of the purchase price of its own subsidiary, it seems that the private equity firms (or other potential buyers) could have much of the their investment risk in effect underwritten by Barclays itself,” Sandy Chen, an analyst at Panmure Gordon & Co. in London, wrote in a note to investors.

Chen has a “sell” rating on the stock.

226 Billion Pounds

Barclays Global Investors had 1.04 trillion pounds ($1.5 trillion) of funds under management at the end of 2008, including 226 billion pounds at iShares.

IShares is the biggest manager of exchange-traded funds, or mutual funds that trade on stock exchanges and don’t have a fixed number of shares.

Barclays has fallen 21 percent this year in London trading on concern it may need to raise more capital to cushion further credit losses as the recession deepens. The bank has been hurt by speculation it hasn’t marked down toxic assets to the same extent as its peers.

The stock gained 16 percent to 121.5 pence today.

The U.K. government has offered to insure the distressed assets of banks to spur lending and jumpstart the economy. Banks have until March 31 to enter the program. Barclays may put about 30 billion pounds of assets into the plan, according to a median estimate of five analysts surveyed by Bloomberg.

‘Economic Merits’

Participation in the insurance program will be based on the “economic merits” for shareholders, Barclays said. The bank will only enter the program if it can pay the fees in cash and avoid giving a stake to the government, Willis said.

Barclays’s Tier 1 capital ratio, a measure of financial strength, is 6.7 percent. By comparison, Lloyds said its core Tier 1 capital ratio would rise to 14.5 percent as a result of the asset-protection program, and RBS estimated its ratio would jump to 12.4 percent.

Analysts at Morgan Stanley on March 20 predicted that Barclays could be forced to sell iShares and raise a further 4 billion pounds of capital. The bank faces rising bad debts, as much as 9 billion pounds of structured credit losses and pressure on investment-banking revenue, analysts led by Michael Helsby wrote in a note to investors.

Barclays needs about 8 billion pounds of additional capital, analysts at Credit Suisse Group wrote in a note to investors today.

Management hasn’t ruled out issuing B shares, a form of preferred shares, to the government to take part in the insurance plan, said the analysts led by Jonathan Pierce, who has an “outperform” rating on the stock. Any decision on the asset-protection plan is “weeks away,” they said, citing a meeting with Chief Executive Officer John Varley.

To contact the reporters responsible for this story: Edward Evans at eevans3@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net.

Last Updated: March 23, 2009 14:52 EDT