* 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 (MS.N).
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 redemption requests.
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 liquidity.
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 ever repeat.
"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 Sowood.
"We see ourselves as a liquidity provider to markets, and able to handle complicated and time-sensitive transactions," he said.
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)