Ex-RBS Sempra heads to launch physical commodity fund

5:28pm EST
NEW YORK (Reuters) - The former heads of RBS Sempra Commodities will launch a physical energy and metals trading fund backed by Stone Point Capital early next year, the CEO of Stone Point told Reuters on Thursday.

David Messer and Frank Gallipoli, who started the Sempra Commodities trading unit that later established a joint venture with RBS (RBS.L: Quote, Profile, Research, Stock Buzz), will launch the fund in the first quarter of 2011 in Stamford, Connecticut.

The move is the latest evidence of private equity funds stepping in to finance proprietary trading as banks face tougher restrictions on trading for their own book.

Charles Davis, CEO of the $10 billion private equity fund, said the commodities trading fund would be seeded with "hundreds of millions of dollars" and would focus initially on energy and metals trading.

Jason Schenker, president and CEO of Prestige Economics in Austin Texas, said the move showed private equity firms are looking to diversify their investments following two years of relatively lackluster returns.

"If you invest in good people and good trading strategies you can make a lot of money trading commodities. There's still a lot of interest in this space," Schenker said.

"It has been a difficult two years for private equity firms and they're increasingly looking to invest directly into hedge funds and commodity traders to help generate better returns."

Messer and Gallipoli will be joined at the fund by former RBS-Sempra chief operating officer (COO) Rob Feilbogen, Davis said.

All three parted from RBS Sempra last spring. Sparkspread.com, which initially reported the story, said the three would be part funding the new venture.

Davis at Stone Point said the fund would trade physical oil, gas, power and base metals, adding the firm may trade other commodities depending on the eventual make-up of the team they are putting together.

David Messer was not immediately available for comment.

PRIVATE EQUITY

Banks have been changing their trading businesses to comply with the Volcker rule, part of a broader financial reform law that limits the extent to which banks can bet with their own capital.

The change in strategy has seen many physical commodity traders leave banks to join traditional energy and metal trading houses or set up their own funds.

In September, a senior Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) commodity executive and a team of traders left the bank to set up a hedge fund backed by the private-equity Blackstone Group.

RBS established the joint venture with Sempra Commodities in 2008 but was forced to slim down to appease European Union antitrust concerns just over one year later after it received billions of dollars in state aid during the financial crisis.

Most of the joint venture was sold to JPMorgan (JPM.N: Quote, Profile, Research, Stock Buzz) this year for around $1.8 billion. The exception was the retail commodity marketing operations that were sold to Noble Group Ltd (NOBG.SI: Quote, Profile, Research, Stock Buzz) in September for $317 million.

JPMorgan cut up to 50 people from its enlarged commodities trading business in July following the takeover.

The head of RBS Sempra's proprietary metals trading business left the firm with his team in September.