Barclays Said to Plan Spinoff of Arbitrage Team as Hedge Fund in January

Barclays Plc (BARC) will spin off its capital arbitrage team, led by Philip Rosenstrach, as a hedge fund on Jan. 1, with the London-based bank and other investors providing about $150 million in funding, according to two people familiar with the matter.

The fund will be called Pomelo Capital and be based in New York, said the people, who asked not to be identified because the information is private. Rosenstrach, 40, and his five team members will run the relative value credit and equity strategy, which will trade fixed-income derivatives and try to profit from price inefficiencies. The fund seeks to raise about $500 million by the end of next year, the people said.

The move is prompted by the Volcker rule, the people said, a provision of last year’s Dodd-Frank law that would ban deposit-taking banks from engaging in proprietary trading. Barclays is Britain’s second-largest bank, with 390 billion pounds ($605.5 billion) in risk-weighted assets.

Rosenstrach, a Barclays director, was formerly a portfolio manager at Talek Investments LLC, a Greenwich, Connecticut-based hedge fund. He has run the capital structure arbitrage portfolio at Barclays in New York for five years, posting positive returns every year, including a 20 percent gain in 2008. The portfolio climbed 7 percent this year, the people said.

Mark Lane, a spokesman for Barclays, declined to comment on the spin off.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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