Citigroup Inc. (C), the third-biggest U.S. bank, shut a $400 million hedge fund that used the firm’s money and mathematical models to bet on stocks, according to a person familiar with the matter.
The company closed the Quantitative Strategies fund after announcing in April that Shakil Ahmed, the fund manager, would become head of electronic market-making for New York-based Citigroup, according to the person, who declined to be identified because the matter is private. The fund had no outside investors, the person said. Ahmed is also the bank’s co- head of electronic trading.
Regulators are preparing to implement the Volcker Rule, which bars lenders such as Citigroup from making bets with their own capital, known as proprietary trading. The Citi Capital Advisors unit still runs other hedge funds that contain the bank’s capital as well as managing assets for external clients, a business unaffected by the rule.
“All of the businesses that are not pure asset-management businesses will be shuttered,” Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York, said in a telephone interview. “These pure prop-trading operations, the ones that are not customer-focused at all and are using bank capital, will slowly move to other venues.”
The bank didn’t disclose the performance of Ahmed’s fund, which used so-called quants, or mathematical models, to wager on “exploitable market anomalies and inefficiencies,” according to Citigroup’s website. The $1.28 billion Highbridge Statistical Market Neutral Fund, a quant fund run by New York-based JPMorgan Chase & Co. (JPM) that also invests in stocks, has gained about 1.8 percent this year.
“Citi Capital Advisors is a highly valued part of our core franchise,” Danielle Romero-Apsilos, a Citigroup spokeswoman, said in an e-mailed statement. “Our platform continues to grow with substantial investor interest, including over $1.7 billion of new investor commitments in 2010 and 2011 year-to-date.”
Ahmed was raised in Vienna and received a doctorate in computer science from Yale University, according to his profile on Citigroup’s website. He joined the bank in 2008 from Process Driven Technologies, the largest prop-trading operation at New York-based Morgan Stanley (MS), according to the profile.
Morgan Stanley said in January that it would turn PDT into an independent firm by the end of 2012, while retaining an option to buy a preferred stake in the business.
“He’s a very, very talented market-maker who knows automated trading and electronic trading, and they want that talent to be applied to their equity market-making business,” Hintz said of Ahmed. “It’s tough to keep people motivated if they realize they can’t keep working at your company.”
Citigroup shares fell 27 cents, or 0.7 percent, to $39.38 at 9:52 a.m. in New York Stock Exchange composite trading. The shares have declined 13 percent so far this year.
To contact the reporters on this story: Donal Griffin in New York at Dgriffin10@bloomberg.net;
To contact the editor responsible for this story: David Scheer at firstname.lastname@example.org.