* Citadel insiders say stronger operator was wanted
* Management change overshadows redemption resumption
* Kensington, Wellington funds up 57 percent year-to-date
* Citadel says open to large portfolio transactions
* Firm unlikely to again make investment like E*Trade
(Recasts to lead with D'Souza departure; adds detail on
investment bank and investor letter)
By Joseph A. Giannone
NEW YORK, Oct 29 A year after he was hired to
build a top-tier investment bank, Citadel Securities chief
Rohit D'Souza abruptly left the hedge fund firm on Thursday.
Citadel confirmed the departure but declined to say why
D'Souza was leaving. Patrik Edsparr, president of Citadel
Europe and a former JPMorgan Chase & Co (JPM.N) executive, will
take over the securities unit, a spokeswoman said.
Insiders at Citadel said D'Souza, formerly head of equity
sales and trading at Merrill Lynch, did a good job building up
the business, unique in the hedge fund world, and hiring 70
bankers and traders. Yet the firm wanted a strong operator to
run the business going forward, these insiders said.
The departure came just hours after Bloomberg News
published a lengthy profile of D'Souza. It detailed how he was
approached by Citadel Chief Executive Kenneth Griffin in May
2008 and the firm's plans to build a banking and brokerage
business rivaling Goldman Sachs (GS.N) and Morgan Stanley
The story cited unidentified former colleagues who deemed
D'Souza as "methodical" and not one for making snap decisions,
possibly leading to friction with an impatient Griffin.
The management changes overshadowed news that Citadel,
which last year banned redemptions from its hard-hit flagship
hedge funds, was lifting those restrictions next month as fund
performance rebounds, according to a letter from Griffin to
investors dated Thursday.
GATES ARE OPENED
As financial markets crumbled last year, Citadel's flagship
Wellington and Kensington funds plunged 55 percent -- a bigger
drop than the average hedge fund and worse than the broader
stock market. Cash-strapped investors responded with a wave of
Yet a 57 percent surge in performance this year, back to
about $14 billion, has prompted the Chicago firm to remove the
bans and let clients withdraw their money as of Nov. 30,
according to a copy of the letter obtained by Reuters.
Hedge funds on average are up 17 percent through September,
according to Hedge Fund Research.
Reuters first reported in September that Citadel was
preparing to unlock the funds' gates. Wellington is the onshore
version, and Kensington an offshore version of the same fund.
In series of questions and answers accompanying his monthly
letter, Griffin also disclosed that Citadel responded to last
year's losses by shedding hard-to trade assets and boosting
Citadel's CEO also said the out-sized investment in online
broker E*Trade Financial Corp (ETFC.O), while "quite
profitable", was a highly concentrated bet he is not likely to
"We are much more focused on investing in readily
marketable securities and on maintaining less concentrated
positions within Wellington and Kensington," Griffin wrote.
But he did leave himself open to portfolio transactions on
par with Citadel's purchases of assets from Amaranth and
"We see ourselves as a liquidity provider to markets, and
able to handle complicated and time-sensitive transactions," he
In steps to make Kensington and Wellington more nimble in
the event of another market collapse like the end of 2008,
Griffin said hard-to-trade "Level 3" assets were now less than
3 percent of the portfolio.
(Reporting by Joseph A. Giannone; Editing by Tim Dobbyn)