Royal Bank of Canada is considering investing as much as $1 billion in a hedge fund spun off from its U.S. proprietary-trading business, according to two people with knowledge of the matter.
The new firm will be called Taursa Capital Partners and open by the end of the year, said the people, who asked not to be identified because the plans are private and subject to regulatory approval.
Mark Standish, 53, the former New York-based co-head of RBC Capital Markets, is a principal of the fund, along with Richard Tavoso, who oversees RBC’s global arbitrage and trading business, and Ed McBride, the unit’s head trader, the people said. Standish declined to comment when reached by e-mail, while Tavoso and McBride didn’t respond to messages.
Royal Bank has been reviewing possibilities for its New York-based global arbitrage and trading unit since the U.S. released a final version in December of the Volcker Rule, which restricts banks’ ability to trade with their own money. Royal Bank would invest in the new fund without retaining an ownership stake, the people said.
Kevin Foster, a spokesman for Toronto-based Royal Bank, declined to comment on specific plans, saying “we are actively working to restructure our proprietary-trading business to comply with the Volcker Rule.”
The spinoff would be one of the biggest since Peter Muller, who ran a trading group at Morgan Stanley, left with his team in 2012 to start hedge-fund firm, PDT Partners LLC in New York. Taursa is an amalgam of taurus and ursa, Latin names for bull and bear, as a salute to the fund’s strategy of being able to perform in both rising and falling markets, the people said.
About 1,060 hedge funds were started last year, bringing the total to about 8,225, according to data compiled by Hedge Fund Research Inc. in Chicago.
The performance of proprietary traders who left banks to join the $2.7 trillion hedge-fund industry has been mixed. Portman Square Capital LLP, founded by ex-Citigroup Inc. proprietary-trading unit head Sutesh Sharma, 51, last year opened with about $100 million, less than a fifth of the amount originally sought. CEO Andy Mack resigned earlier this year and the firm is scaling back operations.
Arvind Raghunathan, 50, the former head of Deutsche Bank AG’s global arbitrage business who left with his team in 2009 to start Roc Capital Management LP, shuttered the hedge fund last year after losing money. Pierre-Henri Flamand, 44, the former chief of Goldman Sachs Group Inc.’s biggest proprietary-trading unit, shut his firm in 2011 after losses and dwindling assets.
Flamand’s former colleague at Goldman Sachs, Morgan Sze, 48, who left the bank in 2010 to start Azentus Capital Management Ltd., posted a 16.4 percent gain last year for his Asia-focused fund.
The Volcker Rule, a provision of the 2010 Dodd-Frank Act and named after former Federal Reserve Chairman Paul A. Volcker, limits ownership stakes in hedge funds and private-equity funds to 3 percent.
Royal Bank Chief Executive Officer Gordon Nixon, 57, said in a December interview with the Financial Times that spinning off its proprietary-trading unit into an independent fund was one of the options being considered to comply with the rule.
Royal Bank gets less than 1.5 percent of total revenue from proprietary trading, a “fairly small” amount and not material, Nixon said during a Jan. 14 presentation. The lender had revenue of about C$30.7 billion ($28.3 billion) in the year ended Oct. 31, according to financial statements.
Tavoso was part of an equities derivative team that joined RBC Capital Markets in 1995, according to his biography on Royal Bank’s website. He previously worked at Kidder, Peabody & Co. in its equity derivatives group.
Royal Bank said in December that Standish was leaving in 2014 and in the interim would help the company’s trading businesses comply with the new U.S. regulations. He joined RBC in New York in 1995 as head of proprietary and structured trading and was appointed co-CEO of RBC Capital Markets in 2008.